Information Letter 07-11-1997

Dear Mr. Hammond:

Thank you for your letter concerning the Department of Labor's March 13, 1997 Federal Register announcement in which we requested public comments on a proposed enforcement policy for annual reports (Form 5500s) of multiemployer welfare plans. Under the proposal, the Department would not reject the annual report of a multiemployer welfare plan solely because the accountant's opinion accompanying the report was "qualified" or "adverse" due to a failure to account and report for "postretirement benefit obligations" in accordance with the American Institute of Certified Public Accountants' (AICPA) Statement of Position (SOP) 92- 6, Accounting and Reporting by Health and Welfare Benefit Plans. To allow the Department enough time to consider public comments on the proposal, the Federal Register announcement also provided that we will not reject 1996 and 1997 plan year annual reports due to such qualified or adverse accountant's opinions.

As you know, the Department published the proposed enforcement policy because trustees and other fiduciaries of multiemployer welfare plans complained that the AICPA's accounting rule would force them to incur substantial costs while producing information that would have little, if any, utility to anyone. We received forty-eight comment letters on the proposed enforcement policy. Those letters included many from multiemployer plan trustees, fiduciaries, and their accountants continuing to express objections to SOP 92-6, as well as the May 12, 1997 letter from the AICPA referenced in your letter to me.

I share your concern about the AICPA's view expressed in its May 12 letter that noncompliance with SOP 92-6 may necessitate an "adverse" opinion on the plan's financial statements, and that issuance of an "adverse" opinion prevents accountants from expressing any opinion on ERISA required supplemental schedules attached to the Form 5500, for example, the schedule of prohibited transactions, even though the schedules are completely unrelated to SOP 92-6. In fact, that appears to be inconsistent with AICPA positions in other circumstances where accountants are permitted to express opinions on supplemental schedules even though the accountant is issuing an adverse opinion or disclaiming any opinion on the plan's financial statements. See AICPA Audit and Accounting Guide -- Audits of Employee Benefit Plans § 13.28 (model opinion on DOL supplemental schedules for accountants disclaiming an opinion on financial statements when performing a "limited scope audit") and AICPA Professional Standards (vol. 1), AU § 554.02 Regulated Companies (providing, in part, that an adverse opinion may be accompanied by an opinion on supplementary data which are presented in conformity with generally accepted accounting principles).

I understand that multiemployer welfare plans need concrete guidance on what noncompliance with the entire SOP 92-6 will mean for the Department's handling of their ERISA annual reports. While the Department has not adopted a final position on SOP 92-6 for post-1997 plan years, I am concerned that the AICPA's position on the ERISA required supplemental schedules may create confusion regarding 1996 and 1997 plan year annual reports. Accordingly, we will not reject 1996 and 1997 annual reports because the accountant's opinion reflects or is otherwise affected by noncompliance with any aspect of SOP 92-6. For example, we will not reject the annual report of a multiemployer welfare plan if the accountant's refusal to render an opinion on supplemental schedules is due solely to the plan's failure to comply with SOP 92-6, or if a separate SOP 92-6 statement of benefit obligations is not presented, or because claims "incurred but not reported" (IBNR) for participants are not presented according to SOP 92-6's requirements. Based on comments from the AICPA and multiemployer plans, it appears that to do otherwise would foster confusion among multiemployer plans, or limit or otherwise undermine the relief we provided for 1996 and 1997 annual reports. We will expect administrators of multiemployer welfare plans to comply with the AICPA's pre-SOP 92-6 requirements in their financial statement treatment of the matters now covered by SOP 92-6. Administrators in satisfying their annual reporting obligations, of course, remain subject to the prudence and other fiduciary standards of section 404 of ERISA.

I understand the AICPA is forming a task force to consider the comments we received from the multiemployer welfare plan community in response to our proposed enforcement policy, and that the AICPA has also been considering several technical amendments to SOP 92-6. I am confident that by working together we can arrive at a resolution that will serve the public interest and the long-term best interests of plan participants and beneficiaries.