[Federal Register Volume 63, Number 210 (Friday, October 30, 1998)]
[Rules and Regulations]
[Pages 58595-58598]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-28958]
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DEPARTMENT OF DEFENSE
GENERAL SERVICES ADMINISTRATION
NATIONAL AERONAUTICS AND SPACE ADMINISTRATION
48 CFR Parts 15, 31 and 52
[FAC 97-09; FAR Case 89-012; Item IV]
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: Final rule.
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SUMMARY: The Civilian Agency Acquisition Council and the Defense
Acquisition Regulations Council have agreed on a final rule amending
the Federal Acquisition Regulation (FAR) for 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.
EFFECTIVE DATE: December 29, 1998.
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 F. Olson at (202) 501-0692. Please cite FAC
97-09, FAR case 89-012.
SUPPLEMENTARY INFORMATION:
A. Background
An interim rule was published in the Federal Register at 54 FR
13022, March 29, 1989. The issuance of an interim rule was necessary
because the United States Court of Appeals had ruled that FAR 31.205-
6(j)(5) was inconsistent with 48 CFR 9904.412, Cost accounting standard
for composition and measurement of pension cost (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 48 CFR 9904.413, Adjustment and
allocation of pension cost (CAS 413), relating to accounting for
pension costs under negotiated Government contracts. These proposed
changes were published and made available for public comment on
November 5, 1993 (58 FR 58999). Public comments were received and
considered in the development of the final CAS rule which was 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.
A proposed FAR rule was published in the Federal Register at 62 FR
49900, September 23, 1997, to provide consistency with the revised CAS
412 and CAS 413. The rule proposed to (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
[[Page 58596]]
proposed FAR Part 31 changes. Six sources submitted comments in
response to the proposed FAR rule. All comments were considered in the
development of this final rule.
This final rule amends FAR 15.408, Solicitation provisions and
contract clauses; FAR 31.001, Definitions; FAR 31.205-6, Compensation
for personal services; and FAR 52.215-15, Pension Adjustments and Asset
Reversions. The final rule differs from the proposed rule by--(1)
revising FAR 31.205-6(j)(3)(i)(A) to address the deferral of pension
costs pursuant to a waiver under the Employee's Retirement Income
Security Act of 1974 (ERISA); (2) revising FAR 31.205-6(j)(3)(v) to
clarify that the provisions of FAR 31.205-6(j)(4) apply if the
withdrawal of assets is a pension plan termination under ERISA; (3)
revising FAR 31.205-6(j)(4)(i) and 52.215-15(b) to clarify the
calculation of the adjustment amounts for both CAS and non-CAS-covered
contracts; and (4) making a number of editorial revisions, including
changes (e.g., renumbering FAR 52.215-27 as FAR 52.215-15) resulting
from publication of Federal Acquisition Circular 97-02 on September 30,
1997 (62 FR 51224).
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 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.
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 15, 31, and 52
Government procurement.
Dated: October 22, 1998.
Edward C. Loeb,
Director, Federal Acquisition Policy Division.
Therefore, 48 CFR Parts 15, 31, and 52 are 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
2. Section 15.408 is amended by revising paragraph (g) to read as
follows:
15.408 Solicitation provisions and contract clauses.
* * * * *
(g) Pension Adjustments and Asset Reversions. The contracting
officer shall insert the clause at 52.215-15, Pension Adjustments and
Asset Reversions, in solicitations and contracts for which it is
anticipated that cost or pricing data will be required or for which any
preaward or postaward cost determinations will be subject to Part 31 of
the FAR.
* * * * *
PART 31--CONTRACT COST PRINCIPLES AND PROCEDURES
3. Section 31.001 is amended by removing the definitions
``Actuarial liability'' ``Termination of gain or loss'' and ``Unfunded
pension plan'' ; by adding, in alphabetical order, the definitions
``Actuarial accrued liability'', ``Nonqualified pension plan'',
``Qualified pension plan'' and ``Termination of employment gain or
loss'' ; and by revising the definitions of ``Accrued benefit cost
method'', ``Actuarial assumption'', ``Actuarial cost method'',
``Actuarial valuation'', ``Funded pension cost'', ``Normal cost'',
``Pension plan'', and ``Projected benefit cost method'', to read 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 that uses actuarial
assumptions to measure the present value of future pension benefits and
pension plan administrative expenses, and that 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 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
[[Page 58597]]
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 that 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 that 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.
* * * * *
Termination of employment gain or loss means an actuarial gain or
loss resulting from the difference between the assumed and actual rates
at which pension plan participants separate from employment for reasons
other than retirement, disability, or death.
* * * * *
4. Section 31.201-5 is amended by revising the last sentence to
read as follows:
31.201-5 Credits.
* * * See 31.205-6(j)(4) for rules governing refund or credit to
the Government associated with pension adjustments and asset
reversions.
5. 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, as defined in 31.001, is a
deferred compensation plan. 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 and 48 CFR 9904.413. Pension costs are allowable subject
to the referenced standards and the cost limitations and exclusions set
forth in paragraphs (j)(2)(i) and (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 must be paid
pursuant to--an agreement entered into in good faith between the
contractor and employees before the work or services are performed; and
the terms and conditions of the established plan. The cost of changes
in pension plans that 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 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). 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 the Employee's Retirement Income Security Act of 1974
(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)).
(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 in excess of the pension cost assigned to a
cost accounting period 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
segment's calculation of pension costs as provided for in 48 CFR
9904.413-50(c). Determinations 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 ERISA Section 4062 or 4064 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
[[Page 58598]]
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. If
the withdrawal of assets from a pension fund is a plan termination
under ERISA, the provisions of paragraph (j)(4) of this subsection
apply. 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, the
adjustment amount shall be the amount measured, assigned, and allocated
in accordance with 48 CFR 9904.413-50(c)(12) for contracts and
subcontracts that are subject to Cost Accounting Standards (CAS) Board
rules and regulations (48 CFR Chapter 99). For contracts and
subcontracts that are not subject to CAS, the adjustment amount shall
be the amount measured, assigned, and allocated in accordance with 48
CFR 9904.413-50(c)(12), except the numerator of the fraction at 48 CFR
9904.413-50(c)(12)(vi) shall be the sum of the pension plan costs
allocated to all non-CAS-covered contracts and subcontracts that are
subject to Subpart 31.2 or for which cost or pricing data were
submitted.
(ii) For all other situations where 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 that are subject to
Subpart 31.2. Excise taxes on pension plan asset reversions or
withdrawals under this paragraph (j)(4)(ii) are unallowable 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) The provisions of paragraphs (j)(3) (ii) and (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
6. Section 52.215-15 is revised to read as follows:
52.215-15 Pension adjustments and asset reversions.
As prescribed in 15.408(g), insert the following clause:
Pension Adjustments and Asset Reversions (Dec 1998)
(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.
(b) For segment closings, pension plan terminations, or
curtailment of benefits, the adjustment amount shall be the amount
measured, assigned, and allocated in accordance with 48 CFR
9904.413-50(c)(12) for contracts and subcontracts that are subject
to Cost Accounting Standards (CAS) Board rules and regulations (48
CFR Chapter 99). For contracts and subcontracts that are not subject
to CAS, the adjustment amount shall be the amount measured,
assigned, and allocated in accordance with 48 CFR 9904.413-
50(c)(12), except the numerator of the fraction at 48 CFR 9904.413-
50(c)(12)(vi) shall be the sum of the pension plan costs allocated
to all non-CAS-covered contracts and subcontracts that are subject
to Federal Acquisition Regulation (FAR) Subpart 31.2 or for which
cost or pricing data were submitted.
(c) For all other situations where 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
that are subject to FAR Subpart 31.2.
(d) The Contractor shall include the substance of this clause in
all subcontracts under this contract that meet the applicability
requirement of FAR 15.408(g).
(End of clause)
[FR Doc. 98-28958 Filed 10-29-98; 8:45 am]
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