Rule2022-18898
Interpretive Bulletin Relating to the Independence of Employee Benefit Plan Accountants
Primary source
Metadata and text below are from the Federal Register, a public-domain U.S. government work. Always verify the official published version before relying on it for any legal matter.
Published
September 6, 2022
Effective
September 6, 2022
Issuing agencies
Labor DepartmentEmployee Benefits Security Administration
Abstract
This document contains an Interpretive Bulletin (IB) setting forth guidelines for determining when a qualified public accountant is independent for purposes of auditing and rendering an opinion on the financial statements required to be included in the annual report filed with the Department of Labor (Department) under the Employee Retirement Income Security Act of 1974, as amended (ERISA). Under ERISA, a plan administrator is generally required to retain, on behalf of all plan participants, an "independent qualified public accountant" to conduct an annual examination of the plan's financial statements and to render an opinion as to whether the financial statements are presented fairly in conformity with generally accepted accounting principles (GAAP) and whether the schedules required to be included in the plan's annual report present fairly, and in all material respects the information contained therein when considered in conjunction with the financial statements taken as a whole. The purpose of this document is to revise and restate an IB the Department issued in 1975 on accountant independence in order to remove certain outdated and unnecessarily restrictive provisions and reorganize its provisions for clarity while continuing to ensure that the Department's interpretations foster proper auditor independence and access of employee benefit plan to highly qualified auditors and audit firms.
Full Text
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<title>Federal Register, Volume 87 Issue 171 (Tuesday, September 6, 2022)</title>
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[Federal Register Volume 87, Number 171 (Tuesday, September 6, 2022)]
[Rules and Regulations]
[Pages 54368-54373]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2022-18898]
[[Page 54368]]
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DEPARTMENT OF LABOR
Employee Benefits Security Administration
29 CFR Part 2509
RIN 1210-AC15
Interpretive Bulletin Relating to the Independence of Employee
Benefit Plan Accountants
AGENCY: Employee Benefits Security Administration, Department of Labor.
ACTION: Final rule.
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SUMMARY: This document contains an Interpretive Bulletin (IB) setting
forth guidelines for determining when a qualified public accountant is
independent for purposes of auditing and rendering an opinion on the
financial statements required to be included in the annual report filed
with the Department of Labor (Department) under the Employee Retirement
Income Security Act of 1974, as amended (ERISA). Under ERISA, a plan
administrator is generally required to retain, on behalf of all plan
participants, an ``independent qualified public accountant'' to conduct
an annual examination of the plan's financial statements and to render
an opinion as to whether the financial statements are presented fairly
in conformity with generally accepted accounting principles (GAAP) and
whether the schedules required to be included in the plan's annual
report present fairly, and in all material respects the information
contained therein when considered in conjunction with the financial
statements taken as a whole. The purpose of this document is to revise
and restate an IB the Department issued in 1975 on accountant
independence in order to remove certain outdated and unnecessarily
restrictive provisions and reorganize its provisions for clarity while
continuing to ensure that the Department's interpretations foster
proper auditor independence and access of employee benefit plan to
highly qualified auditors and audit firms.
DATES: Effective on September 6, 2022.
FOR FURTHER INFORMATION CONTACT: Suzanne Adelman, Office of Regulations
and Interpretations, Employee Benefits Security Administration (EBSA),
(202) 693-8500. This is not a toll-free number.
Customer Service Information: Individuals interested in obtaining
information from the Department of Labor concerning ERISA and employee
benefit plans may call the EBSA Toll-Free Hotline, at 1-866-444-EBSA
(3272) or visit the Department of Labor's website (<a href="http://www.dol.gov/ebsa">www.dol.gov/ebsa</a>).
SUPPLEMENTARY INFORMATION:
Background
The Employee Retirement Income Security Act of 1974, as amended
(ERISA), contains provisions designed to protect the interests of plan
participants and beneficiaries by requiring the establishment of
effective mechanisms to detect and deter abusive practices. This
includes requiring annual reporting of financial information and
activities of employee benefit plans to the Department of Labor
(Department). Sections 101, 103 and 104 of ERISA impose annual
reporting and filing obligations on pension and welfare benefit plans.
Plan administrators, employers, and others generally satisfy these
annual reporting obligations pursuant to the Department's implementing
regulations by filing a Form 5500 (Annual Return/Report of Employee
Benefit Plan) together with any required schedules and attachments. An
integral component of ERISA's annual reporting provisions is the
requirement that employee benefit plans, unless otherwise exempt, be
subjected to an annual audit performed by an independent qualified
public accountant (IQPA), and that the accountant's report be included
as part of the plan's Form 5500 annual report filed with the
Department.\1\ The IQPA requirements in ERISA were intended to protect
the assets and the financial integrity of employee benefit plans, and
provide participants, beneficiaries, plan administrators, other plan
fiduciaries, and the Department with reliable information about an
employee benefit plan and its financial soundness.
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\1\ Certain employee benefit plans are eligible for waivers or
limited exemptions from the IQPA audit requirements under
regulations issued by the Department. For example, 29 CFR 2520.104-
44 provides a limited exemption for welfare plans which are either
unfunded, insured or partly unfunded-partly insured, and 29 CFR
2520.104-46 provides a conditional waiver of the examination and
report of an IQPA for employee benefit plans with fewer than 100
participants.
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Section 103(a)(3)(A) of ERISA, codified at 29 U.S.C. 1023(a)(3)(A),
sets forth the requirements governing the IQPA's annual audit. The
administrator of an employee benefit plan is required to engage, on
behalf of all plan participants, an IQPA to conduct an examination of
the plan's financial statements, and other books and records of the
plan, as the accountant deems necessary to form an opinion on whether
the financial statements required to be included in the plan's annual
report are presented fairly in accordance with generally accepted
accounting principles (GAAP) applied on a basis consistent with that of
the preceding year and whether the schedules required to be included in
the plan's annual report present fairly, and in all material respects
the information contained therein when considered in conjunction with
the financial statements taken as a whole. Section 103(a)(3)(A) of
ERISA further requires that the accountant's examination must be
conducted ``in accordance with generally accepted auditing standards
[(GAAS)], and shall involve such tests of the books and records of the
plan as are considered necessary by the independent qualified public
accountant.'' \2\ The accountant's report must contain certain opinions
with respect to the financial statements and schedules covered by the
report and the accounting principles and practices reflected in such
report. Further, the accountant's report must identify any matters to
which the accountant takes exception, whether the matters to which the
accountant takes exception are the result of the Department's
regulations and, to the extent practicable, the effect on the financial
statements of the matters to which the accountant has taken exception.
If the auditor's independence is considered to have been impaired after
the audit is completed, a new audit by another accountant may be
required.\3\
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\2\ Under ERISA, the Department plays no role in setting GAAP
and GAAS standards. Such standards are set by institutions closely
related to the accounting industry--the Financial Accounting
Standards Board (FASB) and the American Institute of Certified
Public Accountants (AICPA). The Public Company Accounting Oversight
Board (PCAOB) is responsible for setting auditing standards for
audits of public companies. In July 2019, the AICPA Auditing
Standards Board (ASB) issued Statement on Auditing Standards (SAS)
No. 136, Forming an Opinion and Reporting on Financial Statements of
Employee Benefit Plans Subject to ERISA. Codified in new AU-C
section 703 of the AICPA Professional Standards, the standard
addresses the auditor's responsibility to form an opinion and report
on the audit of financial statements of employee benefit plans
subject to ERISA, and the form and content of the auditor's report
issued as a result of an audit of ERISA plan financial statements.
SAS No. 141 deferred the effective date of SAS No. 136 to audits of
ERISA plan financial statements for periods ending on or after
December 15, 2021, with early implementation permitted. Information
on the Auditing Standards Board and AU-C Section 703 is available on
the AICPA website at <a href="https://us.aicpa.org">https://us.aicpa.org</a>.
\3\ If a plan does not comply with ERISA's annual reporting
requirements, including failing to satisfy the requirements relating
to an audit report and opinion of an IQPA, the Department may reject
the plan's annual report. If a satisfactorily revised report is not
submitted, the Department may, under section 104(a)(5) of ERISA,
retain an independent qualified public accountant on behalf of the
participants to perform a sufficient audit, bring a civil suit for
legal or equitable relief that may be appropriate, or take any other
enforcement action authorized under Title I.
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Section 103(a)(3)(D) of ERISA, codified at 29 U.S.C. 1023(a)(3)(D),
[[Page 54369]]
states that the term ``qualified public accountant'' means--(i) a
person who is a certified public accountant, certified by a regulatory
authority of a State; (ii) a person who is a licensed public
accountant, licensed by a regulatory authority of a State; or (iii) a
person certified by the Secretary as a qualified public accountant in
accordance with regulations published by the Secretary for a person who
practices in States where there is no certification or licensing
procedure for accountants. Although section 103 of ERISA does not
include a definition of the term ``independent'' for purposes of the
audit requirement, in the Department's view, an accountant's
independence is at least of equal importance to the professional
competence an accountant brings to an engagement in rendering an
opinion and issuing a report on the financial statements of an employee
benefit plan and the schedules required to be included in the plan's
annual report. Thus, pursuant to the Department's authority to
interpret and enforce section 103(a)(3)(A) of ERISA, the Department
issued Interpretive Bulletin 75-9 in 1975 to provide guidelines for
determining when an accountant is independent for purposes of ERISA's
annual reporting requirements.\4\
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\4\ Codified at 29 CFR 2509.75-9. See 40 FR 53998 (Nov. 20,
1975), as amended at 40 FR 59728 (Dec. 30, 1975), and redesignated
as IB 75-9 at 41 FR 1906 (Jan. 13, 1976).
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No explanatory preamble accompanied the 1975 IB when it was
published,\5\ but its structure and provisions were largely predicated
on specific principles that generally parallel the Securities and
Exchange Commission's (SEC) independence requirements for auditing
publicly traded companies. Specifically, the auditor (1) cannot
function in the role of management, (2) cannot audit his or her own
work, (3) cannot serve in roles or have relationships that create
mutual or conflicting financial interests, and (4) cannot be in a
position of being an advocate for the audit client.\6\ The 1975 IB
reflected these principles by setting forth three specific sets of
circumstances that would conclusively render the accountant to not be
independent--the first is based on certain roles and statuses, the
second is based on financial interests, and the third is based on
engaging in management functions related to financial records that
would be the subject of the audit--and by setting forth a general facts
and circumstances approach that would govern in all other cases.
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\5\ Id.
\6\ The SEC's requirements for auditor independence are
described in the preamble to the final rule on the Revision of the
Commission's Auditor Independence Requirements, 65 FR 76008 (Dec. 5,
2000).
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The Department has periodically been asked to clarify and update
its guidelines on the independence of accountants to adjust to changes
in the accounting industry and to address differences that have
developed as other regulatory authorities have adopted changes to their
auditor independence requirements. Accountants and accounting firms
have pointed to the challenges of monitoring compliance with different
independence standards that apply to different business sectors for
which they provide audit services. They have also noted that the nature
and complexity of the business environment in which accountants perform
services has changed in ways that have led many accounting firms to
develop expertise in an array of activities in addition to audit
services that may be provided to audit clients. For example,
accountants may engage in business consulting, valuation and appraisal
services, applications programming, electronic data processing, and
recordkeeping.
In the years following the 1975 IB, other regulatory authorities
have addressed and revisited issues relating to accountant
independence. For example, on January 28, 2003, the SEC adopted final
rules regarding independence for auditors that file financial
statements with the SEC implementing Title II of the Sarbanes-Oxley Act
of 2002.\7\ The SEC further amended its auditor independence rules in
2019 and 2020.\8\ The Sarbanes-Oxley Act also authorized the
establishment of the Public Company Accounting Oversight Board (PCAOB),
which requires that a registered public accounting firm and its
associated persons be independent of the firm's audit client throughout
the audit and professional engagement period.\9\ The United States
Government Accountability Office (GAO) has similarly published auditor
independence requirements under Government Auditing Standards that
cover federal entities and organizations receiving federal funds. See
GAO, The Yellow Book, <a href="http://www.gao.gov/yellowbook/overview">www.gao.gov/yellowbook/overview</a>. The AICPA,
although a private membership organization, sets GAAS requirements for
non-PCAOB audits, which, ERISA 103(a)(3)(A) expressly adopted for plan
audits, and GAAS includes standards by which the auditor must abide to
avoid impairment of independence. See AICPA, <a href="http://www.aicpa.org">www.aicpa.org</a>. Many states
have also included an independence component in their requirements for
licensed public accountants. Some have specifically adopted the AICPA's
Code of Professional Conduct, including its independence guidelines,
while others have adopted state-specific rules.
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\7\ 68 FR 6005 (Feb. 5, 2003), as corrected by 68 FR 15354 (Mar.
31, 2003).
\8\ See Auditor Independence with Respect to Certain Loans or
Debtor-Creditor Relationships, 84 FR 32040 (July 5, 2019);
Qualifications of Accountants, Release No. 33-10876 (Oct. 16, 2020),
<a href="http://www.sec.gov/rules/final/2020/33-10876.pdf">www.sec.gov/rules/final/2020/33-10876.pdf</a>. (published in the Federal
Register at 85 FR 80508 (Dec. 11, 2020)).
\9\ See <a href="https://pcaobus.org/oversight/standards/ethics-independence-rules">https://pcaobus.org/oversight/standards/ethics-independence-rules</a>.
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In 2006, the Department issued a Request for Information (RFI) on
Independence of Employee Benefit Plan Accountants which sought
information from the public to assist the Department in evaluating
whether the guidelines in the 1975 IB provided adequate guidance for
plan officials, participants and beneficiaries, accountants, and other
affected parties.\10\ The Department solicited public input on a broad
range of issues, including fifteen separate questions on particular
areas. After reviewing the public comments submitted in response to the
RFI, the Department did not undertake a rulemaking project on
accountant independence or otherwise change the Department's
interpretive stance on accountant independence generally. The
Department also concluded that suggestions from some commenters that
the Department simply adopt the SEC's current rules or guidelines on
accountant independence or the ethics-based independence guidelines of
the AICPA would have required a significant departure from the
Department's largely facts and circumstances approach, to a more
detailed and prescriptive approach to independence determinations.\11\
The Department also concluded that it was not necessary to formally
incorporate all or part of the AICPA independence guidelines into an
updated IB. Compliance with the AICPA independence guidelines is
already part of the GAAS audit requirement incorporated into statute by
ERISA section 103(a)(3)(A) and also part of the
[[Page 54370]]
Department's general relevant facts and circumstances approach to the
accountant independence requirement. Further, the Department was
concerned that expressly adopting either the AICPA or another
regulator's requirements as the ERISA standard could result in
unintended and undesirable outcomes to the extent that aspects of those
other standards or future changes to those standards departed from
ERISA policies and purposes.
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\10\ 71 FR 53348 (Sept. 11, 2006).
\11\ For example, the AICPA publishes ``The Plain English Guide
to Independence'' that cites a wide range of ``further assistance''
documents, including the AICPA Code of Professional Conduct;
Background and Basis for Conclusions: Revisions to Interpretations
and Rulings Under Rule 101--Independence; a Conceptual Framework for
Independence and a related Toolkit; and the 2011 Yellow Book
Independence--Nonaudit Services Documentation Practice Aid. The
Guide including links to the ``further assistance'' documents are
available at <a href="https://us.aicpa.org/interestareas/professionalethics/resources.html">https://us.aicpa.org/interestareas/professionalethics/resources.html</a>.
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Although not directly related to the accountant independence
requirement, the Employee Benefit Security Administration (EBSA) Office
of the Chief Accountant (OCA) actively engages in an ongoing assessment
of the level and quality of audit work performed by IQPAs with respect
to financial statement audits of employee benefit plans covered by
ERISA.\12\ This assessment began as a follow-up to a 1989 report issued
by the Office of Inspector General (OIG) in which the OIG concluded
that 23% of employee benefit plan audits failed to comply with one or
more established professional standards. In addition, the OIG found
that 65% of IQPA reports on employee benefit plans did not meet the
reporting and disclosure requirements of ERISA and the regulations
thereunder. The primary objective of EBSA's ongoing review has been to
assess whether the level and quality of audit work performed by IQPAs
with respect to audits of employee benefit plans covered by ERISA had
improved as a result of actions taken by the Department and the
accounting and auditing profession since the issuance of the OIG's 1989
report.
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\12\ OCA enforces the annual reporting and audit requirements
applicable to ERISA-covered employee benefit plans through the
imposition of civil penalties against a plan administrator whose
annual report is rejected, as provided in Part 1, Sections 103 and
104, and Part 5, Section 502, of Title I of ERISA. OCA also operates
under the broad authority to conduct investigations and to inspect
records, under Part 5, Section 504 of Title I of ERISA.
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EBSA also implemented an Audit Quality Inspection Program in 2005
that significantly expanded OCA's inspection of IQPAs' work as compared
to OCA's former on-site audit work paper reviews and ``mini''
inspections. The expanded program has two main components: (1)
inspections of IQPAs' employee benefit plan audit practices and (2)
reviews of a sample of the IQPAs' employee benefit plan audit work
papers. EBSA has published two reports on the results of its
assessments and recommendations for improvements, one in 2004 and
another in 2015. Work on a third report is underway. One important
report finding is that there is a clear link between the number of
employee benefit plan audits performed by a certified public accountant
(CPA) and the quality of the audit work performed. As set out in the
May 2015 Report, the Department's analysis of the data from this audit
quality survey indicated a wide disparity in deficiency rates between
those CPAs who perform the fewest plan audits and those firms that
perform the largest number of plan audits. CPAs who performed the
fewest number of employee benefit plan audits annually had a 76%
deficiency rate for the audits, meaning that the audit contained
deficiencies with respect to one or more relevant GAAS requirements. In
contrast, accountants in firms performing the most plan audits had a
deficiency rate of 12% for the audits.\13\ As noted above, the
Department did not open a rulemaking project after its 2006 RFI, but it
has continued to engage with accounting industry stakeholders,
including efforts to encourage plan fiduciaries to engage auditors who
perform high-quality employee benefit plan audits.\14\ That engagement
more recently has focused on whether the Department can adjust the 1975
IB to remove outdated or unnecessarily restrictive provisions with the
goal of fostering greater plan access to high-quality auditors for
ERISA plans and better aligning the Department's independence
guidelines with those of other accounting regulatory bodies. Based on
that continuing engagement, the Department is persuaded that certain
changes to the 1975 IB independence guidelines can be implemented that
would be consistent with the goal of expanding employee benefit plan
access to the most qualified accountants and accounting firms while
ensuring that the guidelines continue to foster proper auditor
independence. In addition to making the adjustments described in more
detail below, the Department has reorganized the interpretive bulletin
for clarity.
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\13\ Report of the U.S. Department of Labor, Employee Benefits
Security Administration, Office of the Chief Accountant, Assessing
the Quality of Employee Benefit Plan Audits (May 2015) (<a href="http://www.dol.gov/agencies/ebsa/key-topics/reporting-and-filing/audit-quality">www.dol.gov/agencies/ebsa/key-topics/reporting-and-filing/audit-quality</a>).
\14\ In September 2018, the Department published a guidebook on
selecting an auditor, reviewing the audit work and auditor's report,
and maximizing the value of the audit process. The guidebook is
entitled Selecting an Auditor for Your Employee Benefit Plan, and it
is available at <a href="http://www.dol.gov/sites/dolgov/files/ebsa/about-ebsa/our-activities/resource-center/publications/selecting-an-auditor-for-your-employee-benefit-plan.pdf">www.dol.gov/sites/dolgov/files/ebsa/about-ebsa/our-activities/resource-center/publications/selecting-an-auditor-for-your-employee-benefit-plan.pdf</a>. A copy can also be ordered by
calling 1-866-444-3272. The publication is part of the Department's
efforts to educate employee benefit plan fiduciaries that selecting
an auditor is a fiduciary responsibility and that a well performed
audit is a vital protection for the plan.
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1. Time Period During Which Accountants Are Prohibited From Holding
Financial Interests in the Plan or Plan Sponsor
The 1975 IB set out the Department's view that an accountant cannot
conduct the ERISA-required audit of a plan's financial statements if
the accountant, the accountant's firm, or a ``member'' of the firm has
a ``direct financial interest or material indirect financial interest''
in the plan or plan sponsor ``during the period covered by the
financial statements'' or ``[d]uring the period of professional
engagement.'' For example, assume a calendar-year publicly traded
sponsor of an employee benefit plan decides to change its accountant in
March 2021 to perform the audit of the benefit plan's calendar year
2020 Form 5500 financial statements, which must be filed with the
Department for calendar year plans no later than the maximum extended
due date of October 15, 2021. Under the 1975 IB, the new accountant
would be ineligible to audit the benefit plan's financial statements if
even one partner of the firm held a single share of the publicly traded
stock of the sponsor at any time during 2020, the year under audit. The
AICPA, in the context of our ongoing engagement on independence issues
and in a letter to EBSA dated March 15, 2019, advised that the
requirement that the accountant not have such an interest ``during the
period covered by the financial statements'' departs from the rules of
other accounting regulatory bodies because it prevents auditors from
avoiding disqualification by disposing of the financial interest prior
to the period of the professional engagement (i.e., before signing the
initial audit engagement letter or commencing audit procedures).\15\
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\15\ AICPA Letter to Joe Canary, Director, Office of Regulations
and Interpretations, Employee Benefits Security Administration, from
James W. Brackens, Jr., CPA, CGMA, Vice President--Ethics & Practice
Quality, dated March 15, 2019.
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The Department is persuaded that the absence of a divestiture
provision for certain financial interests in the 1975 IB makes it
unnecessarily restrictive and may serve to unduly limit ERISA plans'
access to the best qualified auditors. In the Department's view,
requiring that an accountant (or a member of the accountant's firm) not
have such a financial interest in the publicly traded securities of the
plan sponsor during the period covered by the financial statements (in
contrast to the period of the engagement) is not necessary to ensure an
accountant's independence.
[[Page 54371]]
By disposing of such publicly traded securities prior to the
engagement, firms and accountants can readily eliminate concern about
independence and give plans access to their audit services.
Therefore, subject to a limitation described below, the Department
is revising its independence guidelines to provide an exception for new
audit engagements from the otherwise applicable condition on holding
disqualifying financial interests during the period covered by the
financial statements being audited. Under this approach, an accountant
or firm is not disqualified from accepting a new audit engagement
merely because of holding publicly traded securities of a plan sponsor
during the period covered by the financial statements as long as the
accountant, accounting firm, partners, shareholder employees, and
professional employees of the accountant's accounting firm, and their
immediate family, have disposed of any holdings of such publicly traded
securities prior to the period of professional engagement. The updated
IB also includes a definition of the ``period of professional
engagement'' that provides the term means the period beginning when an
accountant either signs an initial engagement letter or other agreement
to perform the audit or begins to perform any audit, review or attest
procedures (including planning the audit of the plan's financial
statements), whichever is earlier, and ending with the formal
notification, either by the member or client, of the termination of the
professional relationship or the issuance of the audit report for which
the accountant was engaged, whichever is later. This exception provides
accountants with a divestiture window between the time when there is an
oral agreement or understanding that a new client has selected them to
perform the plan audit and the time an initial engagement letter or
other written agreement is signed or audit procedures commence,
whichever is sooner.\16\
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\16\ Compare with the SEC rule on ``Qualifications of
accountants'' at 17 CFR 210.2-01, including paragraphs
(c)(1)(iii)(B) (financial relationships exception for new audit
engagements) and (f)(13) (defining ``immediate family'' as meaning a
person's spouse, spousal equivalent, and dependents).
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The new audit engagement exception is limited to publicly traded
securities. For purposes of the exception, publicly traded securities
are securities listed on a registered stock exchange in which
quotations are published on a daily basis, securities regularly traded
in a national or regional over-the-counter market for which published
quotations are available, or securities traded on a foreign national
securities exchange that is officially recognized, sanctioned, or
supervised by a governmental authority and where the security is deemed
by the SEC as having a ready market under applicable SEC rules. The
ERISA auditor independence rules often apply to private and closely
held organizations that sponsor plans. In the Department's view,
incentives for an auditor to apply less robust audit procedures or to
be less transparent in reporting audit results could carry over from
other financial interests in the sponsor held during the period covered
by the financial statements being audited. Accordingly, in order to
maintain the important protections and public confidence that auditor
independence provides, the updated IB continues to provide that other
financial interests in the plan sponsor during the period covered by
the financial statements categorically impair the accountant's
independence even if divested before commencing a new audit engagement.
Furthermore, the Department is of the view that it is appropriate
that an accountant's relative's ownership interest in a plan sponsor be
attributed to the accountant in appropriate circumstances in order to
preserve the accountant's and the firm's independence.\17\ Although not
expressly incorporated into the other examples in the 1975 IB, the
Department has and will continue generally to treat the attribution
rules in the AICPA independence standard as a relevant fact and
circumstance, and, accordingly, has and will continue to consider
spouse and dependent ownership and roles in our enforcement of the
ERISA section 103(a)(3)(A) requirements governing IQPA audits.
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\17\ Attribution provisions are also part of the SEC and PCAOB
independence requirements. See 17 CFR 210.2-01(c)(1)(i) (investments
in audit clients) and ET Section 101.02, Interpretation 101-1B at
<a href="https://pcaobus.org/Standards/EI/Pages/ET101.aspx">https://pcaobus.org/Standards/EI/Pages/ET101.aspx</a>.
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The updated IB continues the current guideline under which an
independent, qualified public accountant may permissibly engage in or
have members of the accountant's accounting firm engage in certain
professional services to the plan or plan sponsor that are not
connected to an audit or review of a plan's financial statements
without being deemed to have failed the independence requirement.
Specifically, the updated IB continues the provisions in the current
guidelines under which an accountant will not be treated as failing the
independence requirement solely by reason of rendering actuarial
services by an actuary associated with the accountant or the
accountant's firm, or retention or engagement of the accountant or the
accountant's firm on a professional basis by the plan sponsor, provided
that the specific examples of prohibitions on recognition of
independence in the updated IB are not violated. As with the 1975 IB,
the updated IB provides as a general principle that in determining
whether an accountant or accounting firm is not, in fact, independent
with respect to a particular plan, the Department will give appropriate
consideration to all relevant circumstances, including evidence bearing
on all relationships between the accountant or accounting firm and that
of the plan sponsor or any affiliate thereof. The IB also continues the
caution from the 1975 IB that multiple services arrangements may
involve prohibited transactions under ERISA, and notes the requirements
to comply with conditions in prohibited transaction exemptions, such as
the prohibited transaction exemption in ERISA section 408(b)(2) for
ERISA section 406(a)(1)(C) service provider transactions.\18\
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\18\ The 1975 IB includes the following sentences: ``It should
be noted that the rendering of services to a plan by an actuary and
accountant employed by the same firm may constitute a prohibited
transaction under section 406(a)(1)(C) of the Act. The rendering of
such multiple services to a plan by a firm will be the subject of a
later interpretive bulletin that will be issued by the Department of
Labor.'' Section 406(a)(1)(C) sets forth a prohibited transaction
restriction arising from the furnishing of goods, services, or
facilities between a plan and a party in interest. Subsequent to the
issuance of the 1975 IB, regulations and guidance on prohibited
transactions in general (e.g., 29 CFR 2550.408b-2) were issued,
rendering the reference to a ``later interpretive bulletin''
obsolete and unnecessary.
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2. Definition of ``Office'' for Purpose of Determining Who Is a
``Member'' of the Firm
The 1975 IB defines ``member'' as ``all partners or shareholder
employees in the firm and all professional employees participating in
the audit or located in an office of the firm participating in a
significant portion of the audit.'' In the years since the 1975 IB was
published, the concept of an ``office'' for workplace purposes has
changed to focus more on workgroups than on physical locations. The
Department is persuaded that its definition of ``member'' would be
improved by including a definition of ``office'' for purposes of
determining when an individual is ``located in an office'' of the firm
participating in a significant portion of the audit. In the
Department's view, substance should govern the office classification,
and the expected regular personnel interactions and assigned reporting
channels of an individual may well be more important than an
individual's physical location.
[[Page 54372]]
Accordingly, the updated IB defines the term ``office'' to mean a
reasonably distinct subgroup within a firm, whether constituted by
formal organization or informal practice, in which personnel who make
up the subgroup generally serve the same group of clients or work on
the same categories of matters regardless of the physical location of
the individual. This definition of the term ``office'' is modeled on
the definition used in the AICPA independence standard. See AICPA Code
of Professional Conduct, 0.400.36 (Effective December 15, 2014, and
updated for official releases through August 31, 2016) (available at
<a href="http://www.aicpa.org">www.aicpa.org</a>). See also SEC rules on independence of accountants at 17
CFR 210.2-01(f)(15) (definition of ``office'').
List of Subjects in 29 CFR Part 2509
Employee benefit plans, Employee Retirement Income Security Act,
Fiduciaries, Pensions, Reporting and recordkeeping requirements.
For the reasons set forth in the preamble, the Department is
amending part 2509 of title 29 of the Code of Federal Regulations as
follows:
Subchapter A--General
PART 2509--INTERPRETIVE BULLETINS RELATING TO THE EMPLOYEE
RETIREMENT INCOME SECURITY ACT OF 1974
0
1. The authority citation for part 2509 continues to read as follows:
Authority: 29 U.S.C. 1135. Secretary of Labor's Order 1-2003,
68 FR 5374 (Feb. 3, 2003). Sections 2509.75-10 and 2509.75-2 issued
under 29 U.S.C. 1052, 1053, 1054. Sec. 2509.75-5 also issued under
29 U.S.C. 1002. Sec. 2509.95-1 also issued under sec. 625, Pub. L.
109-280, 120 Stat. 780.
Sec. 2509.75-9 [Removed]
0
2. Remove Sec. 2509.75-9.
0
3. Add Sec. 2509.2022-01 to read as follows:
Sec. 2509.2022-01 Interpretive bulletin relating to guidance on
independence of accountant retained by employee benefit plan.
This section provides guidance for determining when a qualified
public accountant is independent for purposes of auditing and rendering
an opinion on the financial information required to be included in the
annual report (Form 5500 Annual Return/Report of Employee Benefit Plan)
filed with the Department of Labor (Department).
(a) In general. Section 103(a)(3)(A) of the Employee Retirement
Income Security Act of 1974 (ERISA) and 29 CFR 2520.103-1(b)(5) of the
Department's implementing regulations require that the accountant
retained by an employee benefit plan be ``independent'' for purposes of
examining plan financial information and rendering an opinion on the
financial statements and schedules required to be contained in the
annual report. Under section 103(a)(3)(A) of ERISA the Department will
not recognize any person as an independent qualified public accountant
who is in fact not independent with respect to the employee benefit
plan upon which that accountant renders an opinion in the annual report
filed with the Department. In determining whether an accountant or
accounting firm is not independent, the Department will give
appropriate consideration to all relevant circumstances, including
evidence bearing on all relationships between the accountant or
accounting firm and that of the plan sponsor or any affiliate thereof,
and will not confine itself to the relationships existing in connection
with the filing of annual reports with the Department of Labor.
(b) Examples. The following examples are intended to illustrate how
the Department would apply paragraph (a) of this section in certain
common financial and business relationships. The Department in
enforcing the Form 5500 annual reporting requirements will not consider
an accountant to be independent with respect to a plan if:
(1)(i) During the period of professional engagement to examine the
financial statements being reported, at the date of the opinion, or
during the period covered by the financial statements, the accountant,
the accountant's firm or a member thereof had, or was committed to
acquire, any direct financial interest or any material indirect
financial interest in such plan, or the plan sponsor as that term is
defined in section 3(16)(B) of ERISA;
(ii) An accountant will not be deemed to have failed the
independence requirement under paragraph (b)(1)(i) of this section as a
result of any holding of publicly traded securities of the plan sponsor
during the period covered by the financial statements if:
(A) The accountant did not audit the client's financial statements
for the immediately preceding fiscal year; and
(B) The accountant, the accounting firm, a partner, shareholder
employee, or professional employee of the accounting firm, and their
immediate family disposed of any holding of publicly traded securities
of the plan sponsor before the earlier of:
(1) Signing an initial engagement letter or other agreement to
provide audit, review, or attest services to the audit client; or
(2) Commencing any audit, review, or attest procedures (including
planning the audit of the client's financial statements); and
(iii) For purposes of paragraph (b)(1)(ii) of this section,
publicly traded securities are securities listed on a registered stock
exchange in which quotations are published on a daily basis, securities
regularly traded in a national or regional over-the-counter market for
which published quotations are available, or securities traded on a
foreign national securities exchange that is officially recognized,
sanctioned, or supervised by a governmental authority and where the
security is deemed by the U.S. Securities and Exchange Commission (SEC)
as having a ready market under applicable SEC rules;
(2) During the period of professional engagement to examine the
financial statements being reported, at the date of the opinion, or
during the period covered by the financial statements, the accountant,
the accountant's firm, or a member thereof was connected as a promoter,
underwriter, investment advisor, voting trustee, director, officer, or
employee of the plan or plan sponsor, except that a firm will not be
deemed not independent in regard to a particular plan if a former
officer or employee of such plan or plan sponsor is employed by the
firm and such individual has completely disassociated himself from the
plan or plan sponsor and does not participate in auditing financial
statements of the plan covering any period of his or her employment by
the plan or plan sponsor; or
(3) An accountant or a member of an accounting firm maintains
financial records for the employee benefit plan.
(c) Effect of certain other services to the plan or plan sponsors.
(1) Subject to paragraph (c)(2) of this section, an accountant will not
fail to be recognized as independent solely on the basis that at or
during the period of the accountant's professional engagement with the
employee benefit plan:
(i) The accountant or the accountant's firm is retained or engaged
on a professional basis by the plan sponsor, as that term is defined in
section 3(16)(B) of ERISA; or
(ii) An actuary associated with the accountant or accounting firm
renders actuarial services to the plan or plan sponsor.
(2) However, to retain recognition of independence, the
prohibitions against recognition of independence in paragraph (b)(1),
(2), or (3) of this section must not be violated. Further, the
rendering of multiple services to a
[[Page 54373]]
plan by a firm may give rise to circumstances indicating a lack of
independence with respect to the employee benefit plan (e.g., result in
the accountant or firm providing services that are subject to audit
procedures as part of the plan's audit), and, in accordance with
paragraph (a) of this section, in determining whether an accountant or
accounting firm is not, in fact, independent with respect to a
particular plan, the Department will give appropriate consideration to
all relevant circumstances, including evidence bearing on all
relationships between the accountant or accounting firm and that of the
plan sponsor or any affiliate thereof.
(3) Rendering multiple services to a plan by a firm also may
involve prohibited transactions under ERISA and requirements to comply
with conditions in prohibited transaction exemptions such as prohibited
transaction exemption in ERISA section 408(b)(2) for ERISA section
406(a)(1)(C) service provider transactions.
(d) Definitions. For purposes of this section:
(1) Member means all partners or shareholder employees in the firm
and all professional employees participating in the audit or located in
an office of the firm participating in a significant portion of the
audit; the firm's employee benefit plans; or an entity whose operating,
financial, or accounting policies can be controlled by any of the
individuals or entities described in this paragraph (d)(1) or by two or
more such individuals or entities acting together.
(2) Office means a reasonably distinct subgroup within a firm,
whether constituted by formal organization or informal practice, in
which personnel who make up the subgroup generally serve the same group
of clients or work on the same categories of matters regardless of the
physical location of the individuals who comprise such subgroup.
Substance should govern the office classification, and the expected
regular personnel interactions and assigned reporting channels of an
individual may well be more important than an individual's physical
location.
(3) Period of professional engagement means the period beginning
when an accountant either signs an initial engagement letter or other
agreement to perform the audit or begins to perform any audit, review
or attest procedures (including planning the audit of the plan's
financial statements), whichever is earlier, and ending with the formal
notification, either by the member or client, of the termination of the
professional relationship or the issuance of the audit report for which
the accountant was engaged, whichever is later. In the case of an
auditor that performs a plan's audit for two or more years, in
evaluating independence, the Department would not view the period of
professional engagement as ending with the issuance of each year's
audit report and recommencing with the beginning of the following
year's audit engagement.
Signed at Washington, DC, this 26th day of August, 2022.
Ali Khawar,
Acting Assistant Secretary, Employee Benefits Security Administration,
U.S. Department of Labor.
[FR Doc. 2022-18898 Filed 9-2-22; 8:45 am]
BILLING CODE 4510-29-P
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</html>Indexed from Federal Register on September 6, 2022.
This is legal information, not legal advice. Laws vary by jurisdiction and change frequently. Always verify current law with official sources and consult a licensed attorney in your jurisdiction for advice on your specific situation.