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Secretary of Labor Thomas E. Perez
Notice and Request for Comments on Annual Reporting Enforcement Policy [Notices] [03/13/1997]

EBSA (Formerly PWBA) Federal Register Notice

Notice and Request for Comments on Annual Reporting Enforcement Policy [03/13/1997]

[PDF Version]

Volume 62, Number 49, Page 11929-11931

[DOCID:fr13mr97-121]

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DEPARTMENT OF LABOR
Pension and Welfare Benefits Administration
RIN 1210 AA57

 
Notice and Request for Comments on Annual Reporting Enforcement 
Policy

AGENCY: Pension and Welfare Benefits Administration, Department of 
Labor.

ACTION: Notice and request for comments.

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SUMMARY: The purpose of this notice is to invite public comment on the 
Department of Labor's adoption of an annual reporting enforcement 
policy pursuant to which the Department would not reject the annual 
report of a multiemployer welfare benefit plan solely because the 
accountant's opinion accompanying the report is ``qualified'' or 
``adverse'' due to a failure to account and report for post-retirement 
benefit obligations in accordance with the financial statement 
disclosure requirements of the American Institute of Certified Public 
Accountants (AICPA) Statement of Position 92-6 (SOP 92-6).

DATES: Written comments should be received on or before May 12, 1997 to 
be assured of consideration.

ADDRESSES: Written comments should be directed to: Office of 
Regulations and Interpretations, Pension and Welfare Benefits 
Administration, Room N-5669, U.S. Department of Labor, 200 Constitution 
Ave., N.W., Washington, DC 20210. Attention: Reporting Enforcement 
Policy. All submissions will be open to public inspection at the Public 
Documents Room, Pension and Welfare Benefits Administration, Room N-
5638, 200 Constitution Ave., N.W., Washington, DC 20210.

FOR FURTHER INFORMATION CONTACT: Eric A. Raps, Office of Regulations 
and Interpretations, Pension and Welfare Benefits Administration, U.S. 
Department of Labor, Washington D.C. 20210, (202) 219-8515 (not a toll 
free number).

SUPPLEMENTARY INFORMATION:

A. Background

    In general, the administrator of an employee benefit plan with 100 
or more participants at the beginning of a plan year is required under 
Title I of the Employee Retirement Income Security Act of 1974, as 
amended (ERISA), and the Department's regulations issued thereunder, to 
file a Form 5500 and to include as part of that report the opinion of 
an independent qualified public accountant.<SUP>1 The requirements 
governing the content of the opinion and report of the independent 
qualified public accountant are set forth in ERISA section 103(a)(3)(A) 
and 29 CFR 2520.103-1(b)(5).
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    \1\ See ERISA Secs. 101(b)(4) and 103, and 29 CFR 2520.103-1.
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    ERISA section 104(a)(4) permits the Department to reject an annual 
report if it determines that there is a material qualification by an 
accountant contained in the opinion required to be submitted pursuant 
to section 103(a)(3)(A). If the Department rejects a filing under 
section 104(a)(4), and the administrator fails to submit a satisfactory 
filing within 45 days, the Department may, among other things, assess a 
civil penalty of up to a $1,000 a day against the administrator for 
failing or refusing to file an annual report.<SUP>2
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    \2\ See ERISA Secs. 104(a)(5) and 502(c)(2), and 29 CFR 
2560.502c-2.
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    The Department has received a number of inquiries from 
multiemployer plan administrators, trustees, benefit consultants, and 
accountants concerning whether a Form 5500 filed by an administrator of 
a multiemployer plan <SUP>3 that provides for post-retirement welfare 
benefits would be rejected by the Department solely because the 
independent qualified public accountant's opinion accompanying such 
report is ``qualified'' or ``adverse'' due to a failure to account and 
report for post-retirement welfare benefit obligations in accordance 
with the financial statement disclosure requirements of SOP 92-6.<SUP>4 
Post-retirement welfare benefits would include, for example, health and 
medical benefits for eligible retirees provided under a welfare benefit 
plan. In general, compliance with SOP 92-6 is required for financial 
statements of employee welfare benefit plans to be prepared in 
accordance with generally accepted accounting principles (GAAP). Among 
other things, SOP 92-6 amends the welfare plan financial statement 
disclosure requirements in the AICPA's Audit and Accounting Guide, 
``Audits of Employee Benefit Plans,'' to require welfare plans to 
account for and report post-retirement benefit obligations.<SUP>5
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    \3\ ERISA Sec. 3(37)(A) defines ``multiemployer plan'' to mean a 
``plan--(i) to which more than one employer is required to 
contribute, (ii) which is maintained pursuant to one or more 
collective bargaining agreements between one or more employee 
organizations and more than one employer, and (iii) which satisfies 
such other requirements as the Secretary [of Labor] may prescribe by 
regulation.''
    \4\ SOP 92-6, ``Accounting and Reporting by Health and Welfare 
Benefit Plans'', was issued by the AICPA on August 3, 1992. SOP 92-6 
is effective for audits of financial statements of single employer 
plans with more than 500 participants for plan years beginning after 
December 15, 1992 and for single employer plans with no more than 
500 participants for plan years beginning after December 15, 1994. 
SOP 92-6 is effective for audits of financial statements of 
multiemployer plans for plan years beginning after December 15, 
1995.
    \5\ See paragraphs 36-49 of SOP 92-6.
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    The inquiries from multiemployer plan representatives generally 
questioned the usefulness of the post-retirement benefit obligation 
disclosure required under SOP 92-6 to multiemployer plan trustees or 
participants and beneficiaries. The inquiries also indicated that 
accounting and reporting for post-retirement obligations in accordance 
with the financial statement disclosure requirements of SOP 92-6 would 
result in substantial increases in both administrative burdens and 
costs to affected multiemployer plans.
    The Department is considering whether the proposed annual reporting 
enforcement policy, as described below, should be adopted. In view of 
the fact that the AICPA made the SOP 92-6 guidelines applicable to 
multiemployer plans for plan years beginning after December 15, 1995, 
and the fact that the Department heretofore had not provided guidance 
on the issue, the Department decided that while this proposal is 
pending it would not reject annual reports of multiemployer plans filed 
for the 1996 and 1997 plan years solely because the accountant's 
opinion accompanying such report is ``qualified'' or ``adverse'' due to 
a failure to account and report for post-retirement welfare benefit 
obligations in accordance with SOP 92-6.

B. Proposed Annual Reporting Enforcement Policy

    Pursuant to section 103(a)(3)(A), the independent qualified public 
accountant engaged on behalf of

[[Page 11930]]

participants and beneficiaries is required to conduct ``an examination 
of any financial statements of the plan, and of other books and records 
of the plan, as the accountant may deem necessary to enable the 
accountant to form an opinion as to whether the financial statements 
and schedules * * * are presented fairly in conformity with generally 
accepted accounting principles applied on a basis consistent with that 
of the preceding year.'' The Department has taken the position that 
section 103(a)(3)(A) does not require plans to maintain their 
statements, books and records in accordance with GAAP.<SUP>6 However, 
for purposes of compliance with ERISA's annual reporting requirements, 
the notes to the financial statements must describe, among other 
things, the accounting principles and practices reflected in the 
financial statements and, if applicable, variances from GAAP.<SUP>7 
Accordingly, an accountant's opinion that notes variances from GAAP 
would not for that reason alone be unacceptable to the Department.
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     <SUP>6 See Advisory Opinion No. 84-45A (November 16, 1984).
     <SUP>7 See 29 CFR 2520.103-1(b)(3).
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    With regard to accounting and reporting for post-retirement welfare 
benefit obligations in accordance with the financial statement 
disclosure requirements of SOP 92-6, in particular, the Department 
notes that there is nothing in Title I of ERISA, the Department's 
regulations issued thereunder, or the Form 5500, including instructions 
thereto, that specifically requires an accounting or reporting by 
welfare benefit plans for post-retirement welfare benefit 
obligations.<SUP>8 The Department also notes that, unlike pension 
benefit plans, ERISA does not impose minimum funding requirements on 
welfare benefit plans.
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     <SUP>8 For annual reporting purposes, ``benefit claims'' and 
other payables, reported as plan liabilities on the Form 5500, are 
generally limited, in the case of noncash basis welfare plans, to 
amounts processed and approved for payment by the plan. See items 
31g-31k of the 1996 Form 5500. The enforcement policy described in 
this Release does not change these requirements.
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    In view of the foregoing, the Department is proposing to adopt an 
annual reporting enforcement policy pursuant to which the Department 
will not reject the Form 5500 Annual Return/Report of a multiemployer 
plan, within the meaning of ERISA section 3(37), solely because the 
accountant's opinion accompanying such report is ``qualified'' or 
``adverse'' due to a failure to account and report for post-retirement 
welfare benefit obligations in accordance with the financial statement 
disclosure requirements of SOP 92-6. Such variance with GAAP, however, 
would, in accordance with 29 CFR 2520.103-(b)(3), be required to be set 
forth in the notes to the financial statements included as part of the 
Annual Return/Report.
    This proposed enforcement policy would extend only to multiemployer 
welfare plans subject to the financial statement disclosure 
requirements of SOP 92-6 because only multiemployer plans formally 
requested relief citing a substantial increase in their administrative 
burdens and costs that would result from being forced to comply with 
SOP 92-6. The enforcement policy, therefore, if adopted as proposed, 
will treat multiemployer plans differently than single employer plans. 
The Department is interested in receiving comments on this issue.
    While the Department is proposing not to reject Annual Return/
Reports of multiemployer plans solely because of a failure to account 
and report for post-retirement welfare benefit obligations in 
accordance with the financial statement disclosure requirements of SOP 
92-6, the Department nonetheless believes that administrators of such 
plans must determine, taking into account their particular plan, 
benefit commitments thereunder, and compliance cost, to what extent 
evaluation of post-retirement welfare benefit obligations may provide 
information necessary to the discharge of the plan fiduciaries' duties 
under ERISA.
    This enforcement policy would, on adoption, remain in effect until 
amended or revoked by a document published in the Federal Register.

C. Public Comment

    In considering whether to adopt the above described proposed annual 
reporting enforcement policy, the Department is inviting interested 
persons to submit comments, data, information, and views that they 
believe may be relevant to the Department's determination to implement 
the enforcement policy. The Department specifically invites interested 
persons to provide comments, data, information and views concerning the 
following:
    1. Whether, and to what extent, accounting and reporting of post-
retirement welfare benefit obligations in accordance with SOP 92-6 
would produce useful information for fiduciaries, participants and 
beneficiaries of affected plans that would be unavailable if the 
proposed policy were adopted. Comments should specify how the SOP 92-6 
information would be either useful or not useful to satisfy any 
responsibility or exercise any right under ERISA or the plan.
    2. How the proposed policy, if adopted, would affect the quality of 
accountant's examinations, required under ERISA section 103(a)(3)(A), 
of multiemployer plans' financial statements, books and records.
    3. Estimates of any increased administrative, information 
collection, and recordkeeping costs or burden hours for multiemployer 
plans attributable to compliance with SOP 92-6 that would be avoided if 
the proposed enforcement policy is adopted. Cost and burden hour 
estimates should be specific and distinguish between initial/start-up 
costs or burdens and any recurring annual costs or burdens. Estimates 
should also include a description of the administrative, information 
collection, and recordkeeping services or activities. Variables 
affecting the estimates, such as size of the plan, demographic 
characteristics, existing recordkeeping systems, etc., should be noted.
    4. Estimates of any increased accounting and actuarial costs for 
multiemployer welfare benefit plans attributable to compliance with SOP 
92-6 that would be avoided if the proposed enforcement policy is 
adopted. Cost estimates should be specific and distinguish between 
initial/start-up costs and any recurring annual costs. Estimates should 
also include a description of the accounting and actuarial services or 
activities. Variables affecting the estimates, such as size of the 
plan, demographic characteristics, existing recordkeeping systems, 
etc., should be noted.
    5. Whether availability of the proposed enforcement policy should 
be conditioned on the multiemployer welfare benefit plan including an 
``Additional Explanation'' section in its summary annual report 
pursuant to 29 CFR 2520.104b-10(d)(2) explaining that the accountant's 
opinion accompanying its annual report is ``qualified'' or ``adverse'' 
due to a failure to account and report for post-retirement welfare 
benefit obligations in accordance with the financial statement 
disclosure requirements of SOP 92-6.
    6. The Department notes that the proposed enforcement policy 
extends only to multiemployer plans, and, therefore, if adopted as 
proposed, will treat multiemployer plans differently than single 
employer plans. We request comments on this issue.

Executive Order 12866 Statement

    Under Executive Order 12866 (58 FR 51735, Oct. 4, 1993), it must be 
determined whether a departmental

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action is ``significant'' and therefore subject to review by the Office 
of Management and Budget (OMB) and the requirements of the Executive 
Order. Under section 3(f), the Order defines a ``significant regulatory 
action'' as an action that is likely to result in a rule (1) having an 
annual effect on the economy of $100 million or more, or adversely and 
materially affecting a sector of the economy, productivity, 
competition, jobs, the environment, public health or safety, or State, 
local or tribal governments or communities (also referred to as 
``economically significant''); (2) creating a serious inconsistency or 
otherwise interfering with an action taken or planned by another 
agency; (3) materially altering the budgetary impacts of entitlement, 
grants, user fees, or loan programs or the rights and obligations of 
recipients thereof; or (4) raising novel legal or policy issues arising 
out of legal mandates, the President's priorities, or the principles 
set forth in the Executive Order.
    Pursuant to the terms of the Executive Order, the proposed action 
that is the subject of this notice has been determined to be 
``significant'' under category (4), supra, and, therefore, has been 
reviewed by OMB.

Paperwork Reduction Act

    The notice issued here is not subject to the requirements of the 
Paperwork Reduction Act of 1995 (44 U.S.C. 3501 et seq.) because it 
contains no ``collection of information'' as defined in 44 U.S.C. 
3502(3).

    Signed at Washington D.C., this 6th day of March 1997.
Olena Berg,
Assistant Secretary, Pension and Welfare Benefits Administration U.S. 
Department of Labor.
[FR Doc. 97-6153 Filed 3-12-97; 8:45 am]
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