September 2022 Compliance News Article

The Department of Labor’s (DOL) Employee Benefit Security Administration has issued guidance in the form of Interpretive Bulletin 2022-01 to help determine when a qualified public accountant is truly independent for the purposes of auditing and providing an opinion on financial statements that are filed with the DOL. The new guidance is intended to provide clarity as well as remove outdated and restrictive provisions.

Background

Under the Employee Retirement Income Security Act of 1974 (ERISA), most plan sponsors are required to use an independent qualified public accountant on an annual basis to review the plan’s financial statements. The accountant must provide an opinion on the financial statements included in the plan sponsor’s annual Form 5500 report, which is filed with the DOL.

New Guidance

An accountant who holds publicly traded securities of the plan sponsor generally will not be deemed to have failed the independence requirement if:

The accountant didn’t audit the plan sponsor’s financial statement for the preceding fiscal year, and
The accountant, accounting firm, partners, shareholder employees, or financial professional employees of the accounting firm and their immediate family disposed of any publicly traded securities of the plan sponsor before the “period of professional engagement.”

The “period of professional engagement” definition creates a divestiture window during which time the accountant and others may sell any relevant securities. That window begins when a plan sponsor and accountant have a verbal agreement or understanding to perform the audit and ends at the earlier of (i) signing an initial engagement letter or other written agreement, or (ii) the audit procedures beginning.

The Interpretive Bulletin also clarifies that the term “office” for the purposes of determining who is a member of a given audit firm, is meant to be a reasonably distinct subgroup within the firm where the personnel in the subgroup generally serve the same group of clients or work on the same categories of work. Individuals do not necessarily need to work out of the same physical location to be considered working in the same office.

The subject matter in this communication is educational only and provided with the understanding that Principal^® is not rendering legal, accounting, investment or tax advice. You should consult with appropriate counsel, financial professionals or other advisors on all matters pertaining to legal, tax, investment or accounting obligations and requirements.

Insurance products and plan administrative services provided through Principal Life Insurance Company^®, a member of the Principal Financial Group^®, Des Moines, IA 50392.

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