A national organization of accountants wants the Department of Labor to back stricter annual audit requirements for retirement plans — a move that auditors contend will result in more accurate financial reports but that plan executives fear will jack up their costs.
At issue is a rule under the Employee Retirement Income Security Act requiring companies with defined benefit or defined contribution plans to include audits with their Form 5500 financial reports, filed annually with the DOL.
A longtime ERISA exemption allows companies to limit the scope of the audits when some plan investments are held by banks or other custodians. Under the exemption, the plan sponsor is able to rely on a certification from the custodian on the prices of the assets held for the plan.
The American Institute of Certified Public Accountants, Durham, N.C., wants the Labor Department to push for legislative repeal or revision of the exemption, in part because the investments held by the bank or custodian can include alternatives and other investment assets that are hard to value.
“AICPA supports repealing it (the exemption) in total or part, because the plan sponsors and participants lose the inherent value of an independent auditor's opinion on the plan's financial statement,” Marilee Lau, chairman of AICPA's Employee Benefit Plan Audit Quality Center, said in a telephone interview.
Employers contend that the exemption is working fine and should be left as is. They say the limited-scope audits hold down plan costs.
“It (the limited-scope audit exemption) has proven to be cost-effective, and there's no evidence that there's any problems with it,” said Ed Ferrigno, vice president of Washington affairs, Profit Sharing/401(k) Council of America, Chicago.
“Obviously, a full-scope audit is going to cost more,” Mr. Ferrigno said.
“Repealing the limited-scope audit exemption would be a burden on plans that hold most of their assets in easily valued securities, such as stocks and bonds,” added Lisa Bleier, vice president and senior counsel, American Bankers Association, Washington.
The issue is being debated before the ERISA Advisory Council, which is expected to make a decision on whether to recommend a change in the audit requirement by November.
“The council is considering whether to recommend modifying when limited-scope audits are appropriate, particularly with respect to hard-to-value assets,” said a source close to the council, who requested anonymity. n