[Federal Register Volume 59, Number 248 (Wednesday, December 28, 1994)]
[Unknown Section]
[Page ]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-30647]


[Federal Register: December 28, 1994]


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DEPARTMENT OF DEFENSE
DEPARTMENT OF DEFENSE

GENERAL SERVICES ADMINISTRATION

NATIONAL AERONAUTICS AND SPACE ADMINISTRATION

48 CFR Parts 31 and 52

[FAC 90-23; FAR Case 91-42; Item XXII]
RIN 9000-AE69


Federal Acquisition Regulation; Postretirement Benefits-
Transition Costs

AGENCIES: Department of Defense (DOD), General Services Administration 
(GSA), and National Aeronautics and Space Administration (NASA).

ACTION: Interim rule adopted as final.

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SUMMARY: The Civilian Agency Acquisition Council (CAAC) and the Defense 
Acquisition Regulations Council (DARC) have agreed to convert the 
interim rule published in the Federal Register at 56 FR 41738, August 
22, 1991, as Item IX of FAC 90-7, to a final rule with minor 
modifications. The final rule addresses the treatment of costs for 
postretirement benefits other than pensions (PRB) which are 
attributable to employees' past service. This regulatory action was not 
subject to Office of Management and Budget review under Executive Order 
12866, dated September 30, 1993.

EFFECTIVE DATE: February 27, 1995.

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 FAC 90-23, FAR Case 91-42.

SUPPLEMENTARY INFORMATION:

A. Background

    An interim rule was published in the Federal Register at 56 FR 
41738, August 22, 1991, as item IX of FAC 90-7. This interim rule 
changed FAR 31.205-6 to add a new paragraph (j)(3)(v), revised the 
first sentence of paragraph (j)(4), redesignated the existing paragraph 
(o)(4) as (o)(5), and added a new paragraph (o)(4).
    The final rule differs from the interim rule in that it also amends 
FAR 31.205-6(o)(2) to allow costs generated using the terminal funding 
method allowed for CAS-covered contractors. Both the terminal funding 
method and cash basis (pay-as-you-go) accounting are allowable 
assignment methods under CAS but are not sanctioned by the Generally 
Accepted Accounting Principles. It is intended that the methods allowed 
by CAS for prefunding retiree insurance programs be allowable for all 
contractors. Subsequent paragraphs are redesignated as (o)(3) through 
(o)(6) with minor clarifications made in paragraphs (o)(3) and (o)(5). 
A change is made in the clause at 52.215-39, Reversion or Adjustment of 
Plans for Postretirement Benefits Other Than Pensions (PRB), to reflect 
the change in paragraph numbering at FAR 31.205-6(o).
    The amended cost principle provides guidance for any transfer of 
pension funds to another employee benefit fund. In effect, the cost 
principle requires any increase in current or future Government costs 
for the pension fund due to such a withdrawal to be offset by 
equivalent decreases in Government costs for the employee benefit fund 
receiving the transfer. Transfers made without an advance agreement 
shall be treated as if the contractor withdrew the funds and are 
subject to FAR 31.205-6(j)(4), and the deposit to the receiving fund is 
subject to the cost allowability rules governing the receiving fund in 
regard to measurement and assignment of costs. Under 31.205-6(j)(4), 
the Government is entitled to its equitable share of the gross amount 
withdrawn from pension fund assets. FAR 31.205-6(o)(5) limits the 
allowable amount of contractor PRB transition costs for any fiscal year 
to the amount which would be assigned to that year using the 
amortization method described in Financial Accounting Standards Board 
Statement 106. This limitation is necessary because Government fiscal 
policy dictates that the past service cost element be amortized rather 
than immediately recognized.

B. Regulatory Flexibility Act

    The Department of Defense, the General Services Administration, and 
the National Aeronautics and Space Administration certify that this 
final rule will not have a significant economic impact on a substantial 
number of small entities under the Regulatory Flexibility Act, 5 U.S.C. 
601, et seq., because most contracts awarded to small entities are 
awarded on a competitive, fixed-price basis and the cost principles do 
not apply.

C. Paperwork Reduction Act

    The Paperwork Reduction Act does not apply because the 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 31 and 52

    Government procurement.

    Dated: December 7, 1994.
Albert A. Vicchiolla,
Director, Office of Federal Acquisition Policy.

    Therefore, 48 CFR parts 31 and 52 are amended as set forth below:
    1. The authority citation for 48 CFR parts 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 31--CONTRACT COST PRINCIPLES AND PROCEDURES

    2. Section 31.205-6 is amended by revising paragraph (o)(2); 
redesignating paragraphs (o)(3) through (o)(5) as (o)(4) through (o)(6) 
and adding a new paragraph (o)(3); and amending the newly designated 
paragraph (o)(5) by inserting the words ``in paragraph (o)(2)(iii) of 
this section'' after ``benefits'' to read as follows:


31.205-6  Compensation for personal services.

* * * * *
    (o) * * *
    (2) To be allowable, PRB costs must be reasonable and incurred 
pursuant to law, employer-employee agreement, or an established policy 
of the contractor. In addition, to be allowable, PRB costs must also be 
calculated in accordance with paragraphs (o)(2)(i), (ii), or (iii) of 
this section.
    (i) Cash basis. Cost recognized as benefits when they are actually 
provided, must be paid to an insurer, provider, or other recipient for 
current year benefits or premiums.
    (ii) Terminal funding. If a contractor elects a terminal-funded 
plan, it does not accrue PRB costs during the working lives of 
employees. Instead, it accrues and pays the entire PRB liability to an 
insurer or trustee in a lump sum upon the termination of employees (or 
upon conversion to such a terminal-funded plan) to establish and 
maintain a fund or reserve for the sole purpose of providing PRB to 
retirees. The lump sum is allowable if amortized over a period of 15 
years.
    (iii) Accrual basis. Accrual costing other than terminal funding 
must be measured and assigned according to Generally Accepted 
Accounting Principles and be paid to an insurer or trustee to establish 
and maintain a fund or reserve for the sole purpose of providing PRB to 
retirees. The accrual must also be calculated in accordance with 
generally accepted actuarial principles and practices as promulgated by 
the Actuarial Standards Board.
    (3) To be allowable, costs must be funded by the time set for 
filing the Federal income tax return or any extension thereof. PRB 
costs assigned to the current year, but not funded or otherwise 
liquidated by the tax return time, shall not be allowable in any 
subsequent year.
* * * * *

PART 52--SOLICITATION PROVISIONS AND CONTRACT CLAUSES


52.215-39  [Amended]

    3. Section 52.215-39 is amended in the clause heading by revising 
the date to read ``(FEB 1995)''; and in the second sentence of the 
clause by removing the reference ``31.205-6(o)(5)'' and inserting 
``31.205-6(o)(6)'' in its place.

[FR Doc. 94-30647 Filed 12-27-94; 8:45 am]
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