Engagement Letter for 401(k) Plan Audit

Apologies if this is not the best forum to post this particular question but I'm curious about possible trends with respect to dispute resolution and similar terms in engagement letters for plan audits.  We recently were asked to review a proposed engagement letter for a 2020 plan audit for a large 401(k) plan sponsor and, in looking over it, noticed that since last year the audit firm had inserted broader indemnification provisions as well as mandatory mediation and binding arbitration clauses.  In addition, and particularly disconcerting to my mind, they also have inserted provisions to attempt to contractually limit the statute of limitations to one year and included express express terms prohibiting suit against any employee or partner of the audit firm for any reason.  I don't think anybody anticipates any issues with their audit firm and know you would not typically sue individual auditors personally if there was an issue but some of this seems way overbroad in the event some individual goes off track as part of the audit process, etc. 

Are these kinds of provisions market and/or a growing trend.  I'd really like to tell the client that they should reject the proposed terms and request something along the lines of the letters they've signed for many years in the past.  Or look for a new auditor.  And less of an increase in the audit fee . . . . Thanks.

Consider asking (quietly) a few accounting firms (preferably with a partner who’s your friend) what provisions the firm would seek in its engagement letter.

Doing so might help follow some EBSA guidance:  “At a minimum, compliance with [ERISA § 404(a)(1) and § 408(b)(2)] would require that a fiduciary assess the plan’s ability to obtain comparable services at comparable costs either from service providers without having to agree to such [limitations of liability and indemnification] provisions, or from service providers who have provisions that provide greater protection to the plan.”  ERISA Advisory Opinion 2002-08A (Aug. 20, 2002), available at https://www.dol.gov/agencies/ebsa/about-ebsa/our-activities/resource-center/advisory-opinions/2002-08a.  Although that opinion is about engaging an actuary, the reasoning should apply similarly for engaging another non-fiduciary professional-services provider.

But don’t be surprised if a survey finds many accounting firms seek mediation, arbitration, an exclusive venue, a liability cap, a short time bar on claims, and indemnity (at least if someone furnished incorrect or misleading information to the IQPA).  Depending on the client’s bargaining power, some points are negotiable.

Also, the plan’s administrator and each individual fiduciary might want its or her lawyer’s advice about the legal effect of each provision.

Thanks, Peter.  Appreciate the helpful thoughts.  The comment on the fee increase was intended more as a joke as I do think they are reasonable and market although they do include a slight increase from last year while layering in all the additional provisions.  Seems if they limit their exposure they might find a way to keep the fee the same.  Appreciate the thought about reaching out to other auditors too.  I'll do that but I'd really love to hear from a broader range of folks too as to what they have seen / are seeing in this space if anyone has experience to share.