Mr. Richard M. Steinberg, Chair
Employee Benefit Plans Expert Panel
Department of Labor Liaison Task Force
American Institute of Certified Public Accountants
1455 Pennsylvania Avenue, N.W.
Washington, D.C. 20004-1081
Dear Chairman Steinberg:
This is in response to your request concerning the application of the limited scope audit provisions of section 103(a)(3)(C) of the Employee Retirement Income Security Act of 1974, as amended (ERISA). Specifically, you have requested guidance concerning the certification requirements of 29 C.F.R. § 2520.103-5, that serve to define the scope of an accountant's examination and report under section 103(a)(3)(A) and (C) and 29 C.F.R. § 2520.103-8.
In your letter, you set forth six examples of certifications and request guidance on the acceptability of each. The examples are as follows:
A record keeper, an affiliate of the plan trustee (the trustee being a qualified bank or insurance company) certifies the completeness and accuracy of the financial records of plan assets on behalf of the trustee
Same as (1), except that the record keeper's certification on behalf of the plan trustee is provided on stationery with the trustees' letterhead
Same as (1), where the plan administrator has established that the record keeper is an affiliate of the trustee and the trustee has delegated its certification authority to the record keeper, who provides the certification on its (the record keeper's) letterhead
Same as (3), where the plan administrator has established that the record keeper is an affiliate of the trustee, and has confirmed that the trustee maintains legal control of and responsibility for the benefit plan's assets
A record keeper, not an affiliate of the trustee, but rather an unrelated Third Party Administrator (TPA), contracted by the trustee to perform the record keeping services, provides the certification on its (the record keeper's) letterhead
Same as (5) with some of the aforementioned variations (e.g., the certification is provided on the trustee's stationery, the trustee delegated its authority to the record keeper to provide the certification)
Under section 101(b)(1), it is the obligation of the administrator of an employee benefit plan to file an annual report with the Secretary of Labor. Section 103(a)(3)(A) sets forth the requirement that the administrator of an employee benefit plan engage an independent qualified public accountant on behalf of the plan's participants to conduct an examination and render an opinion concerning the financial statements of the plan, and of any 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 required to be included in the annual report are presented fairly in conformity with generally accepted accounting principles applied on a basis consistent with that of the preceding year. Section 103(a)(3)(A) also requires that the opinion of the independent qualified public accountant be included as part of a plan's annual report.
Under 29 C.F.R. § 2520.103-8, which interprets and implements section 103(a)(3)(C) of ERISA, the examination and report of an independent qualified public accountant need not address any statements or information regarding plan assets held by a bank, similar institution or insurance carrier, which is regulated and supervised and subject to periodic examination by a State or Federal agency, provided that the statements or information regarding assets so held are prepared and certified to by the bank or insurance carrier in accordance with 29 C.F.R. § 2520.103-5. Relevant to the issue raised by your request, paragraph (d)(1) of 2520.103-5 provides, in part, that:
An insurance carrier or other organization, a bank, trust company, or similar institution, . . . shall certify to the accuracy and completeness of the information described in paragraph (c) of this section by a written declaration which is signed by a person authorized to represent the insurance carrier, bank, . . . . Such certification will serve as a written assurance of the truth of the facts stated therein.
While your examples present a number of different fact patterns, the issue presented by each is the same -- is the party providing the certification in fact authorized to represent the insurance carrier, bank or similar institution holding the assets of the plan?
Consistent with the obligation of employee benefit plan administrators to file complete and accurate annual reports, it is the responsibility of the administrator to determine whether the conditions for limiting the scope of an accountant's examination, as set forth in ERISA and the department's regulations, have been satisfied. If there is a question as to whether a party providing a certification as an authorized representative of a financial institution holding plan assets is in fact authorized to represent the financial entity for this purpose, as may be the case where there is not an explicit statement of authority included as part of the certification, the plan administrator must take steps to resolve this question before authorizing limited scope reporting.
We also note, based on our own review, that some plan administrators may assume that information provided in connection with limited scope audit statements necessarily represents a certification by the financial institution of the current value of the plan's assets. In addition to determining whether the conditions for limiting the scope of an accountant's examination have been satisfied, administrators should take steps to make sure they understand the nature and scope of the certification the institution has provided before concluding that the certified information may be used to satisfy the administrator's obligation to report the current value of the assets on the plan's annual report (Form 5500 Series).
Accountants engaged on behalf of participants to conduct employee benefit plan audits play an important role in bringing questions, issues, and irregularities discovered during the course of their audit engagement to the attention of the plan administrator. In this regard, we believe accountants should, as part of their audit engagement, review certifications and notify plan administrators of potential problems with a certification when, as in cases such as those presented in your letter, there may be a question as to whether the furnished certification provides an appropriate basis on which the administrator may limit the scope of the plan's audit or provides a basis for reporting the current value of plan assets on a plan's annual report. Providing plan administrators with this important compliance assistance information ultimately will enhance the security of retirement, health and other plan assets for participants and beneficiaries.
We hope this information is of assistance to you and your members.
John J. Canary
Chief, Division of Coverage, Reporting and Disclosure
Office of Regulations and Interpretations