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| This alert contains information about disclosing the of name of the certifying institution in ERISA Section 103(a)(3)(C) Financial Statements. |
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Disclosure of Name of Certifying Entity in ERISA Section 103(a)(3)(C) Financial Statements
In preparing for the 2023 ERISA Section 103(a)(3)(C) audit season, plan auditors may wish to consider encouraging plan administrators that do not currently disclose the name(s) of the certifying institution(s) in the notes to the plan financial statements to begin doing so. As discussed below, DOL believes that information is an integral part of the annual filing. If the plan administrator does not make such disclosure, auditors may wish to consider including the information in their auditor's report.
ERISA generally requires plans with 100 or more participants to provide audited financial statements as part of the annual report filed with the DOL. 29 CFR § 2520.103-1(b)(3) of the DOL's Rules and Regulations for Reporting and Disclosure under ERISA requires that the notes to the audited financial statements include disclosure of "any other matters necessary to fully and fairly present the financial condition of the plan." Because the investment information included in plan financial statements subject to an ERISA Section 103(a)(3)(C) audit is derived from information provided by the certifying entity, it is important that the certifying institution meets the requirements in 29 CFR 2520.103–8. As such, DOL EBSA has indicated that when the plan administrator elects an ERISA Section 103(a)(3)(C) audit, the name(s) of the qualified institution(s) certifying the investment information is information necessary to fully and fairly present the financial condition of the plan. DOL has noted that frequently this information is not included in the financial statement notes.
Paragraph 2.45 of the AICPA Audit and Accounting Guide, Employee Benefit Plans (EBP Guide), states that it is important for the notes to the financial statements to clearly identify the certified investment information, the names of the qualified certifying institutions, and periods covered. Paragraph C.08 of the EBP Guide includes the following illustration of a disclosure that would generally be included in the notes to the financial statements when plan management elects an ERISA Section 103(a)(3)(C) audit, which includes the name of the certifying institution (Note: This illustration presumes that all investment information has been certified. The note disclosure would need to be revised to identify the certified investment information and periods covered when only a portion of the investment information is certified or when there has been a change in trustee or custodian who is certifying the information):
M. Certified Investments
Certain information related to investments and notes receivable from participants disclosed in the accompanying financial statements and ERISA-required supplemental schedule, including investments and notes receivable from participants held at December 31, 20X1 and 20X0, and net appreciation in fair value of investments, interest and dividends, and interest income on notes receivable from participants for the year ended December 31, 20X1, was obtained by management and agreed to or derived from information certified as complete and accurate by DEF Trust Company (the trustee of the Plan).
While disclosure of the name(s) of the certifying institution(s) in the auditor's report is not required, paragraph 14.66 of the EBP Guide suggests that if the notes to the financial statements do not identify the names of the qualified certifying institutions and periods covered, then such information may be included in the auditor's report.
The DOL's Office of Chief Accountant (OCA) has the responsibility for enforcing ERISA's reporting and disclosure requirements. This includes ensuring that the Form 5500 filings are filed timely and correctly and determining whether plan audits are performed in accordance with professional and regulatory standards. In situations in which the name(s) of the certifying institution(s) is not included in the financial statements or auditor’s report, the OCA will contact the plan administrator, requesting such information be provided (i.e., a copy of the certification from the financial institution). If the plan administrator does not provide the information in a timely manner, the OCA may initiate a formal enforcement process by sending a Notice of Rejection (NOR) to the plan administrator. Upon receipt of a NOR, the plan administrator has 45 days to make any necessary corrections to the Form 5500 filing (including providing any requested information). If correction is achieved during the 45-day period of the NOR, the enforcement case will be closed with no imposition of monetary civil penalty against the plan administrator. However, If correction is not achieved within this period, the DOL may assess monetary civil penalties from the day after the filing's original due date. If the filing is rejected for a reason other than the missing disclosure related to the certifying institution but it is later discovered that the name of the certifying institution is not disclosed, the plan administrator will not receive an additional 45 days to correct the deficiency; DOL may assess penalties without providing additional notice.
Sincerely,
AICPA Employee Benefit Plans Audit Quality Center |
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