[Federal Register Volume 60, Number 215 (Tuesday, November 7, 1995)]
[Proposed Rules]
[Pages 56216-56217]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-27554]
[[Page 56215]]
_______________________________________________________________________
Part IV
Department of Defense
General Services Administration
National Aeronautics and Space Administration
_______________________________________________________________________
48 CFR Part 31
Federal Acquisition Regulation; Employee Stock Ownership Plans;
Proposed Rule
Federal Register / Vol. 60, No. 215 / Tuesday, November 7, 1995 /
Proposed Rules
[[Page 56216]]
DEPARTMENT OF DEFENSE
GENERAL SERVICES ADMINISTRATION
NATIONAL AERONAUTICS AND SPACE ADMINISTRATION
48 CFR Part 31
[FAR Case 92-24]
RIN 9000-AG53
Federal Acquisition Regulation; Employee Stock Ownership Plans
agencies: Department of Defense (DOD), General Services Administration
(GSA), and National Aeronautics and Space Administration (NASA).
action: Proposed rule.
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summary: The Civilian Agency Acquisition Council and the Defense
Acquisition Regulations Council are proposing changes to the cost
principles in the Federal Acquisition Regulation (FAR) to address
employee stock ownership plans (ESOPs). The purpose is to ensure
uniform treatment on the allowability of costs of all ESOP's
irrespective of whether the ESOP is structured as a pension plan or as
deferred compensation, including making the interest costs of leveraged
ESOPs expressly unallowable. This regulatory action was subject to
Office of Management and Budget review under Executive Order 12866,
dated September 30, 1993.
dates: Comments should be submitted on or before January 8, 1996 to be
considered in the formulation of a final rule.
addresses: Interested parties should submit written comments to:
General Services Administration, FAR Secretariat (VRS), 18th & F
Streets NW., Room 4037, Washington, DC 20405.
Please cite FAR case 92-24 in all correspondence related to this
case.
for further information contact: Mr. Jeremy Olson at (202) 501-3221 in
reference to this FAR case. For general information, contact the FAR
Secretariat, Room 4037, GS Building, Washington, DC 20405, (202) 501-
4755. Please cite FAR case 92-24.
SUPPLEMENTARY INFORMATION:
A. Background
By moving the current language on ESOP's from FAR 31.205-6(j)(8) to
a new 31.205-6(p), the proposed rule recognizes that ESOPs may be
governed by either the cost principle at 31.205-6(j), Pension plans, or
31.205-6(k), deferred compensation. The rule also makes the interest
costs on borrowings of leveraged ESOP's expressely unallowable in
accordance with FAR 31.205-20, thus placing leveraged ESOP's on the
same basis as non-leveraged ESOP's; limits the allowability of noncash
contributions to the Employee Stock Ownership Trust (ESOT) to the fair
market value on the date that the contractor effectively loses control
of the asset to the ESOT or pledges the asset to lender as loan
collateral; and proposes a ceiling of 15 percent on payroll-related
contributions, which is in consonance with limits on similar
supplemental retirement plans under the Internal Revenue Code.
B. Regulatory Flexibility Act
This proposed rule broadens a condition of allowability of costs
upon contractors who wish to be reimbursed under Government contracts.
The Regulatory Flexibility Act, 5 U.S.C. 601 et seq., applies, but the
rule is not expected to have a significant economic impact on a
substantial number of small entities because most contracts awarded to
small entities are awarded on a competitive, fixed-price basis and the
cost principles do not apply. An Initial Regulatory Flexibility
Analysis has therefore not been performed. Comments from small entities
concerning the affected FAR subpart will also be considered in
accordance with section 610 of the Act. Such comments must be submitted
separately and cite FAR case 92-24 in correspondence.
C. Paperwork Reduction Act
This proposed rule is a broader application of an existing cost
principle but does not affect how contractors account for costs of
ESOPs. The Paperwork Reduction Act does not apply because the proposed
changes to the FAR do not impose recordkeeping or information
collection requirements, or collections of information from offerors,
contractors, or members of the public which require the approval of the
Office of Management and Budget under 44 U.S.C. 3501 et seq.
List of Subjects in 48 CFR Part 31
Government procurement.
Dated: October 26, 1995.
C. Allen Olson,
Director, Office of Federal Acquisition Policy.
Therefore, it is proposed that 48 CFR Part 31 be amended as set
forth below:
1. The authority citation for 48 CFR Part 31 continues to read as
follows:
Authority: 40 U.S.C. 486(c); 10 U.S.C. chapter 137; and 42
U.S.C. 2473(c).
PART 31--CONTRACT COST PRINCIPLES AND PROCEDURES
2. Section 31.205-6 is amended by removing paragraph (j)(8) and
adding paragraph (p) to read as follows:
31.205-6 Compensation for personal services.
* * * * *
(p) Employee stock ownership plans (ESOPs). An ESOP is an
individual stock bonus plan designed specifically to invest in the
stock of the employer corporation. The contractor's contributions to a
trust of an ESOP may be in the form of cash, stock, or noncash assets.
In addition to specifically applicable pension and deferred
compensation cost principles in paragraphs (j) and (k), respectively,
of this subsection, ESOP costs are allowable subject to the following
provisions:
(1) Any portion of an ESOP cost assigned to a year which is not
paid to the Employee Stock Ownership Trust (ESOT) by the time set for
filing of the Federal income tax return for that year, or any extension
thereof, shall not be allowable.
(2) The contractor shall provide the contracting officer or
designated representative access to the books and records of the ESOT
and to any independent analysis of the fair market value of the stock
in the ESOT made for purposes of the ESOP. This includes analyses made
either for the ESOT or for the contractor.
(3) The contractor shall furnish evidence satisfactory to the
contracting officer demonstrating that acquisitions of stock or noncash
assets by the ESOT are made at the stock's or noncash asset's fair
market value. Any amount in excess of the fair market value is
unallowable.
(i) For purposes of applying the allowability criteria under
paragraph (p)(6) of this subsection, the fair market value of the stock
or noncash assets shall be determined as of the close of business on
the next business day after the transaction date.
(ii) For contractor contributions of stock or noncash assets, the
transaction date is the date on which the contractor sells, assigns, or
otherwise transfers control of the stock or noncash asset to the ESOT
or to a financial institution.
(4) When the stock used by the ESOT to satisfy the plan
requirements of an ESOP is not publicly traded or the contracting
officer determines that the stock was not publicly traded in sufficient
quantities to establish the fair market value, the fair market value of
the stock in paragraph (p)(3) of this
[[Page 56217]]
subsection shall be determined on a case-by-case basis by the
contracting officer, taking into consideration the guidelines for
valuation used by the IRS.
There is no presumption of allowability for the valuations claimed
by the contractor for such stock. Any amount determined to be
attributable to excess stock valuations is unallowable.
(5) Contractor contributions to an ESOT are unallowable to the
extent they are used by the ESOT to pay interest on borrowings, however
represented.
(6) the allowable amount of ESOP cost for a given year shall not
exceed the lesser of--
(i) The fair market value, as determined in paragraphs (p)(3) and
(p)(4) of this subsection, of stock shares credited to the accounts of
individual ESOP participants during that year reduced by--
(A) The fair market value of any forfeitures that are reallocated
to plan participants; and
(B) Dividends applicable to shares credited to plan participants;
or
(ii) 15 percent of the salaries and wages of the employees
participating in the ESOP for that year.
(7) In addition to paragraph (p)(6) of this subsection, the costs
to administer an ESOP are allowable, if reasonable in amount. These
allowable costs do not include costs which are otherwise unallowable
under part 31.
(8) Any increased costs resulting from conversion of the ESOP from
a pension to a non-pension plan or from a non-pension to a pension plan
are unallowable.
[FR Doc. 95-27554 Filed 11-6-95; 8:45 am]
BILLING CODE 6820-EP-M
