The accounting profession is speaking up to object to proposed changes to employee benefit plan reporting, especially a plan to require plan sponsors to name the engagement partner on plan audits.
The American Institute of Certified Public Accountants submitted its comment letter on a proposal by the U.S. Department of Labor, the Internal Revenue Service, and the Pension Benefit Guaranty Corp. to revise the reporting on employee benefit plans as required under Form 5500, which governs information gathering on operations, funding, and investments in private-sector benefit plans. DOL estimates U.S. entities sponsor 2.3 million health plans and a similar number of other welfare plans that would be affected by the new requirements, covering 143 million workers, retirees, and dependents, with plan assets estimated at $8.7 trillion.
DOL says the proposed changes are intended to modernize the financial statements and investment information filed about employee benefit plans and update the reporting requirements for service provider fee and expense information. The changes are meant to enhance accessibility and usability of data filed on the forms and improve compliance under the Employee Retirement Income Security Act and the Internal Revenue Code. They’re also meant to satisfy certain reporting requirements under the Affordable Care Act.
The AICPA submitted a 20-page comment letter on the proposal supporting modernization and improvements in Form 550 reporting but raising a number of objections and concerns, beginning with the proposal’s requirement to name the audit engagement partner. The objections are similar to those raised when the Public Company Accounting Oversight Board initiated a project to require public companies to name the audit engagement partner on public company audits. The PCAOB eventually adopted a standard requiring companies to complete a separate filing to name engagement partners, which is taking effect in 2017.
With respect to employee benefit plans, AICPA says the DOL proposal doesn’t explain the purpose of disclosing the name of engagement partners, nor how the information will be helpful to users. Plan sponsors already know the name of the engagement partner, and plan participants and beneficiaries would not find the information useful because the audit partner cannot discuss the audit due to confidentiality rules.
“Disclosure of an individual name could also mislead or confuse users about the role of the engagement partner by placing a misleading emphasis on a single individual,” AICPA wrote. “In particular, requiring the individual name overemphasizes the role of the engagement partner as compared to the role of the firm, especially considering the significant differences in audit firm size, from a sole proprietor to large regional, national or international firms.”
The AICPA says many of the proposed changes to Form 550 reporting would serve the stated goals, but certain planned changes would create “inconsistencies and greater confusion” about the reporting requirements. The AICPA is concerned the proposal will add to the burden and cost of administering employee benefit plans in a way that will cause plan sponsors to reconsider the benefits they offer or reduce benefit levels.