April 21, 2003
Securities and Exchange Commission
Re: File No. S7-06-03-Certification of Disclosure in Certain Exchange Act Reports
Ladies and Gentlemen:
We are submitting this letter in response to the request of the Securities and Exchange Commission (the "SEC") for comments on the SEC's proposed rules regarding compliance with Section 906 of the Sarbanes-Oxley Act of 2002 (the "Act").1 We commend the SEC and its staff for the high quality and speed of their efforts in carrying out the regulatory mandates of the Act, and we appreciate the opportunity to comment on these proposed rules.
I. Section 906 of the Act
Section 906 of the Act requires that all periodic reports containing financial statements that are filed with the SEC pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), be accompanied by a written statement of the chief executive officer ("CEO") and the chief financial officer ("CFO") of the issuer, or officers performing equivalent functions, certifying the accuracy of certain information contained in such reports. Section 906 subjects executives who knowingly or willfully certify false or inaccurate statements to criminal penalties.
II. Applicability of Section 906 of the Act to Employee Benefit Plans Filing Form 11-K
Employee benefit plans become subject to the reporting requirements of Section 15(d) of the Exchange Act to the extent that interests in such plans constitute securities that must be registered under the Securities Act of 1933, as amended (the "Securities Act"). An employee benefit plan may satisfy these reporting requirements by filing an annual report on Form 11-K, attaching a copy of such plan's financial statements. Typically, tax-qualified plans that permit employee contributions to be invested in securities of the plan sponsor (such as "401(k) plans") file reports on Form 11-K. In addition, employee stock purchase plans ("ESPPs") organized in accordance with Section 423 of the Internal Revenue Code of 1986, as amended (the "Code"), and certain deferred compensation plans that are not tax-qualified file reports on Form 11-K.2
The Section 906 certification requirements, if read literally, would apply to employee benefit plans filing reports on Form 11-K. We believe that this effect is beyond the intended scope of Section 906 of the Act and is inconsistent with the SEC's exclusion of Form 11-K filers from the certification requirements of Section 302 of the Act (discussed in Section III below). We therefore respectfully request that the SEC, in its final Section 906 rules, acting with the approval of the Department of Justice (the "DOJ"), explicitly exclude entities filing reports on Form 11-K from the certification requirements imposed by Section 906 of the Act.3
III. Exclusion for Form 11-K Filers From Comparable Certification Requirements Contained in Section 302 of the Act; Rationale for Excluding Form 11-K Filers From the Section 906 Certification Requirements
Section 302 of the Act contains provisions requiring CEOs and CFOs (or equivalent officers) to certify, among other things, that they have reviewed certain quarterly and annual reports filed under Section 13(a) or 15(d) of the Exchange Act and that, to their knowledge, such reports are materially complete and accurate. The SEC, in its final Section 302 rules, explicitly excluded entities filing annual reports on Form 11-K from the certification requirements imposed by Section 302 of the Act.4
While the SEC did not explain the basis for its exclusion of Form 11-K filers from the Section 302 certification requirements, we believe that the SEC's determination was correct. We believe that the DOJ should reach a similar conclusion with respect to the applicability of the certification requirements under Section 906 for the following reasons.
First, because the SEC has already exempted Form 11-K filers from the certification requirements contained in Section 302 of the Act, there is no policy reason that dictates or even suggests a different result under Section 906. Indeed, these provisions were enacted as part of a single statute to address a specific set of concerns. Section 302 refers to the periodic reports of "companies" and Section 906 refers to the periodic reports of "issuers." Even though it might be argued that the term "issuer" is broader than the term "company," different results under the two sections should not be inferred absent a clear policy reason.
Second, the language of Section 906 suggests that it was not intended to apply to employee benefit plans filing reports on Form 11-K. Section 906 requires certifications of periodic reports from CEOs and CFOs (or equivalent officers); however, employee benefit plans do not have individuals acting in either such capacity. An employee benefit plan is typically administered through one or more committees that are appointed as the plan's named fiduciaries to administer the plan and oversee plan investments.
Third, many entities filing annual reports on Form 11-K, including "401(k) plans" and leveraged ESOPs, are subject to extensive regulations under the Employee Retirement Income Security Act of 1974, as amended ("ERISA").5 ERISA already requires employee benefit plans subject thereto to file annual reports on Form 5500 with the Employee Benefits Security Administration of the Department of Labor (the "DOL") and the Internal Revenue Service (the "IRS"). These Form 5500s were designed by the DOL and the IRS with attention to the unique nature of employee benefit plans. In filing reports on Form 5500, plan administrators and plan sponsors6 must certify the following:
This certification, made under penalties of perjury,7 extends to the plan's financial statements contained in Schedule H to Form 5500.
Pursuant to the instructions to Form 11-K, employee benefit plans subject to ERISA filing reports on Form 11-K may file, as part of the Form 11-K, financial statements prepared in accordance with the financial reporting requirements of ERISA (i.e., financial statements filed with the Form 5500 and certified under penalties of perjury pursuant to ERISA).8 Accordingly, these ERISA certification requirements obviate the need for additional certification under Section 906.
IV. If Section 906 Applies to Form 11-K Filers, Its Requirements Should Be Satisfied By Existing ERISA Certification Provisions
As discussed above, many Form 11-K filers are already required to certify their financial reports annually under ERISA. ERISA certification provisions recognize the fact that employee benefit plans do not have CEOs or CFOs (or equivalent officers) and provide instead for certification of plan financial reports by appropriate individuals and entities. The DOL and the IRS have concluded that these individuals and entities are in the best position to certify facts related to employee benefit plans. Therefore, if the DOJ concludes that the Section 906 certification requirements apply to Form 11-K filers, we ask that such requirements, as applied to employee benefit plans that are subject to ERISA, be satisfied by the certification provided under ERISA in the Form 5500.
For the reasons set forth above, we believe that the Section 906 certification requirements should not apply to entities filing annual reports on Form 11-K. Alternatively, if Section 906 does apply to Form 11-K filers, for those subject to ERISA, the certification provided under ERISA in the Form 5500 should be accepted in satisfaction of the Section 906 requirements.
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We thank you for the opportunity to comment on the Section 906 proposed rules. We would be happy to discuss with you our comments or any other matters you feel would be helpful in your review of our comments. Please do not hesitate to contact Brick Susko at (212) 225-2410 if you would like to discuss these matters further.