[Federal Register Volume 62, Number 184 (Tuesday, September 23, 1997)]
[Proposed Rules]
[Pages 49900-49903]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-25244]
[[Page 49899]]
_______________________________________________________________________
Part V
Department of Defense
General Services Administration
National Aeronautics and Space Administration
_______________________________________________________________________
48 CFR Parts 15, 31, and 52
Federal Acquisition Regulations; Pay-As-You-Go Pension Costs; Clause
Flowdown-Commercial Items; and
Federal Acquisition Regulation; Taxes Associated With Divested
Segments; Proposed Rules
Federal Register / Vol. 62, No. 184 / Tuesday, September 23, 1997 /
Proposed Rules
[[Page 49900]]
DEPARTMENT OF DEFENSE
GENERAL SERVICES ADMINISTRATION
NATIONAL AERONAUTICS AND SPACE ADMINISTRATION
48 CFR Parts 15, 31, and 52
[FAR Case 89-012]
RIN 9000-AC90
Federal Acquisition Regulation; Pay-As-You-Go Pension Costs
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 to amend the Federal
Acquisition Regulation (FAR) to provide consistency with the cost
accounting standards for composition and measurement of pension cost
and adjustment and allocation of pension cost. This regulatory action
was not subject to Office of Management and Budget review under
Executive Order 12866, dated September 30, 1993. This is not a major
rule under 5 U.S.C. 804.
DATES: Comments should be submitted on or before November 24, 1997 to
be considered in the formulation of a final rule.
ADDRESSES: Interested parties should submit written comments to:
General Services Administration, FAR Secretariat (MVRS), 1800 F Street,
NW, Room 4035, Washington, DC 20405.
E-mail comments submitted over Internet should be addressed to:
farcase.89-012@gsa.gov.
Please cite FAR case 89-012 in all correspondence related to this
case.
FOR FURTHER INFORMATION CONTACT: The FAR Secretariat, Room 4035, GS
Building, Washington, DC 20405 (202) 501-4755 for information
pertaining to status or publication schedules. For clarification of
content, contact Mr. Jeremy Olson, Procurement Analyst, at (202) 501-
3221. Please cite FAR case 89-012.
SUPPLEMENTARY INFORMATION:
A. Background
This rule proposes to amend FAR 31.001, Definitions; FAR 31.205-6,
Compensation for personal services; and FAR 52.215-27, Termination of
Defined Benefit Pension Plans, to provide consistency with 48 CFR
9904.412, Cost Accounting Standard for composition and measurement of
pension cost (CAS 412), and 48 CFR 9904.413, Adjustment and allocation
of pension cost (CAS 413). The interim rule, which was published in the
Federal Register at 54 FR 13022, March 29, 1989 was necessary because
the United States Court of Appeals had ruled that FAR 31.205-6(j)(5)
was inconsistent with CAS 412, and that the controlling regulation was
CAS 412.
Since the 1989 interim FAR rule was published, the Office of
Federal Procurement Policy, Cost Accounting Standards Board, made
substantial changes to CAS 412 and 413 relating to accounting for
pension costs under negotiated Government contracts. These changes were
published in the Federal Register as a proposed rule with request for
comment at 58 FR 58999, November 5, 1993. Public comments were received
and considered in the development of the final CAS rule published in
the Federal Register at 60 FR 16534, March 30, 1995. The changes in the
final CAS rule addressed pension cost recognition for qualified pension
plans subject to the tax-deductibility limits of the Federal Tax Code,
problems associated with pension plans that are not qualified plans
under the Federal Tax Code, and problems associated with overfunded
pension plans.
This proposed rule would: (1) Revise the definitions at FAR 31.001
to conform with the CAS Board's definitions; (2) delete references to
``unfunded pension plans'' since CAS 412 and CAS 413 no longer refer to
unfunded pension plans; (3) add new language to FAR 31.205-6(j) to
address transfer of assets to another account within the same fund, to
address the allowability of costs for nonqualified pension plans using
the pay-as-you-go cost method, and to address both CAS requirements and
all other situations not covered by CAS; (4) add new language at FAR
31.205-6(j)(6), which was previously reserved, to refer to CAS 412 and
CAS 413 for treatment of pension plans using the pay-as-you-go cost
method; (5) provide other editorial changes to make FAR 31.001 and
31.205-6 consistent with the language of CAS 412 and CAS 413; and (6)
revise the clause at FAR 52.215-27, Termination of Defined Benefit
Pension Plans, to conform the clause with the proposed FAR Part 31
changes.
Eighteen comments were received in response to the interim FAR
rule. All comments were considered in the development of this proposed
rule.
B. Regulatory Flexibility Act
This proposed rule is not expected to have a significant economic
impact on a substantial number of small entities within the meaning of
the Regulatory Flexibility Act, 5 U.S.C. 601, et seq., because most
contracts awarded to small entities use simplified acquisition
procedures or are awarded on a competitive, fixed-price basis, and do
not require application of the cost principle contained in this rule.
An Initial Regulatory Flexibility Analysis has, therefore, not been
performed. Comments from small entities concerning the affected FAR
subpart will be considered in accordance with 5 U.S.C. 610 of the Act.
Such comments must be submitted separately and should cite 5 U.S.C.
601, et seq. (FAR case 89-012), in correspondence.
C. Paperwork Reduction Act
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 Parts 15, 31 and 52
Government procurement.
Dated: September 17, 1997.
Edward C. Loeb,
Director, Federal Acquisition Policy Division.
Therefore, it is proposed that 48 CFR Parts 15, 31 and 52 be
amended as set forth below:
1. The authority citation for 48 CFR Parts 15, 31 and 52 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 15--CONTRACTING BY NEGOTIATION
15.804-8 [Amended]
1a. Section 15.804-8 is amended in paragraph (e) by revising
``Termination of Defined Benefit Pension Plans'' to read ``Pension
Adjustments and Asset Reversions''.
PART 31--CONTRACT COST PRINCIPLES AND PROCEDURES
2. Section 31.001 is amended by removing the definitions
``Actuarial liability'' and ``Unfunded pension plan''; by adding, in
alphabetical order, the definitions ``Actuarial accrued liability'',
``Nonqualified pension plan'', and ``Qualified pension plan''; by
[[Page 49901]]
revising the definitions of ``Accrued benefit cost method'',
``Actuarial assumption'', ``Actuarial cost method'', ``Actuarial
valuation'', ``Funded pension cost'', ``Normal cost'', ``Pension
plan'', ``Projected benefit cost method'', and revising the definition
heading ``Termination gain or loss'' to read ``Temination of employment
gain or loss'' as follows:
31.001 Definitions.
Accrued benefit cost method means an actuarial cost method under
which units of benefits are assigned to each cost accounting period and
are valued as they accrue; i.e., based on the services performed by
each employee in the period involved. The measure of normal cost under
this method for each cost accounting period is the present value of the
units of benefit deemed to be credited to employees for service in that
period. The measure of the actuarial accrued liability at a plan's
inception date is the present value of the units of benefit credited to
employees for service prior to that date. (This method is also known as
the Unit Credit cost method without salary projection.
* * * * *
Actuarial accrued liability means pension cost attributable, under
the actuarial cost method in use, to years prior to the current period
considered by a particular actuarial valuation. As of such date, the
actuarial accrued liability represents the excess of the present value
of future benefits and administrative expenses over the present value
of future normal costs for all plan participants and beneficiaries. The
excess of the actuarial accrued liability over the actuarial value of
the assets of a pension plan is the unfunded actuarial liability. The
excess of the actuarial value of the assets of a pension plan over the
actuarial accrued liability is an actuarial surplus and is treated as a
negative unfunded actuarial liability.
Actuarial assumption means an estimate of future conditions
affecting pension cost; e.g., mortality rate, employee turnover,
compensation levels, earnings on pension plan assets, and changes in
values of pension plan assets.
Actuarial cost method means a technique which uses actuarial
assumptions to measure the present value of future pension benefits and
pension plan administrative expenses, and which assigns the cost of
such benefits and expenses to cost accounting periods. The actuarial
cost method includes the asset valuation method used to determine the
actuarial value of the assets of a pension plan.
* * * * *
Actuarial valuation means the determination, as of a specified
date, of the normal cost, actuarial accrued liability, actuarial value
of the assets of a pension liability, actuarial value of the assets of
a pension plan, and other relevant values for the pension plan.
* * * * *
Funded pension cost means the portion of pension cost for a current
or prior cost accounting period that has been paid to a funding agency.
* * * * *
Nonqualified pension plan means any pension plan other than a
qualified pension plan as defined in this part.
Normal cost means the annual cost attributable, under the actuarial
cost method in use, to current and future years as of a particular
valuation date excluding any payment in respect of an unfunded
actuarial liability.
* * * * *
Pension plan means a deferred compensation plan established and
maintained by one or more employers to provide systematically for the
payment of benefits to plan participants after their retirements,
provided that the benefits are paid for life or are payable for life at
the option of the employees. Additional benefits such as permanent and
total disability and death payments, and survivorship payments to
beneficiaries of deceased employees may be an integral part of a
pension plan.
* * * * *
Projected benefit cost method means either
(1) Any of the several actuarial cost methods which distribute the
estimated total cost of all of the employees' prospective benefits over
a period of years, usually their working careers, or
(2) A modification of the accrued benefit cost method that
considers projected compensation levels.
* * * * *
Qualified pension plan means a pension plan comprising a definite
written program communicated to and for the exclusive benefit of
employees which meets the criteria deemed essential by the Internal
Revenue Service as set forth in the Internal Revenue Code for
preferential tax treatment regarding contributions, investments, and
distributions. Any other plan is a nonqualified pension plan.
* * * * *
3. Section 31.205-6 is amended by revising paragraphs (j)1) through
(j)(6) to read as follows:
31.205-6 Compensation for personal services.
* * * * *
(j) Pension costs. (1) A pension plan is a deferred compensation
plan as defined in 31.001. Additional benefits such as permanent and
total disability and death payments and survivorship payments to
beneficiaries of deceased employees may be treated as pension costs,
provided the benefits are an integral part of the pension plan and meet
all the criteria pertaining to pension costs.
(2) Pension plans are normally segregated into two types of plans:
defined-benefit or defined-contribution pension plans. The cost of all
defined-benefit pension plans shall be measured, allocated, and
accounted for in compliance with the provisions of 48 CFR 9904.412,
Cost accounting standard for composition and measurement of pension
cost, and 48 CFR 9904.413, Adjustment and allocation of pension cost.
The costs of all defined-contribution pension plans shall be measured,
allocated and accounted for in accordance with the provisions of 48 CFR
9904.412. Pension costs are allowable subject to the referenced
standards and the cost limitations and exclusions set forth in
paragraph (j)(2)(i) and in paragraphs (j)(3) through (8) of this
subsection.
(i) Except for nonqualified pension plans using the pay-as-you-go
cost method to be allowable in the current year, pension costs must be
funded by the time set for filing of the Federal income tax return or
any extension thereof. Pension costs assigned to the current year, but
not funded by the tax return time, shall not be allowable in any
subsequent year. For nonqualified pension plans using the pay-as-you-go
cost method, to be allowable in the current year, pension costs must be
allocable in accordance with 48 CFR 9904.412-50(d)(3).
(ii) Pension payments must be reasonable in amount and be paid
pursuant to (A) an agreement entered into in good faith between the
contractor and employees before the work or services are performed and
(B) the terms and conditions of the established plan. The cost of
changes in pension plans which are discriminatory to the Government or
are not intended to be applied consistently for all employees under
similar circumstances in the future are not allowable.
(iii) Except as provided for early retirement benefits in paragraph
(j)(7) of this subsection, one-time-only pension supplements not
available to all participants of the basic plan are not allowable as
pension costs unless the
[[Page 49902]]
supplemental benefits represent a separate pension plan and the
benefits are payable for life at the option of the employee.
(iv) Increases in payments to previously retired plan participants
covering cost-of-living adjustments are allowable if paid in accordance
with a policy or practice consistently followed.
(3) Defined-benefit pension plans. This paragraph covers pension
plans in which the benefits to be paid or the basis for determining
such benefits are established in advance and the contributions are
intended to provide the stated benefits. The cost limitations and
exclusions pertaining to defined-benefit plans are as follows:
(i)(A) Except for nonqualified pension plans, pension costs (see 48
CFR 9904.412-40(a)(1)) assigned to the current accounting period but
not funded during it, shall not be allowable in subsequent years
(except that a payment made to a fund by the time set for filing the
Federal income tax return or any extension thereof is considered to
have been made during such taxable year).
(B) For nonqualified pension plans, except those using the pay-as-
you-go cost method, allowable costs are limited to the amount allocable
in accordance with 48 CFR 9904.412-50(d)(2).
(C) For nonqualified pension plans using the pay-as-you-go cost
method, allowable costs are limited to the amounts allocable in
accordance with 48 CFR 9904.412-50(d)(3).
(ii) Any amount funded before the time it becomes assignable is not
allowable and shall be accounted for as set forth at 48 CFR 9904.412-
50(a)(4), and shall be allowable in the future period to which it is
assigned, to the extent it is allocable, reasonable, and not otherwise
unallowable.
(iii) Increased pension costs caused by delay in funding beyond 30
days after each quarter of the year to which they are assignable are
unallowable. If a composite rate is used for allocating pension costs
between the segments of a company and if, because of differences in the
timing of the funding by the segments, an inequity exists, allowable
pension costs for each segment will be limited to that particular
segments calculation of pension costs as provided for in 48 CFR
9904.413-50(c). Determination of unallowable costs shall be made in
accordance with the actuarial cost method used in calculating pension
costs.
(iv) Allowability of the cost of indemnifying the Pension Benefit
Guaranty Corporation (PBGC) under Section 4062 or 4064 of the
Employee's Retirement Income Security Act of 1974 (ERISA) arising from
terminating an employee deferred compensation plan will be considered
on a case-by-case basis; provided that if insurance was required by the
PBGC under ERISA Section 4023, it was so obtained and the
indemnification payment is not recoverable under the insurance.
Consideration under the foregoing circumstances will be primarily for
the purpose of appraising the extent to which the indemnification
payment is allocable to Government work. If a beneficial or other
equitable relationship exists, the Government will participate, despite
the requirements of 31.205-19 (a)(3) and (b), in the indemnification
payment to the extent of its fair share.
(v) Increased pension costs resulting from the withdrawal of assets
from a pension fund and transfer to another employee benefit plan fund,
or transfer of assets to another account within the same fund, are
unallowable except to the extent authorized by an advance agreement.
The advance agreement shall:
(A) State the amount of the Government's equitable share in the
gross amount withdrawn or transferred; and
(B) Provide that the Government receive a credit equal to the
amount of the Government's equitable share of the gross withdrawal or
transfer.
(4) Pension adjustments and asset reversions. (i) For segment
closings, pension plan terminations, or curtailment of benefits,
whether or not the contract or subcontract is subject to Cost
Accounting Standards (CAS), the adjustment amounts shall be the amounts
measured, assigned, and allocated in accordance with 48 CFR 9904.413-
50(c)(12). Notwithstanding the language in 48 CFR 9904.413-
50(c)(12)(vi), which limits the numerator of the adjustment to CAS-
covered contracts, for the purposes of the calculations under this
paragraph, all contracts and subcontracts that are subject to subpart
31.2 or for which cost or pricing data were submitted shall be treated
as if they were subject to 48 CFR 9904.413 and shall be included in the
numerator of the adjustment.
(ii) For all other situations when assets revert to the contractor,
or such assets are constructively received by it for any reason, the
contractor shall, at the Governments option, make a refund or give a
credit to the Government for its equitable share of the gross amount
withdrawn. The Governments equitable share shall reflect the
Governments participation in pension costs through those contracts for
which cost or pricing data were submitted or which are subject to
subpart 31.2. Excise taxes on pension plan asset reversions or
withdrawals are unallowable under this paragraph (j)(4)(ii) in
accordance with 31.205-41(b)(6).
(5) Defined-contribution pension plans. This paragraph covers those
pension plans in which the contributions are established in advance and
the level of benefits is determined by the contributions made. It also
covers profit sharing, savings plans, and other such plans provided the
plans fall within the definition of a pension plan in paragraph (j)(1)
of this subsection.
(i) Allowable pension cost is limited to the net contribution
required to be made for a cost accounting period after taking into
account dividends and other credits, where applicable. However, any
portion of pension cost computed for a cost accounting period that
exceeds the amount required to be funded pursuant to a waiver granted
under the provisions of ERISA will be allowable in those future
accounting periods in which the funding of such excess amounts occurs
(see 48 CFR 9904.412-50(c)(5)).
(ii) Any amount funded before the time it becomes assignable is not
allowable and shall be accounted for as set forth at 48 CFR 9904.412-
50(a)(4), and shall be allowable in the future period to which it is
assigned, to the extent it is allocable, reasonable, and not otherwise
unallowable.
(iii) The provisions of paragraph (j)(3)(iv) of this subsection
apply to defined-contribution plans.
(6) Pension plans using the pay-as-you-go cost method. The cost of
pension plans using the pay-as-you-go cost method shall be measured,
allocated, and accounted for in accordance with 48 CFR 9904.412 and
9904.413. Pension costs for a pension plan using the pay-as-you-go cost
method shall be allowable to the extent they are allocable, reasonable,
and not otherwise unallowable.
* * * * *
PART 52--SOLICITATION PROVISIONS AND CONTRACT CLAUSES
4. Section 52.215-27 is revised to read as follows:
52.215-27 Pension Adjustments and Asset Reversions.
As prescribed in 15.804-8(e), insert the following clause:
Pension Adjustments and Asset Reversions (Date)
(a) The Contractor shall promptly notify the Contracting Officer
in writing when it determines that it will terminate a defined-
benefit pension plan or otherwise recapture such pension fund
assets.
[[Page 49903]]
(b) For segment closings, pension plan terminations, or
curtailment of benefits, whether or not this contract or the
applicable subcontract is subject to Cost Accounting Standards
(CAS), the adjustment amounts shall be the amounts measured,
assigned, and allocated in accordance with 48 CFR 9904.413-
50(c)(12). Notwithstanding the language in 48 CFR 9904.413-
50(c)(12)(vi), which limits the numerator of the adjustment to CAS-
covered contracts, for the purposes of the calculations under this
paragraph, all contracts and subcontracts that are subject to
Subpart 31.2 or for which cost or pricing data were submitted shall
be treated as if they were subject to 48 CFR 9904.413 and shall be
included in the numerator of the adjustment.
(c) For all other situations when assets revert to the
Contractor, or such assets are constructively received by it for any
reason, the Contractor shall, at the Government's option, make a
refund or give a credit to the Government for its equitable share of
the gross amount withdrawn. The Government's equitable share shall
reflect the Government's participation in pension costs through
those contracts for which cost or pricing data were submitted or
which are subject to Subpart 31.2 of the Federal Acquisition
Regulation (FAR).
(d) The Contractor shall include the substance of this clause in
all subcontracts under this contract which meet the applicability
requirements of FAR 15.804-8(e).
(End of clause)
[FR Doc. 97-25244 Filed 9-22-97; 8:45 am]
BILLING CODE 6820-EP-P
