Pension Costs on DOD Contracts

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The Assad memo confirms that these contractors will not be entitled to submit REAs to be made whole from the cost impacts on their existing contracts from implementing the new pension plan cost accounting rules.

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The memo states that, effective February 27, , the Cost Principle at In fact, we have no ability to estimate whether there are scores of screwed-over contractors, or perhaps only one or two. But we bet if you are one of those unlucky contractors, you know who you are and are steaming mad about this situation.

The Assad memo contains a lot of meat regarding how the impacts of the CAS revisions will be implemented by the affected contractors.


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But what caught our eye was the treatment of the nonmajor contractors who are impacted by the rule but have no right of recovery because they technically are not subject to the CAS themselves. We have long argued that it makes little sense to exempt contractors from the burdensome requirements of CAS coverage, only to condition cost allowability on compliance with certain aspects of the Standards.

The difference between the market value of the assets and the actuarial accrued liability for the segment represents an adjustment of previously-determined pension costs. What should be the purpose of this provision in the future? Qualified plans can no longer have significant delays for vesting. Issues related to CAS c 12 i : The determination of the actuarial accrued liability shall be made using the accrued benefit cost method. The actuarial assumptions employed shall be consistent with the current and prior long term assumptions used in the measurement of pension costs.

If there is a pension plan termination, the actuarial accrued liability shall be measured as the amount paid to irrevocably settle all benefit obligations or paid to the Pension Benefit Guarantee Corporation PBGC.

Additional Guidance Needed to Ensure Costs Are Consistent and Reasonable

How should the actuarial accrued liability be measured for the following conditions:. Issues related to CAS c 12 ii : In computing the market value of assets for the segment, if the contractor has not already allocated assets to the segment, such an allocation shall be made in accordance with the requirements of paragraphs c 5 i and ii of this subsection [i. The market value of the assets shall be reduced by the accumulated value of prepayment credits, if any.

Conversely, the market value of the assets shall be increased by the current value of any unfunded actuarial liability separately identified and maintained in accordance with CAS a 2. In other words, what if there are incomplete, inadequate, or lost historical records because adequate detailed records were NOT kept for some period of time during the life of the segment? Issues related to CAS c 12 iii : The calculation of the difference between the market value of the assets and the actuarial accrued liability shall be made as of the date of the event e.

If such a date is not readily determinable, or if its use can result in an inequitable calculation, the contracting parties shall agree on an appropriate date. Issues related to CAS c 12 iv : Pension plan improvements adopted within 60 months of the date of the event which increase the actuarial accrued liability shall be recognized on a prorata basis using the number of months the date of adoption preceded the event date.

Plan improvements mandated by law or collective bargaining agreement are not subject to this phase-in. Issues related to CAS c 12 v : If a segment is closed due to a sale or other transfer of ownership to a successor in interest in the contracts of the segment and all of the pension plan assets and actuarial accrued liabilities pertaining to the closed segment are transferred to the successor segment, then no adjustment amount pursuant to this paragraph c 12 is required.


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  8. If only some of the pension plan assets and actuarial accrued liabilities of the closed segment are transferred, then the adjustment amount required under this paragraph c 12 shall be determined based on the pension plan assets and actuarial accrued liabilities remaining with the contractor. In either case, the effect of the transferred assets and liabilities is carried forward and recognized in the accounting for pension cost at the successor contractor.

    Does the CAS Board need to address how plan assets and liabilities are divided and transferred? Issues related to CAS c 12 vi : The Government's share of the adjustment amount determined for a segment shall be the product of the adjustment amount and a fraction. The adjustment amount shall be reduced for any excise tax imposed upon assets withdrawn from the funding agency of a qualified pension plan. The numerator of such fraction shall be the sum of the pension plan costs allocated to all contracts and subcontracts including Foreign Military Sales subject to this Standard during a period of years representative of the Government's participation in the pension plan.

    The denominator of such fraction shall be the total pension costs assigned to cost accounting periods during those same years. This amount shall represent an adjustment of contract prices or cost allowance as appropriate. The adjustment may be recognized by modifying a single contract, several but not all contracts, or all contracts, or by use of any other suitable technique. However, if the contractor continues to perform Government contracts, the contracting parties may negotiate an amortization schedule, including interest adjustments.

    Any amortization agreement shall consider the magnitude of the adjustment credit or charge, and the size and nature of the continuing contracts.

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    Should the contractor create prepayment credit equal to the gross adjustment credit amount? Should the contractor create an unfunded accrual equal to the gross adjustment charge amount?

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    Issues related to CAS c 12 viii : If a benefit curtailment is caused by a cessation of benefit accruals mandated by ERISA based on the plan's funding level, then no adjustment for the curtailment of benefit pursuant to this paragraph c 12 is required. Instead, the curtailment of benefits shall be recognized as follows:. A If the written plan document provides that benefit accruals are nonforfeitable once employment service has been rendered and shall be retroactively restored if and when the benefit accrual limitation ceases, then, the contractor may elect to recognize the expected benefit accruals in the actuarial accrued liability and normal cost during the period of cessation for the determination of pension cost in accordance with the provisions of CAS and B Otherwise, the curtailment of benefits shall be recognized as an actuarial gain or loss for the period.

    The subsequent restoration of missed benefit accruals shall be recognized as an actuarial gain or loss in the period in which the restoration occurs. General Questions: Besides the questions raised concerning specific provisions within CAS c 12 , the staff has identified a few general questions. Should such contracts be subject to CAS c 12? Dodd-Frank Wall Street Reform documents in the last year.

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