[Federal Register Volume 72, Number 58 (Tuesday, March 27, 2007)]
[Notices]
[Pages 14266-14267]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E7-5545]


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DEPARTMENT OF ENERGY


Office of Management; Request for Public Comment on Department of 
Energy Contractor Employee Pension and Medical Benefits Challenge

ACTION: Request for public comments.

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SUMMARY: The Department of Energy (DOE) is seeking public comments and/
or recommendations on how to address the challenge it faces due to 
increasing costs and liabilities associated with contractor employee 
pension and medical benefits. Under the Department's unique Management 
and Operating (M&O) and other site management contracts, DOE reimburses 
its contractors for allowable costs incurred in providing employee 
pension and medical benefits to current employees and retirees who are 
eligible to participate in the contractors' pension and medical benefit 
plans. DOE has established a Web site for the public to submit comments 
and/or recommendations on how it should address the financial challenge 
it faces on contractor employee pension and medical benefits.

DATES: Comments are due on or before May 11, 2007.

ADDRESSES: Interested parties may submit comments electronically, via 
traditional mail service, or by facsimile to the addresses identified 
below. The Internet address for the Web site is http://management.energy.gov/request_for_comments.htm. E-mail comments to 
[email protected]. Transmit submissions by facsimile to 
Stephanie Weakley, Director, Office of Resource Management, at 202-287-
1305. Public comments and other information received from the public 
will be posted on this Web site. To the extent your comments contain 
proprietary or business sensitive information, please so indicate and 
include a redacted version of your comments.

FOR FURTHER INFORMATION CONTACT: Stephanie Weakley, Office of

[[Page 14267]]

Procurement and Assistance Management, U.S. Department of Energy, 1000 
Independence Avenue, SW., Washington, DC 20585, telephone 202-287-1645.

SUPPLEMENTARY INFORMATION:

I. Introduction

    Under the Department's unique Management and Operating (M&O) and 
other site management contracts, DOE reimburses its contractors for 
allowable costs incurred in providing employee pension and medical 
benefits to current employees and retirees who are eligible to 
participate in the contractors' pension and medical benefit plans. DOE 
intends to continue its approach to reimbursing costs incurred by its 
contractors for these benefits consistent with Government-wide rules on 
cost allowability; however, DOE believes an examination of its policies 
and practices is appropriate to ensure prudent fiscal management of 
taxpayer dollars.
    In FY 2006, DOE reimbursed 46 contractors a total of $1.077 billion 
for contractor employee pension and medical benefits--more than a 226 
percent increase since FY 2000. In addition, the Department in its FY 
2006 financial statement reported $11.9 billion in accrued unfunded 
liabilities for contractor employee pension and medical benefits--a 68 
percent increase since FY 2000. Costs and liabilities associated with 
these benefits are projected to grow over the next several years at a 
rate that significantly exceeds likely increases in the Department's 
budget.
    To address these rising costs and liabilities, on April 27, 2006, 
DOE issued Department of Energy Notice 351.1, Contractor Employee 
Pension and Medical Benefits Policy. This Notice updated and revised 
the Department's policy concerning reimbursement of M&O and site 
management contractor pension and medical benefit costs. On June 19, 
2006, the Secretary of Energy suspended implementation of the revised 
policy to permit consultation with stakeholders.

II. Challenge Presented by Increasing Departmental Obligations to 
Reimburse Contractor Employee Benefits

    The Department of Energy is faced with the growing challenge of 
determining how to best balance its responsibility for funding 
important national missions, including energy and nuclear security, 
scientific discovery and innovation and environmental clean-up--with 
providing contractors sufficient flexibility to offer benefits that 
will attract and retain highly qualified workers and to treat incumbent 
contractor employees, retirees and dependents fairly.

A. Background

    The Department of Energy relies on contractors to manage and 
operate its specialized scientific, engineering, production and clean-
up sites and facilities. DOE is the only Federal agency that uses these 
unique M&O contracts to conduct its missions.
    The Department obligates approximately 80 percent of its estimated 
annual $24 billion budget to 46 major cost-reimbursement contracts for 
management of DOE sites and facilities in 20 states. Pension and post 
retirement benefit programs sponsored by contractors include 45 
contractor defined benefit pension plans, 37 contractor defined 
contribution pension plans, 23 contractor life insurance plans, and 
approximately 260 contractor medical benefit plans. These benefits are 
provided to approximately 100,000 active employees and 100,000 
retirees, dependents and beneficiaries. Although DOE reimburses its 
contractors for certain costs associated with contractor employee 
benefits, DOE contractors employ their own workforces and sponsor and 
serve as fiduciaries for all benefit plans.
    Most DOE M&O and site management contractors provide defined 
benefit plans that are supplemented by defined contribution plans and 
generously subsidized medical benefit plans. According to Department of 
Energy market comparisons, on average, the pension benefits received by 
DOE contractor employees are higher than the benefits earned by Federal 
or private sector employees. In addition, on average, DOE contractor 
employees contribute less for their medical benefit costs than Federal 
employees or private sector workers.
    The scope of DOE's obligations for contractor employee benefit 
costs is significant and growing. In FY 2006, the Department's accrued 
unfunded liabilities associated with contractor employee pension and 
medical benefits were $11.9 billion. In FY 2006, DOE reimbursed its 
contractors $1.077 billion for pension and medical benefit plans.
    Costs and liabilities for these benefits are projected to grow at a 
rate that significantly exceeds projected increases in the Department's 
budget. Absent actions to control benefit escalation, contractor 
benefit cost reimbursements will continue to increase. Further, the 
volatility and unpredictability of contractor benefit cost 
reimbursements will continue to make it difficult for the Department to 
plan and execute budgets. The Pension Protection Act of 2006 generally 
accelerates required contributions to defined benefit pension plans and 
is expected to increase the amount that DOE reimburses contractors for 
pension benefits over the next 5 to 7 years.

B. Description of DOE Notice 351.1

    In April 2006, the Department of Energy issued Notice 351.1 to 
address concerns about contractor employee pension and medical 
benefits. However, due to concerns raised about the policy, in June 
2006, it was suspended pending consultation with stakeholders.
    The goals of the Notice were to improve the Department's 
stewardship of taxpayer dollars by mitigating the cost growth 
associated with benefit liabilities, moderating the volatility and 
improving the predictability of the Department's cost reimbursement 
obligations for benefits, ensuring that costs for contractor employee 
pension and medical benefits are more consistent with market trends, 
and ensuring fairness to incumbent contractor employees.
    The major provisions of the Notice included continuing to reimburse 
contractors for costs for current and retired contractor employee 
pension and medical plans under existing contract provisions; requiring 
market-based defined contribution pension plans and market-based 
medical plans for new employees, except where to do so would be 
inconsistent with the terms of a collective bargaining agreement; 
requiring the Secretary of Energy to approve the costs of contractor 
proposed benefit augmentations; and separately assessing the value of 
pension and medical benefits to ensure that both are market-based. The 
policy also provided for the continuation of pension and medical 
benefit commitments made by contractors through collective bargaining 
agreements.

    Issued in Washington, DC on March 19, 2007.
Ingrid A.C. Kolb,
Director of Management, U.S. Department of Energy.
 [FR Doc. E7-5545 Filed 3-26-07; 8:45 am]
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