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ARA Comments on Proposed Statement on Auditing Standards for ERISA Plans

On Sept. 21, 2017, the ASPPA/ARA Government Affairs Committee filed comments with the American Institute of Certified Public Accountants with regard to their release of a Proposed Statement on Auditing Standards. The AICPA is considering modifying the auditing standards that relates to employee benefit plans subject to ERISA.

“We greatly appreciate the efforts being considered through this Proposal to help protect retirement savings and strengthen compliance with ERISA and the Internal Revenue Code,” says the letter. But at the same time, says the letter, “ the scope of the changes in the Proposal are considerable and the impact of these changes will need to be monitored and evaluated to see if the additional measures are warranted and are being consistently applied, in light of the additional costs and burdens that will likely result from the Proposal.” The letter adds that any changes “need sufficient time to be considered and properly vetted, and sufficient lead time is always needed to properly implement and support the changes.”

Accordingly, the recommendations from the ASPPA/ARA Government Affairs Committee are limited to three areas of immediate concern to their members.

Eliminate New Public Disclosure Requirement. The letter notes that the proposal requires public disclosure of any issues discovered as part of the audit, either set forth in the opinion letter or in a separate report attached to the Form 5500, and that the only exception appears to be if the issue is “clearly inconsequential,” a standard that “may well vary between auditors.”

“The audit opinion should not be used to expand the existing disclosures required on Form 5500; if additional disclosure is warranted it should be mandated by the IRS or the Department of Labor (DOL) through a proposed revision to the Form 5500, and subject to public comment,” says the letter. It adds that “this public disclosure fails to take into account the various voluntary IRS and DOL correction programs available to plan sponsors to address these concerns, none of which involve a public disclosure on the worldwide web.”

“This type of broad disclosure discourages plan sponsors from maintaining qualified plans, and invites unnecessary concern by plan participants and unnecessary attention from plaintiff’s attorneys,” the letter continues.

Retain the Materiality Threshold on Audit Procedures. The letter asserts that “For the first time, the proposal would require auditors to perform audit procedures regarding specified plan provisions, irrespective of the assessed risks of material misstatement.” It argues that eliminating the materiality threshold unnecessarily makes those audits more expensive and complex.

Not only that, the letter points out that plan sponsors often have third party recordkeepers, consultants or attorneys that provide these same services, and that the result would be “duplicative effort and additional costs to the plan sponsor for maintaining the plan (which may be passed onto the plan participants).”

Extend the Effective Date of the Proposal by at Least Two Years. The proposal is scheduled to be effective for audits for periods ending on or after Dec.15, 2018 (e.g., 2018 plan year). Given the extent of the changes the proposal sets forth, the letter argues, “a sufficient transition period will be needed” to implement it. And, it posits, “additional considerations and concerns may well materialize that will need to be addressed to ensure the continued success of the retirement system.”

Accordingly the ARA recommends that the proposal not be effective until at least the 2020 plan year, which it says “will give the benefits community the time necessary to complete a thorough analysis of the proposal.”

The letter says that ASPPA and the ARA will have to conduct further review and consideration before there could be any endorsement of the proposal.