Interpretive Bulletin Relating to the Independence of Employee Benefit Plan Accountants, 54368-54373 [2022-18898]

Agencies

• Employee Benefits Security Administration
• DEPARTMENT OF LABOR

[Federal Register Volume 87, Number 171 (Tuesday, September 6, 2022)]
[Rules and Regulations]
[Pages 54368-54373]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2022-18898]



[[Page 54368]]

=======================================================================
-----------------------------------------------------------------------

DEPARTMENT OF LABOR

Employee Benefits Security Administration

29 CFR Part 2509

RIN 1210-AC15


Interpretive Bulletin Relating to the Independence of Employee 
Benefit Plan Accountants

AGENCY: Employee Benefits Security Administration, Department of Labor.

ACTION: Final rule.

-----------------------------------------------------------------------

SUMMARY: This document contains an Interpretive Bulletin (IB) setting 
forth guidelines for determining when a qualified public accountant is 
independent for purposes of auditing and rendering an opinion on the 
financial statements required to be included in the annual report filed 
with the Department of Labor (Department) under the Employee Retirement 
Income Security Act of 1974, as amended (ERISA). Under ERISA, a plan 
administrator is generally required to retain, on behalf of all plan 
participants, an ``independent qualified public accountant'' to conduct 
an annual examination of the plan's financial statements and to render 
an opinion as to whether the financial statements are presented fairly 
in conformity with generally accepted accounting principles (GAAP) and 
whether the schedules required to be included in the plan's annual 
report present fairly, and in all material respects the information 
contained therein when considered in conjunction with the financial 
statements taken as a whole. The purpose of this document is to revise 
and restate an IB the Department issued in 1975 on accountant 
independence in order to remove certain outdated and unnecessarily 
restrictive provisions and reorganize its provisions for clarity while 
continuing to ensure that the Department's interpretations foster 
proper auditor independence and access of employee benefit plan to 
highly qualified auditors and audit firms.

DATES: Effective on September 6, 2022.

FOR FURTHER INFORMATION CONTACT: Suzanne Adelman, Office of Regulations 
and Interpretations, Employee Benefits Security Administration (EBSA), 
(202) 693-8500. This is not a toll-free number.
    Customer Service Information: Individuals interested in obtaining 
information from the Department of Labor concerning ERISA and employee 
benefit plans may call the EBSA Toll-Free Hotline, at 1-866-444-EBSA 
(3272) or visit the Department of Labor's website (www.dol.gov/ebsa).

SUPPLEMENTARY INFORMATION:

Background

    The Employee Retirement Income Security Act of 1974, as amended 
(ERISA), contains provisions designed to protect the interests of plan 
participants and beneficiaries by requiring the establishment of 
effective mechanisms to detect and deter abusive practices. This 
includes requiring annual reporting of financial information and 
activities of employee benefit plans to the Department of Labor 
(Department). Sections 101, 103 and 104 of ERISA impose annual 
reporting and filing obligations on pension and welfare benefit plans. 
Plan administrators, employers, and others generally satisfy these 
annual reporting obligations pursuant to the Department's implementing 
regulations by filing a Form 5500 (Annual Return/Report of Employee 
Benefit Plan) together with any required schedules and attachments. An 
integral component of ERISA's annual reporting provisions is the 
requirement that employee benefit plans, unless otherwise exempt, be 
subjected to an annual audit performed by an independent qualified 
public accountant (IQPA), and that the accountant's report be included 
as part of the plan's Form 5500 annual report filed with the 
Department.\1\ The IQPA requirements in ERISA were intended to protect 
the assets and the financial integrity of employee benefit plans, and 
provide participants, beneficiaries, plan administrators, other plan 
fiduciaries, and the Department with reliable information about an 
employee benefit plan and its financial soundness.
---------------------------------------------------------------------------

    \1\ Certain employee benefit plans are eligible for waivers or 
limited exemptions from the IQPA audit requirements under 
regulations issued by the Department. For example, 29 CFR 2520.104-
44 provides a limited exemption for welfare plans which are either 
unfunded, insured or partly unfunded-partly insured, and 29 CFR 
2520.104-46 provides a conditional waiver of the examination and 
report of an IQPA for employee benefit plans with fewer than 100 
participants.
---------------------------------------------------------------------------

    Section 103(a)(3)(A) of ERISA, codified at 29 U.S.C. 1023(a)(3)(A), 
sets forth the requirements governing the IQPA's annual audit. The 
administrator of an employee benefit plan is required to engage, on 
behalf of all plan participants, an IQPA to conduct an examination of 
the plan's financial statements, and other books and records of the 
plan, as the accountant deems necessary to form an opinion on whether 
the financial statements required to be included in the plan's annual 
report are presented fairly in accordance with generally accepted 
accounting principles (GAAP) applied on a basis consistent with that of 
the preceding year and whether the schedules required to be included in 
the plan's annual report present fairly, and in all material respects 
the information contained therein when considered in conjunction with 
the financial statements taken as a whole. Section 103(a)(3)(A) of 
ERISA further requires that the accountant's examination must be 
conducted ``in accordance with generally accepted auditing standards 
[(GAAS)], and shall involve such tests of the books and records of the 
plan as are considered necessary by the independent qualified public 
accountant.'' \2\ The accountant's report must contain certain opinions 
with respect to the financial statements and schedules covered by the 
report and the accounting principles and practices reflected in such 
report. Further, the accountant's report must identify any matters to 
which the accountant takes exception, whether the matters to which the 
accountant takes exception are the result of the Department's 
regulations and, to the extent practicable, the effect on the financial 
statements of the matters to which the accountant has taken exception. 
If the auditor's independence is considered to have been impaired after 
the audit is completed, a new audit by another accountant may be 
required.\3\
---------------------------------------------------------------------------

    \2\ Under ERISA, the Department plays no role in setting GAAP 
and GAAS standards. Such standards are set by institutions closely 
related to the accounting industry--the Financial Accounting 
Standards Board (FASB) and the American Institute of Certified 
Public Accountants (AICPA). The Public Company Accounting Oversight 
Board (PCAOB) is responsible for setting auditing standards for 
audits of public companies. In July 2019, the AICPA Auditing 
Standards Board (ASB) issued Statement on Auditing Standards (SAS) 
No. 136, Forming an Opinion and Reporting on Financial Statements of 
Employee Benefit Plans Subject to ERISA. Codified in new AU-C 
section 703 of the AICPA Professional Standards, the standard 
addresses the auditor's responsibility to form an opinion and report 
on the audit of financial statements of employee benefit plans 
subject to ERISA, and the form and content of the auditor's report 
issued as a result of an audit of ERISA plan financial statements. 
SAS No. 141 deferred the effective date of SAS No. 136 to audits of 
ERISA plan financial statements for periods ending on or after 
December 15, 2021, with early implementation permitted. Information 
on the Auditing Standards Board and AU-C Section 703 is available on 
the AICPA website at https://us.aicpa.org.
    \3\ If a plan does not comply with ERISA's annual reporting 
requirements, including failing to satisfy the requirements relating 
to an audit report and opinion of an IQPA, the Department may reject 
the plan's annual report. If a satisfactorily revised report is not 
submitted, the Department may, under section 104(a)(5) of ERISA, 
retain an independent qualified public accountant on behalf of the 
participants to perform a sufficient audit, bring a civil suit for 
legal or equitable relief that may be appropriate, or take any other 
enforcement action authorized under Title I.
---------------------------------------------------------------------------

    Section 103(a)(3)(D) of ERISA, codified at 29 U.S.C. 1023(a)(3)(D),

[[Page 54369]]

states that the term ``qualified public accountant'' means--(i) a 
person who is a certified public accountant, certified by a regulatory 
authority of a State; (ii) a person who is a licensed public 
accountant, licensed by a regulatory authority of a State; or (iii) a 
person certified by the Secretary as a qualified public accountant in 
accordance with regulations published by the Secretary for a person who 
practices in States where there is no certification or licensing 
procedure for accountants. Although section 103 of ERISA does not 
include a definition of the term ``independent'' for purposes of the 
audit requirement, in the Department's view, an accountant's 
independence is at least of equal importance to the professional 
competence an accountant brings to an engagement in rendering an 
opinion and issuing a report on the financial statements of an employee 
benefit plan and the schedules required to be included in the plan's 
annual report. Thus, pursuant to the Department's authority to 
interpret and enforce section 103(a)(3)(A) of ERISA, the Department 
issued Interpretive Bulletin 75-9 in 1975 to provide guidelines for 
determining when an accountant is independent for purposes of ERISA's 
annual reporting requirements.\4\
---------------------------------------------------------------------------

    \4\ Codified at 29 CFR 2509.75-9. See 40 FR 53998 (Nov. 20, 
1975), as amended at 40 FR 59728 (Dec. 30, 1975), and redesignated 
as IB 75-9 at 41 FR 1906 (Jan. 13, 1976).
---------------------------------------------------------------------------

    No explanatory preamble accompanied the 1975 IB when it was 
published,\5\ but its structure and provisions were largely predicated 
on specific principles that generally parallel the Securities and 
Exchange Commission's (SEC) independence requirements for auditing 
publicly traded companies. Specifically, the auditor (1) cannot 
function in the role of management, (2) cannot audit his or her own 
work, (3) cannot serve in roles or have relationships that create 
mutual or conflicting financial interests, and (4) cannot be in a 
position of being an advocate for the audit client.\6\ The 1975 IB 
reflected these principles by setting forth three specific sets of 
circumstances that would conclusively render the accountant to not be 
independent--the first is based on certain roles and statuses, the 
second is based on financial interests, and the third is based on 
engaging in management functions related to financial records that 
would be the subject of the audit--and by setting forth a general facts 
and circumstances approach that would govern in all other cases.
---------------------------------------------------------------------------

    \5\ Id.
    \6\ The SEC's requirements for auditor independence are 
described in the preamble to the final rule on the Revision of the 
Commission's Auditor Independence Requirements, 65 FR 76008 (Dec. 5, 
2000).
---------------------------------------------------------------------------

    The Department has periodically been asked to clarify and update 
its guidelines on the independence of accountants to adjust to changes 
in the accounting industry and to address differences that have 
developed as other regulatory authorities have adopted changes to their 
auditor independence requirements. Accountants and accounting firms 
have pointed to the challenges of monitoring compliance with different 
independence standards that apply to different business sectors for 
which they provide audit services. They have also noted that the nature 
and complexity of the business environment in which accountants perform 
services has changed in ways that have led many accounting firms to 
develop expertise in an array of activities in addition to audit 
services that may be provided to audit clients. For example, 
accountants may engage in business consulting, valuation and appraisal 
services, applications programming, electronic data processing, and 
recordkeeping.
    In the years following the 1975 IB, other regulatory authorities 
have addressed and revisited issues relating to accountant 
independence. For example, on January 28, 2003, the SEC adopted final 
rules regarding independence for auditors that file financial 
statements with the SEC implementing Title II of the Sarbanes-Oxley Act 
of 2002.\7\ The SEC further amended its auditor independence rules in 
2019 and 2020.\8\ The Sarbanes-Oxley Act also authorized the 
establishment of the Public Company Accounting Oversight Board (PCAOB), 
which requires that a registered public accounting firm and its 
associated persons be independent of the firm's audit client throughout 
the audit and professional engagement period.\9\ The United States 
Government Accountability Office (GAO) has similarly published auditor 
independence requirements under Government Auditing Standards that 
cover federal entities and organizations receiving federal funds. See 
GAO, The Yellow Book, www.gao.gov/yellowbook/overview. The AICPA, 
although a private membership organization, sets GAAS requirements for 
non-PCAOB audits, which, ERISA 103(a)(3)(A) expressly adopted for plan 
audits, and GAAS includes standards by which the auditor must abide to 
avoid impairment of independence. See AICPA, www.aicpa.org. Many states 
have also included an independence component in their requirements for 
licensed public accountants. Some have specifically adopted the AICPA's 
Code of Professional Conduct, including its independence guidelines, 
while others have adopted state-specific rules.
---------------------------------------------------------------------------

    \7\ 68 FR 6005 (Feb. 5, 2003), as corrected by 68 FR 15354 (Mar. 
31, 2003).
    \8\ See Auditor Independence with Respect to Certain Loans or 
Debtor-Creditor Relationships, 84 FR 32040 (July 5, 2019); 
Qualifications of Accountants, Release No. 33-10876 (Oct. 16, 2020), 
www.sec.gov/rules/final/2020/33-10876.pdf. (published in the Federal 
Register at 85 FR 80508 (Dec. 11, 2020)).
    \9\ See https://pcaobus.org/oversight/standards/ethics-independence-rules.
---------------------------------------------------------------------------

    In 2006, the Department issued a Request for Information (RFI) on 
Independence of Employee Benefit Plan Accountants which sought 
information from the public to assist the Department in evaluating 
whether the guidelines in the 1975 IB provided adequate guidance for 
plan officials, participants and beneficiaries, accountants, and other 
affected parties.\10\ The Department solicited public input on a broad 
range of issues, including fifteen separate questions on particular 
areas. After reviewing the public comments submitted in response to the 
RFI, the Department did not undertake a rulemaking project on 
accountant independence or otherwise change the Department's 
interpretive stance on accountant independence generally. The 
Department also concluded that suggestions from some commenters that 
the Department simply adopt the SEC's current rules or guidelines on 
accountant independence or the ethics-based independence guidelines of 
the AICPA would have required a significant departure from the 
Department's largely facts and circumstances approach, to a more 
detailed and prescriptive approach to independence determinations.\11\ 
The Department also concluded that it was not necessary to formally 
incorporate all or part of the AICPA independence guidelines into an 
updated IB. Compliance with the AICPA independence guidelines is 
already part of the GAAS audit requirement incorporated into statute by 
ERISA section 103(a)(3)(A) and also part of the

[[Page 54370]]

Department's general relevant facts and circumstances approach to the 
accountant independence requirement. Further, the Department was 
concerned that expressly adopting either the AICPA or another 
regulator's requirements as the ERISA standard could result in 
unintended and undesirable outcomes to the extent that aspects of those 
other standards or future changes to those standards departed from 
ERISA policies and purposes.
---------------------------------------------------------------------------

    \10\ 71 FR 53348 (Sept. 11, 2006).
    \11\ For example, the AICPA publishes ``The Plain English Guide 
to Independence'' that cites a wide range of ``further assistance'' 
documents, including the AICPA Code of Professional Conduct; 
Background and Basis for Conclusions: Revisions to Interpretations 
and Rulings Under Rule 101--Independence; a Conceptual Framework for 
Independence and a related Toolkit; and the 2011 Yellow Book 
Independence--Nonaudit Services Documentation Practice Aid. The 
Guide including links to the ``further assistance'' documents are 
available at https://us.aicpa.org/interestareas/professionalethics/resources.html.
---------------------------------------------------------------------------

    Although not directly related to the accountant independence 
requirement, the Employee Benefit Security Administration (EBSA) Office 
of the Chief Accountant (OCA) actively engages in an ongoing assessment 
of the level and quality of audit work performed by IQPAs with respect 
to financial statement audits of employee benefit plans covered by 
ERISA.\12\ This assessment began as a follow-up to a 1989 report issued 
by the Office of Inspector General (OIG) in which the OIG concluded 
that 23% of employee benefit plan audits failed to comply with one or 
more established professional standards. In addition, the OIG found 
that 65% of IQPA reports on employee benefit plans did not meet the 
reporting and disclosure requirements of ERISA and the regulations 
thereunder. The primary objective of EBSA's ongoing review has been to 
assess whether the level and quality of audit work performed by IQPAs 
with respect to audits of employee benefit plans covered by ERISA had 
improved as a result of actions taken by the Department and the 
accounting and auditing profession since the issuance of the OIG's 1989 
report.
---------------------------------------------------------------------------

    \12\ OCA enforces the annual reporting and audit requirements 
applicable to ERISA-covered employee benefit plans through the 
imposition of civil penalties against a plan administrator whose 
annual report is rejected, as provided in Part 1, Sections 103 and 
104, and Part 5, Section 502, of Title I of ERISA. OCA also operates 
under the broad authority to conduct investigations and to inspect 
records, under Part 5, Section 504 of Title I of ERISA.
---------------------------------------------------------------------------

    EBSA also implemented an Audit Quality Inspection Program in 2005 
that significantly expanded OCA's inspection of IQPAs' work as compared 
to OCA's former on-site audit work paper reviews and ``mini'' 
inspections. The expanded program has two main components: (1) 
inspections of IQPAs' employee benefit plan audit practices and (2) 
reviews of a sample of the IQPAs' employee benefit plan audit work 
papers. EBSA has published two reports on the results of its 
assessments and recommendations for improvements, one in 2004 and 
another in 2015. Work on a third report is underway. One important 
report finding is that there is a clear link between the number of 
employee benefit plan audits performed by a certified public accountant 
(CPA) and the quality of the audit work performed. As set out in the 
May 2015 Report, the Department's analysis of the data from this audit 
quality survey indicated a wide disparity in deficiency rates between 
those CPAs who perform the fewest plan audits and those firms that 
perform the largest number of plan audits. CPAs who performed the 
fewest number of employee benefit plan audits annually had a 76% 
deficiency rate for the audits, meaning that the audit contained 
deficiencies with respect to one or more relevant GAAS requirements. In 
contrast, accountants in firms performing the most plan audits had a 
deficiency rate of 12% for the audits.\13\ As noted above, the 
Department did not open a rulemaking project after its 2006 RFI, but it 
has continued to engage with accounting industry stakeholders, 
including efforts to encourage plan fiduciaries to engage auditors who 
perform high-quality employee benefit plan audits.\14\ That engagement 
more recently has focused on whether the Department can adjust the 1975 
IB to remove outdated or unnecessarily restrictive provisions with the 
goal of fostering greater plan access to high-quality auditors for 
ERISA plans and better aligning the Department's independence 
guidelines with those of other accounting regulatory bodies. Based on 
that continuing engagement, the Department is persuaded that certain 
changes to the 1975 IB independence guidelines can be implemented that 
would be consistent with the goal of expanding employee benefit plan 
access to the most qualified accountants and accounting firms while 
ensuring that the guidelines continue to foster proper auditor 
independence. In addition to making the adjustments described in more 
detail below, the Department has reorganized the interpretive bulletin 
for clarity.
---------------------------------------------------------------------------

    \13\ Report of the U.S. Department of Labor, Employee Benefits 
Security Administration, Office of the Chief Accountant, Assessing 
the Quality of Employee Benefit Plan Audits (May 2015) (www.dol.gov/agencies/ebsa/key-topics/reporting-and-filing/audit-quality).
    \14\ In September 2018, the Department published a guidebook on 
selecting an auditor, reviewing the audit work and auditor's report, 
and maximizing the value of the audit process. The guidebook is 
entitled Selecting an Auditor for Your Employee Benefit Plan, and it 
is available at www.dol.gov/sites/dolgov/files/ebsa/about-ebsa/our-activities/resource-center/publications/selecting-an-auditor-for-your-employee-benefit-plan.pdf. A copy can also be ordered by 
calling 1-866-444-3272. The publication is part of the Department's 
efforts to educate employee benefit plan fiduciaries that selecting 
an auditor is a fiduciary responsibility and that a well performed 
audit is a vital protection for the plan.
---------------------------------------------------------------------------

1. Time Period During Which Accountants Are Prohibited From Holding 
Financial Interests in the Plan or Plan Sponsor

    The 1975 IB set out the Department's view that an accountant cannot 
conduct the ERISA-required audit of a plan's financial statements if 
the accountant, the accountant's firm, or a ``member'' of the firm has 
a ``direct financial interest or material indirect financial interest'' 
in the plan or plan sponsor ``during the period covered by the 
financial statements'' or ``[d]uring the period of professional 
engagement.'' For example, assume a calendar-year publicly traded 
sponsor of an employee benefit plan decides to change its accountant in 
March 2021 to perform the audit of the benefit plan's calendar year 
2020 Form 5500 financial statements, which must be filed with the 
Department for calendar year plans no later than the maximum extended 
due date of October 15, 2021. Under the 1975 IB, the new accountant 
would be ineligible to audit the benefit plan's financial statements if 
even one partner of the firm held a single share of the publicly traded 
stock of the sponsor at any time during 2020, the year under audit. The 
AICPA, in the context of our ongoing engagement on independence issues 
and in a letter to EBSA dated March 15, 2019, advised that the 
requirement that the accountant not have such an interest ``during the 
period covered by the financial statements'' departs from the rules of 
other accounting regulatory bodies because it prevents auditors from 
avoiding disqualification by disposing of the financial interest prior 
to the period of the professional engagement (i.e., before signing the 
initial audit engagement letter or commencing audit procedures).\15\
---------------------------------------------------------------------------

    \15\ AICPA Letter to Joe Canary, Director, Office of Regulations 
and Interpretations, Employee Benefits Security Administration, from 
James W. Brackens, Jr., CPA, CGMA, Vice President--Ethics & Practice 
Quality, dated March 15, 2019.
---------------------------------------------------------------------------

    The Department is persuaded that the absence of a divestiture 
provision for certain financial interests in the 1975 IB makes it 
unnecessarily restrictive and may serve to unduly limit ERISA plans' 
access to the best qualified auditors. In the Department's view, 
requiring that an accountant (or a member of the accountant's firm) not 
have such a financial interest in the publicly traded securities of the 
plan sponsor during the period covered by the financial statements (in 
contrast to the period of the engagement) is not necessary to ensure an 
accountant's independence.

[[Page 54371]]

By disposing of such publicly traded securities prior to the 
engagement, firms and accountants can readily eliminate concern about 
independence and give plans access to their audit services.
    Therefore, subject to a limitation described below, the Department 
is revising its independence guidelines to provide an exception for new 
audit engagements from the otherwise applicable condition on holding 
disqualifying financial interests during the period covered by the 
financial statements being audited. Under this approach, an accountant 
or firm is not disqualified from accepting a new audit engagement 
merely because of holding publicly traded securities of a plan sponsor 
during the period covered by the financial statements as long as the 
accountant, accounting firm, partners, shareholder employees, and 
professional employees of the accountant's accounting firm, and their 
immediate family, have disposed of any holdings of such publicly traded 
securities prior to the period of professional engagement. The updated 
IB also includes a definition of the ``period of professional 
engagement'' that provides the term means the period beginning when an 
accountant either signs an initial engagement letter or other agreement 
to perform the audit or begins to perform any audit, review or attest 
procedures (including planning the audit of the plan's financial 
statements), whichever is earlier, and ending with the formal 
notification, either by the member or client, of the termination of the 
professional relationship or the issuance of the audit report for which 
the accountant was engaged, whichever is later. This exception provides 
accountants with a divestiture window between the time when there is an 
oral agreement or understanding that a new client has selected them to 
perform the plan audit and the time an initial engagement letter or 
other written agreement is signed or audit procedures commence, 
whichever is sooner.\16\
---------------------------------------------------------------------------

    \16\ Compare with the SEC rule on ``Qualifications of 
accountants'' at 17 CFR 210.2-01, including paragraphs 
(c)(1)(iii)(B) (financial relationships exception for new audit 
engagements) and (f)(13) (defining ``immediate family'' as meaning a 
person's spouse, spousal equivalent, and dependents).
---------------------------------------------------------------------------

    The new audit engagement exception is limited to publicly traded 
securities. For purposes of the exception, publicly traded securities 
are securities listed on a registered stock exchange in which 
quotations are published on a daily basis, securities regularly traded 
in a national or regional over-the-counter market for which published 
quotations are available, or securities traded on a foreign national 
securities exchange that is officially recognized, sanctioned, or 
supervised by a governmental authority and where the security is deemed 
by the SEC as having a ready market under applicable SEC rules. The 
ERISA auditor independence rules often apply to private and closely 
held organizations that sponsor plans. In the Department's view, 
incentives for an auditor to apply less robust audit procedures or to 
be less transparent in reporting audit results could carry over from 
other financial interests in the sponsor held during the period covered 
by the financial statements being audited. Accordingly, in order to 
maintain the important protections and public confidence that auditor 
independence provides, the updated IB continues to provide that other 
financial interests in the plan sponsor during the period covered by 
the financial statements categorically impair the accountant's 
independence even if divested before commencing a new audit engagement.
    Furthermore, the Department is of the view that it is appropriate 
that an accountant's relative's ownership interest in a plan sponsor be 
attributed to the accountant in appropriate circumstances in order to 
preserve the accountant's and the firm's independence.\17\ Although not 
expressly incorporated into the other examples in the 1975 IB, the 
Department has and will continue generally to treat the attribution 
rules in the AICPA independence standard as a relevant fact and 
circumstance, and, accordingly, has and will continue to consider 
spouse and dependent ownership and roles in our enforcement of the 
ERISA section 103(a)(3)(A) requirements governing IQPA audits.
---------------------------------------------------------------------------

    \17\ Attribution provisions are also part of the SEC and PCAOB 
independence requirements. See 17 CFR 210.2-01(c)(1)(i) (investments 
in audit clients) and ET Section 101.02, Interpretation 101-1B at 
https://pcaobus.org/Standards/EI/Pages/ET101.aspx.
---------------------------------------------------------------------------

    The updated IB continues the current guideline under which an 
independent, qualified public accountant may permissibly engage in or 
have members of the accountant's accounting firm engage in certain 
professional services to the plan or plan sponsor that are not 
connected to an audit or review of a plan's financial statements 
without being deemed to have failed the independence requirement. 
Specifically, the updated IB continues the provisions in the current 
guidelines under which an accountant will not be treated as failing the 
independence requirement solely by reason of rendering actuarial 
services by an actuary associated with the accountant or the 
accountant's firm, or retention or engagement of the accountant or the 
accountant's firm on a professional basis by the plan sponsor, provided 
that the specific examples of prohibitions on recognition of 
independence in the updated IB are not violated. As with the 1975 IB, 
the updated IB provides as a general principle that in determining 
whether an accountant or accounting firm is not, in fact, independent 
with respect to a particular plan, the Department will give appropriate 
consideration to all relevant circumstances, including evidence bearing 
on all relationships between the accountant or accounting firm and that 
of the plan sponsor or any affiliate thereof. The IB also continues the 
caution from the 1975 IB that multiple services arrangements may 
involve prohibited transactions under ERISA, and notes the requirements 
to comply with conditions in prohibited transaction exemptions, such as 
the prohibited transaction exemption in ERISA section 408(b)(2) for 
ERISA section 406(a)(1)(C) service provider transactions.\18\
---------------------------------------------------------------------------

    \18\ The 1975 IB includes the following sentences: ``It should 
be noted that the rendering of services to a plan by an actuary and 
accountant employed by the same firm may constitute a prohibited 
transaction under section 406(a)(1)(C) of the Act. The rendering of 
such multiple services to a plan by a firm will be the subject of a 
later interpretive bulletin that will be issued by the Department of 
Labor.'' Section 406(a)(1)(C) sets forth a prohibited transaction 
restriction arising from the furnishing of goods, services, or 
facilities between a plan and a party in interest. Subsequent to the 
issuance of the 1975 IB, regulations and guidance on prohibited 
transactions in general (e.g., 29 CFR 2550.408b-2) were issued, 
rendering the reference to a ``later interpretive bulletin'' 
obsolete and unnecessary.
---------------------------------------------------------------------------

2. Definition of ``Office'' for Purpose of Determining Who Is a 
``Member'' of the Firm

    The 1975 IB defines ``member'' as ``all partners or shareholder 
employees in the firm and all professional employees participating in 
the audit or located in an office of the firm participating in a 
significant portion of the audit.'' In the years since the 1975 IB was 
published, the concept of an ``office'' for workplace purposes has 
changed to focus more on workgroups than on physical locations. The 
Department is persuaded that its definition of ``member'' would be 
improved by including a definition of ``office'' for purposes of 
determining when an individual is ``located in an office'' of the firm 
participating in a significant portion of the audit. In the 
Department's view, substance should govern the office classification, 
and the expected regular personnel interactions and assigned reporting 
channels of an individual may well be more important than an 
individual's physical location.

[[Page 54372]]

Accordingly, the updated IB defines the term ``office'' to mean a 
reasonably distinct subgroup within a firm, whether constituted by 
formal organization or informal practice, in which personnel who make 
up the subgroup generally serve the same group of clients or work on 
the same categories of matters regardless of the physical location of 
the individual. This definition of the term ``office'' is modeled on 
the definition used in the AICPA independence standard. See AICPA Code 
of Professional Conduct, 0.400.36 (Effective December 15, 2014, and 
updated for official releases through August 31, 2016) (available at 
www.aicpa.org). See also SEC rules on independence of accountants at 17 
CFR 210.2-01(f)(15) (definition of ``office'').

List of Subjects in 29 CFR Part 2509

    Employee benefit plans, Employee Retirement Income Security Act, 
Fiduciaries, Pensions, Reporting and recordkeeping requirements.

    For the reasons set forth in the preamble, the Department is 
amending part 2509 of title 29 of the Code of Federal Regulations as 
follows:

Subchapter A--General

PART 2509--INTERPRETIVE BULLETINS RELATING TO THE EMPLOYEE 
RETIREMENT INCOME SECURITY ACT OF 1974

0
1. The authority citation for part 2509 continues to read as follows:

    Authority:  29 U.S.C. 1135. Secretary of Labor's Order 1-2003, 
68 FR 5374 (Feb. 3, 2003). Sections 2509.75-10 and 2509.75-2 issued 
under 29 U.S.C. 1052, 1053, 1054. Sec. 2509.75-5 also issued under 
29 U.S.C. 1002. Sec. 2509.95-1 also issued under sec. 625, Pub. L. 
109-280, 120 Stat. 780.


Sec.  2509.75-9  [Removed]

0
2. Remove Sec.  2509.75-9.

0
3. Add Sec.  2509.2022-01 to read as follows:


Sec.  2509.2022-01   Interpretive bulletin relating to guidance on 
independence of accountant retained by employee benefit plan.

    This section provides guidance for determining when a qualified 
public accountant is independent for purposes of auditing and rendering 
an opinion on the financial information required to be included in the 
annual report (Form 5500 Annual Return/Report of Employee Benefit Plan) 
filed with the Department of Labor (Department).
    (a) In general. Section 103(a)(3)(A) of the Employee Retirement 
Income Security Act of 1974 (ERISA) and 29 CFR 2520.103-1(b)(5) of the 
Department's implementing regulations require that the accountant 
retained by an employee benefit plan be ``independent'' for purposes of 
examining plan financial information and rendering an opinion on the 
financial statements and schedules required to be contained in the 
annual report. Under section 103(a)(3)(A) of ERISA the Department will 
not recognize any person as an independent qualified public accountant 
who is in fact not independent with respect to the employee benefit 
plan upon which that accountant renders an opinion in the annual report 
filed with the Department. In determining whether an accountant or 
accounting firm is not independent, the Department will give 
appropriate consideration to all relevant circumstances, including 
evidence bearing on all relationships between the accountant or 
accounting firm and that of the plan sponsor or any affiliate thereof, 
and will not confine itself to the relationships existing in connection 
with the filing of annual reports with the Department of Labor.
    (b) Examples. The following examples are intended to illustrate how 
the Department would apply paragraph (a) of this section in certain 
common financial and business relationships. The Department in 
enforcing the Form 5500 annual reporting requirements will not consider 
an accountant to be independent with respect to a plan if:
    (1)(i) During the period of professional engagement to examine the 
financial statements being reported, at the date of the opinion, or 
during the period covered by the financial statements, the accountant, 
the accountant's firm or a member thereof had, or was committed to 
acquire, any direct financial interest or any material indirect 
financial interest in such plan, or the plan sponsor as that term is 
defined in section 3(16)(B) of ERISA;
    (ii) An accountant will not be deemed to have failed the 
independence requirement under paragraph (b)(1)(i) of this section as a 
result of any holding of publicly traded securities of the plan sponsor 
during the period covered by the financial statements if:
    (A) The accountant did not audit the client's financial statements 
for the immediately preceding fiscal year; and
    (B) The accountant, the accounting firm, a partner, shareholder 
employee, or professional employee of the accounting firm, and their 
immediate family disposed of any holding of publicly traded securities 
of the plan sponsor before the earlier of:
    (1) Signing an initial engagement letter or other agreement to 
provide audit, review, or attest services to the audit client; or
    (2) Commencing any audit, review, or attest procedures (including 
planning the audit of the client's financial statements); and
    (iii) For purposes of paragraph (b)(1)(ii) of this section, 
publicly traded securities are securities listed on a registered stock 
exchange in which quotations are published on a daily basis, securities 
regularly traded in a national or regional over-the-counter market for 
which published quotations are available, or securities traded on a 
foreign national securities exchange that is officially recognized, 
sanctioned, or supervised by a governmental authority and where the 
security is deemed by the U.S. Securities and Exchange Commission (SEC) 
as having a ready market under applicable SEC rules;
    (2) During the period of professional engagement to examine the 
financial statements being reported, at the date of the opinion, or 
during the period covered by the financial statements, the accountant, 
the accountant's firm, or a member thereof was connected as a promoter, 
underwriter, investment advisor, voting trustee, director, officer, or 
employee of the plan or plan sponsor, except that a firm will not be 
deemed not independent in regard to a particular plan if a former 
officer or employee of such plan or plan sponsor is employed by the 
firm and such individual has completely disassociated himself from the 
plan or plan sponsor and does not participate in auditing financial 
statements of the plan covering any period of his or her employment by 
the plan or plan sponsor; or
    (3) An accountant or a member of an accounting firm maintains 
financial records for the employee benefit plan.
    (c) Effect of certain other services to the plan or plan sponsors. 
(1) Subject to paragraph (c)(2) of this section, an accountant will not 
fail to be recognized as independent solely on the basis that at or 
during the period of the accountant's professional engagement with the 
employee benefit plan:
    (i) The accountant or the accountant's firm is retained or engaged 
on a professional basis by the plan sponsor, as that term is defined in 
section 3(16)(B) of ERISA; or
    (ii) An actuary associated with the accountant or accounting firm 
renders actuarial services to the plan or plan sponsor.
    (2) However, to retain recognition of independence, the 
prohibitions against recognition of independence in paragraph (b)(1), 
(2), or (3) of this section must not be violated. Further, the 
rendering of multiple services to a

[[Page 54373]]

plan by a firm may give rise to circumstances indicating a lack of 
independence with respect to the employee benefit plan (e.g., result in 
the accountant or firm providing services that are subject to audit 
procedures as part of the plan's audit), and, in accordance with 
paragraph (a) of this section, in determining whether an accountant or 
accounting firm is not, in fact, independent with respect to a 
particular plan, the Department will give appropriate consideration to 
all relevant circumstances, including evidence bearing on all 
relationships between the accountant or accounting firm and that of the 
plan sponsor or any affiliate thereof.
    (3) Rendering multiple services to a plan by a firm also may 
involve prohibited transactions under ERISA and requirements to comply 
with conditions in prohibited transaction exemptions such as prohibited 
transaction exemption in ERISA section 408(b)(2) for ERISA section 
406(a)(1)(C) service provider transactions.
    (d) Definitions. For purposes of this section:
    (1) Member means all partners or shareholder employees in the firm 
and all professional employees participating in the audit or located in 
an office of the firm participating in a significant portion of the 
audit; the firm's employee benefit plans; or an entity whose operating, 
financial, or accounting policies can be controlled by any of the 
individuals or entities described in this paragraph (d)(1) or by two or 
more such individuals or entities acting together.
    (2) Office means a reasonably distinct subgroup within a firm, 
whether constituted by formal organization or informal practice, in 
which personnel who make up the subgroup generally serve the same group 
of clients or work on the same categories of matters regardless of the 
physical location of the individuals who comprise such subgroup. 
Substance should govern the office classification, and the expected 
regular personnel interactions and assigned reporting channels of an 
individual may well be more important than an individual's physical 
location.
    (3) Period of professional engagement means the period beginning 
when an accountant either signs an initial engagement letter or other 
agreement to perform the audit or begins to perform any audit, review 
or attest procedures (including planning the audit of the plan's 
financial statements), whichever is earlier, and ending with the formal 
notification, either by the member or client, of the termination of the 
professional relationship or the issuance of the audit report for which 
the accountant was engaged, whichever is later. In the case of an 
auditor that performs a plan's audit for two or more years, in 
evaluating independence, the Department would not view the period of 
professional engagement as ending with the issuance of each year's 
audit report and recommencing with the beginning of the following 
year's audit engagement.

    Signed at Washington, DC, this 26th day of August, 2022.
Ali Khawar,
Acting Assistant Secretary, Employee Benefits Security Administration, 
U.S. Department of Labor.
[FR Doc. 2022-18898 Filed 9-2-22; 8:45 am]
BILLING CODE 4510-29-P