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Employee Benefits Security Administration

EBSA Notices

Independence of Employee Benefit Plan Accountants [09/11/2006]

[PDF Version]

Volume 71, Number 175, Page 53348-53351

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DEPARTMENT OF LABOR

Employee Benefits Security Administration

29 CFR Part 2509

RIN 1210-AB09

 
Independence of Employee Benefit Plan Accountants

AGENCY: Employee Benefits Security Administration, DOL.

ACTION: Request for Information.

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SUMMARY: This document requests information from the public concerning 
the advisability of amending Interpretive Bulletin 75-9 (29 CFR 
2509.75-9) relating to guidelines on independence of accountants 
retained by employee benefit plans under section 103(a)(3)(A) of the 
Employee Retirement Income Security Act of 1974 (ERISA). Under ERISA, 
unless otherwise exempt, the plan administrator is required to retain 
on behalf of all plan participants an ``independent qualified public 
accountant'' to examine the financial statements of the plan and render 
an opinion as to whether the financial statements and schedules 
required to be included in the plan's annual report are presented 
fairly in conformity with generally accepted accounting principles 
(GAAP). The purpose of this notice is to obtain information to assist 
the Department of Labor in evaluating whether and to what extent 
Interpretive Bulletin 75-9 provides adequate guidance to meet the needs 
of plan administrators, other plan fiduciaries, participants and 
beneficiaries, accountants, and other affected parties on when a 
qualified public accountant is independent.

DATES: Written responses must be received by the Department of Labor on 
or before December 11, 2006.

ADDRESSES: Responses should be addressed to the Office of Regulations 
and Interpretations, Employee Benefits Security Administration (EBSA), 
Room N-5669, U.S. Department of Labor, 200 Constitution Avenue, NW., 
Washington, DC 20210. Attn: Independence of Accountant RFI (RIN 1210-
AB09). Responses also may be submitted electronically to e-ori@dol.gov 
or by using the Federal eRulemaking Portal http://www.regulations.gov (follow 

instructions for submission of comments). EBSA will make all responses 
available to the public on its Web site at http://www.dol.gov/ebsa. The 

responses also will be available for public inspection at the Public 
Disclosure Room, N-1513, EBSA, U.S. Department of Labor, 200 
Constitution Avenue, NW., Washington, DC 20210.

FOR FURTHER INFORMATION CONTACT: Michael G. Leventhal, Office of 
Regulations and Interpretations, Employee Benefits Security 
Administration, U.S. Department of Labor, (202) 693-8523 (not a toll-
free number).

SUPPLEMENTARY INFORMATION: 

A. Background

    The Employee Retirement Income Security Act (ERISA) was enacted in 
1974 to remedy certain abuses in the nation's private-sector employee 
pension benefit plan and employee welfare benefit plan system. 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. These 
provisions include requiring annual reporting of financial information 
and activities of employee benefit plans to the Department of Labor 
(Department). 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

[[Page 53349]]

of the plan's annual report filed with the Department.\1\
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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, regulation 
section 2520.104-44 provides a limited exemption for welfare plans 
which are either unfunded, insured or partly unfunded-partly 
insured. If a plan does not comply with ERISA's annual reporting 
requirements, including failure to satisfy the requirement to have 
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 
whatever relief may be appropriate, or take any other enforcement 
action authorized under Title I.
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    The IQPA requirements in ERISA were intended to provide 
participants, beneficiaries, plan administrators, other plan 
fiduciaries, and the Department with reliable information about an 
employee benefit plan and its financial soundness. The precursor to 
ERISA, the Welfare and Pension Plan Disclosure Act of 1958 (WPPDA), 
required a certified audit only when the Secretary of Labor found 
reasonable cause to investigate a plan. Legislative history of ERISA 
indicates that Congress found this requirement to be insufficient, and 
specifically replaced it with the annual certified audit requirements 
in section 103(a)(3)(A) of ERISA.
    Section 103(a)(3)(A) of ERISA 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 
allow the accountant to form an opinion as to whether the financial 
statements and schedules 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. 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.'' 
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 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.
    Section 103(a)(3)(D) of ERISA 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. ERISA does not, 
however, define what would constitute ``independence'' for purposes of 
the audit requirements.
    In the Department's view, an accountant's independence is at least 
of equal importance to the professional competence he or she brings to 
an engagement in rendering an opinion and issuing a report on the 
financial statements of an employee benefit plan. Pursuant to the 
authority provided to the Department by section 103(a)(3)(A), 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. The bulletin 
explains that the Department will not recognize any person as an 
independent qualified public accountant with respect to an employee 
benefit plan who is not in fact independent.
    The rule also specifically describes three kinds of relationships 
that will cause an accountant not to be independent. During the audit 
engagement and during the period covered by the audit, the accountant, 
his or her firm, and any member of the firm cannot: (1) Have or be 
committed to acquire any direct financial interest or any material 
indirect financial interest in the plan or the plan sponsor; (2) have a 
connection to the plan or plan sponsor as a promoter, underwriter, 
investment advisor, voting trustee, director, officer or employee of 
the plan or plan sponsor; and (3) maintain financial records for the 
employee benefit plan. The Interpretive Bulletin defines ``member'' of 
an accounting firm 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. The Interpretive Bulletin provides that independence is required 
during the period of professional engagement, at the date of the 
opinion, and during the period covered by the financial statements. In 
addition to the specific proscriptions, the Bulletin cautions that the 
Department will give appropriate consideration to all relevant 
circumstances in determining whether an accountant or accounting firm 
is not, in fact, independent with respect to a particular plan, 
including evidence bearing on all relationships between the accountant 
or accounting firm and that of the plan sponsor or any affiliate. In 
that regard, Interpretive Bulletin 75-9 notes that an accountant will 
not fail to be recognized as independent merely because the accountant 
or his or her firm is retained or engaged on a professional basis by 
the plan sponsor, provided none of the three specific proscriptions are 
violated. Further, the Interpretive Bulletin states that the rendering 
of services to the plan or plan sponsor by an actuary associated with 
the accountant or accounting firm will not impair the accountant's 
independence.
    In addition to ERISA's annual reporting requirements, accountants 
and accounting firms are subject to independence requirements of other 
governmental agencies and accounting industry self-regulatory bodies. 
For example, the Securities and Exchange Commission (SEC) has 
independence guidelines for auditors reporting on financial statements 
included in SEC filings. Those guidelines were for many years contained 
in Rule 2-01 of Reg. S-X, Qualifications and Reports of Accountants. 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. The Sarbanes-Oxley Act also 
authorized the establishment of the Public Company Accounting Oversight 
Board (``PCAOB'') which itself has established ethics and independence 
requirements for registered public accounting firms. The United States 
Government Accountability Office (GAO) has auditor independence 
requirements under Government Auditing Standards \2\ that cover Federal 
entities and organizations receiving Federal funds. The American 
Institute of Certified Public Accountants (AICPA) sets GAAS 
requirements

[[Page 53350]]

including standards by which the auditor must abide to avoid impairment 
of independence.\3\ Many States have an independence component in their 
requirements for licensed public accountants. Some have adopted the 
AICPA's Code of Conduct, including its independence guidelines. Others, 
however, have adopted specific rules, including limitations on offering 
or rendering services under a contingency fee arrangement as well as 
limitations on ownership interests in the enterprise being audited.\4\ 
Further, 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 
peripheral to audit services, for example, business consulting, 
valuation and appraisal services, applications programming, electronic 
data processing and recordkeeping. The Department has received public 
comments indicating that these developments have made it a more 
complicated process for accountants and accounting firms to monitor 
compliance with the different independence standards that apply in the 
different business sectors in which they provide audit services.
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    \2\ Information about Government Auditing Standards (commonly 
referred to as ``Generally Accepted Government Auditing Standards,'' 
or ``GAGAS'') is available on the GAO Web site at http://www.gao.gov/govaud/ybk01.htm
.

    \3\ Information about AICPA's standards is available at 
http://www.aicpa.org/about/code/index.html.

    \4\ See section 29.10(a)(5), (6), and (7) of New York State's 
Education Department's Office of Profession's Rules of the Board of 
Regents (Special provisions for the profession of public 
accountancy) (http://www.op.nysed.gov/part29.htm#cpa).

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B. Request for Information

    The purpose of this Notice is to obtain information to assist the 
Department in evaluating whether and to what extent the guidelines in 
Interpretive Bulletin 75-9 provide adequate guidance regarding the 
independence of accountants who audit employee benefit plans to meet 
the needs of plan officials, participants and beneficiaries, 
accountants, and other affected parties. Given the changes that have 
taken place with respect to employee benefit plans and auditing 
practices and standards, as well as changes in the industry since the 
issuance of the guidelines in Interpretive Bulletin 75-9, EBSA is 
inviting interested persons to submit written comments and suggestions 
concerning whether and to what extent the current guidelines should be 
modified.
    In order to assist interested parties in responding, this document 
contains a list of specific questions. The Department recognizes that 
these questions may not address all issues relevant to the independence 
of accountants who audit employee benefit plans. Accordingly, 
interested parties are invited to submit comments on other issues 
relating to Interpretive Bulletin 75-9 that they believe are pertinent 
to the Department's consideration of new or additional independence 
guidelines.
    1. Should the Department adopt, in whole or in part, current rules 
or guidelines on accountant independence of the SEC, AICPA, GAO or 
other governmental or nongovernmental entity? If the Department were to 
adopt a specific organization's rules or guidelines, what adjustments 
would be needed to reflect the audit requirements for or circumstances 
of employee benefit plans under ERISA?
    2. Should the Department modify, or otherwise provide guidance on, 
the prohibition in Interpretive Bulletin 75-9 on an independent 
accountant, his or her firm, or a member of the firm having a ``direct 
financial interest'' or a ``material indirect financial interest'' in a 
plan or plan sponsor? For example, should the Department issue guidance 
that clarifies whether, and under what circumstances, financial 
interests held by an accountant's family members are deemed to be held 
by the accountant or his or her accounting firm for independence 
purposes? If so, what familial relationships should trigger the 
imposition of ownership attribution rules? Should the ownership 
attribution rules apply to all members of the accounting firm retained 
to perform the audit of the plan or should it be restricted to 
individuals who work directly on the audit or may be able to influence 
the audit?
    3. Should the Department issue guidance on whether, and under what 
circumstances, employment of an accountant's family members by a plan 
or plan sponsor that is a client of the accountant or his or her 
accounting firm impairs the independence of the accountant or 
accounting firm?
    4. Interpretive Bulletin 75-9 states that an accountant will not be 
considered independent with respect to a plan if the accountant or 
member of his or her accounting firm maintains financial records for 
the employee benefit plan. Should the Department define the term 
``financial records'' and provide guidance on what activities would 
constitute ``maintaining'' financial records. If so, what definitions 
should apply?
    5. Should the Department define the terms ``promoter,'' 
``underwriter,'' ``investment advisor,'' ``voting trustee,'' 
``director,'' ``officer,'' and ``employee of the plan or plan 
sponsor,'' as used in Interpretive Bulletin 75-9? Should the Department 
include and define additional disqualifying status positions in its 
independence guidelines? If so, what positions and how should they be 
defined?
    6. Interpretive Bulletin 75-9 defines the term ``member of an 
accounting firm'' 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. Should the Department revise and update the definition of 
``member?'' If so, how should the definition be revised and updated?
    7. What kinds of nonaudit services are accountants and accounting 
firms engaged to provide to the plans they audit or to the sponsor of 
plans they audit? Are there benefits for the plan or plan sponsor from 
entering into agreements to have the accountant or accounting firm 
provide nonaudit services and also perform the employee benefit plan 
audit? If so, what are the benefits? Should the Department issue 
guidance on the circumstances under which the performance of nonaudit 
services by accountants and accounting firms for the plan or plan 
sponsor would be treated as impairing an accountant's independence for 
purposes of auditing and rendering an opinion on the financial 
information required to be included in the plan's annual report? If so, 
what should the guidance provide?
    8. Interpretive Bulletin 75-9 requires an auditor to be independent 
during the period of professional engagement to examine the financial 
statements being reported, at the date of the opinion, and during the 
period covered by the financial statements. Should the Department 
change the Interpretive Bulletin to remove or otherwise provide 
exceptions for ``the period covered by the financial statements'' 
requirement? For example, should the requirement be changed so that an 
accountant's independence would be impaired by a material direct 
financial interest in the plan or plan sponsor during the period 
covered by the financial statements rather than any direct financial 
interest?
    9. Should there be special provisions in the Department's 
independence guidelines for plans that have audit committees that hire 
and monitor an auditor's independence, such as the audit committees 
described in the Sarbanes-Oxley Act applicable to public companies?
    10. What types and level of fees, payments, and compensation are 
accountants and accounting firms receiving from plans they audit and 
sponsors of plans they audit for audit and nonaudit services provided 
to the plan? Should the Department issue

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guidance regarding whether receipt of particular types of fees, such as 
contingent fees and other fees and compensation received from parties 
other than the plan or plan sponsor, would be treated as impairing an 
accountant's independence for purposes of auditing and rendering an 
opinion on the financial information required to be included in the 
plan's annual report?
    11. Should the Department define the term ``firm'' in Interpretive 
Bulletin 75-9 or otherwise issue guidance on the treatment of 
subsidiaries and affiliates of an accounting firm in evaluating the 
independence of an accounting firm and members of the firm? If so, what 
should the guidance provide regarding subsidiaries and affiliates in 
the evaluation of the independence of an accountant or accounting firm?
    12. Should the Department's independence guidance include an 
``appearance of independence'' requirement in addition to the 
requirement that applies by reason of the ERISA requirement that the 
accountant perform the plan's audit in accordance with GAAS?
    13. Should the Department require accountants and accounting firms 
to have written policies and procedures on independence which apply 
when performing audits of employee benefit plans? If so, should the 
Department require those policies and procedures be disclosed to plan 
clients as part of the audit engagement?
    14. Should the Department adopt formal procedures under which the 
Department will refer accountants to state licensing boards for 
discipline when the Department concludes an accountant has conducted an 
employee benefit plan audit without being independent?
    15. Should accountants and accounting firms be required to make any 
standard disclosures to plan clients about the accountant's and firm's 
independence as part of the audit engagement? If so, what standard 
disclosures should be required?

    Signed at Washington, DC, this 5th day of September 2006.
Ann L. Combs,
Assistant Secretary, Employee Benefits Security Administration.
 [FR Doc. E6-14913 Filed 9-8-06; 8:45 am]

BILLING CODE 4510-29-P