[Federal Register Volume 78, Number 130 (Monday, July 8, 2013)]
[Proposed Rules]
[Pages 40665-40669]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2013-16113]


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OFFICE OF MANAGEMENT AND BUDGET

Office of Federal Procurement Policy

48 CFR Part 9904


Cost Accounting Standards: CAS 413 Pension Adjustments for 
Extraordinary Events

AGENCY: Cost Accounting Standards Board, Office of Federal Procurement 
Policy, Office of Management and Budget.

ACTION: Notice.

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SUMMARY: The Office of Federal Procurement Policy (OFPP), Cost 
Accounting Standards (CAS) Board, is conducting fact-finding for the 
development of a Staff Discussion Paper (SDP) on CAS 413 Pension 
Adjustments for Extraordinary Events. This is the first step in a four-
step process that may result in a final rule. As part of these efforts, 
the public is invited to attend two public meetings that are scheduled 
for July 31, 2013 and August 14, 2013. To facilitate fact-finding, the 
CAS Board encourages the submission of written comments for 
consideration in the drafting of the SDP.

DATES: 
    Registration date for public meetings: Advance registration for the 
public meetings via email must be submitted by 5:00 p.m. (Eastern 
Standard Time), July 29 (for the July 31, 2013 meeting) and August 12 
(for the August 14, 2013 meeting). Please follow the procedures at 
``Advance Registration for the Public Meetings.''
    Comment date: Comments must be in writing and must be submitted by 
September 6, 2013.

Public Meetings for Fact-Finding

    Dates of public meetings:

--Wednesday, July 31, 2013, 8:30 a.m.-12:30 p.m.

[[Page 40666]]

--Wednesday, August 14, 2013, 8:30 a.m.-12:30 p.m.

ADDRESSES: 
    Site of public meetings: The Offices of the Professional Services 
Council, 4401 Wilson Blvd., Suite 1110, Arlington, VA 22203.

    For directions, see: http://www.pscouncil.org/i/a/Directions_to_PSC/c/a/Directions_to_PSC.aspx?hkey=631433d0-29e9-4cc5-b438-419a7891e6bd.

Advance Registration for Public Meetings

    To advance register for the public meeting, submit your name, 
title, organization, postal address, telephone number, and email 
address in an email to [email protected] with ``Registration--CAS 413 
adjustments for extraordinary events'' in the subject line. To ensure 
seating due to space constraints, potential attendees of the public 
meetings are strongly encouraged to register in advance for the public 
meetings. Please register by no later than 5:00 p.m. on either July 29 
for the July 31, 2013 meeting, or August 12 for the August 14, 2013 
meeting. Attendees will be sent email confirmation of their attendance 
for seating purposes by the day prior to the meeting. If the number of 
registrants exceeds the seating capacity, priority will be given to the 
registrants on the basis of the date of registration while considering 
the need for broad industry representation at the meeting. Participants 
who attend the meetings without an advance registration will not be 
assured of seating, or attendance if the maximum room capacity is 
reached.

Addresses for Submission of Comments

    All comments to this notice must be in writing. In lieu of, or in 
addition to, participating in the public meeting, interested parties 
may submit written comments. Attendees to the public meetings are 
encouraged to submit written comments in writing so that their comments 
can be given due consideration. Electronic comments may be submitted in 
any one of three ways:
    1. Federal eRulemaking Portal: Comments may be submitted via http://www.regulations.gov--a Federal E-Government Web site that allows the 
public to find, review, and submit comments on issues that agencies 
have published in the Federal Register, and that are open for comment. 
Simply type ``Fact-finding--CAS 413 adjustments for extraordinary 
events'' (without quotation marks) in the Comment or Submission search 
box, click Go, and follow the instructions for submitting comments;
    2. Email: Comments may be included in an email address sent to 
[email protected]. The comments may be submitted in the text of the 
email message or as an attachment. Type ``Fact-finding--CAS adjustment 
for extraordinary events'' in the subject line.
    3. Facsimile: Comments may also be submitted by facsimile to (202) 
395-5105. Type ``Fact-finding--CAS adjustment for extraordinary 
events'' on the coversheet; or
    4. Mail: If you choose to submit your responses via regular mail, 
please address them to: Office of Federal Procurement Policy, 725 17th 
Street NW., Room 9013, Washington, DC 20503, ATTN: Raymond J.M. Wong. 
Due to delays caused by the screening and processing of mail, 
respondents are strongly encouraged to submit responses electronically.
    Be sure to include your name, title, organization, postal address, 
telephone number, and email address in the text of your comments and 
reference ``Fact-finding--CAS adjustment for extraordinary events'' in 
the subject line irrespective of how you submit your comments. Comments 
received by the date specified in this notice will be included as part 
of the official record. Comments delayed due to use of regular mail may 
not be considered.
    Please note that all public comments received will be available in 
their entirely at http://www.whitehouse.gov/omb/casb_index_public_comments/ and http://www.regulations.gov after the close of the comment 
period. Accordingly, you should not include any information that you 
would object to being disclosed.

FOR FURTHER INFORMATION CONTACT: Raymond J.M. Wong, Director, Cost 
Accounting Standards Board (telephone: 202-395-6805; email: [email protected]).

SUPPLEMENTARY INFORMATION

A. Regulatory Process--Changes to 48 CFR Part 9904

    Rules, regulations, and standards issued by the CAS Board are 
codified at 48 CFR Chapter 99. This notice addresses fact-finding for 
the development of a Staff Discussion Paper (SDP) on CAS 413 Pension 
Adjustments for Extraordinary Events. CAS 413 is a Standard, and as 
such is subject to the statutorily prescribed rulemaking process for 
the promulgation of a Standard at 41 U.S.C. 1502(c). The process that 
may ultimately culminate in a final rule generally consists of the 
following four steps:
    1. Prior to the adoption of a proposed Standard, consult with 
interested persons in fact-finding concerning the following: the 
probable costs of implementation compared to the probable benefits; 
advantages, disadvantages and improvements anticipated in the pricing 
and administration of, and settlement of disputes concerning, 
Government contracts; and the scope of, and alternatives available to, 
the action proposed to be taken;
    2. Prepare and publish a SDP based on the results of the fact-
finding for comments;
    3. Promulgate an Advance Notice of Proposed Rulemaking for 
comments; and
    4. Promulgate a Notice of Proposed Rulemaking for comments.
    Fact-finding for the development of the SDP, the subject of this 
notice of public meetings, is the first step in a four-step statutory 
rulemaking process that may ultimately culminate in a final rule with 
respect to a Standard.

B. Background and Summary

    In response to the Notice of Proposed Rulemaking (NPRM) on pension 
harmonization (the CAS Pension Harmonizatoin Rule, 75 FR 25982, May 10, 
2010), the CAS Board received public comments expressing concerns that 
48 CFR 9904.413-50(c)(12) (otherwise known as CAS 413-50(c)(12)) on 
segment closings was not being revised to harmonize with the Pension 
Protection Act of 2006 (PPA) (Pub. L. 109-280, 120 Stat. 780). When the 
CAS Pension Harmonization Rule was published as a Final Rule (76 FR 
81296, December 27, 2011), the CAS Board summarized and responded to 
these comments under Topic 10, ``Segment Closings and Benefit 
Curtailments.'' The CAS Board stated that it limited the amendment of 
9904.413-50(c)(12) provisions in the CAS Pension Harmonization Rule to 
the exemption of benefit curtailments mandated by the Employee 
Retirement Income Security Act of 1974 (ERISA) by 26 U.S.C. 436. The 
CAS Board explained that other issues and problems with the current CAS 
segment closing and benefit curtailment provisions were beyond the 
scope of pension harmonization required by paragraph (d) of section 106 
of the PPA, and should be addressed in a separate case. The CAS Board 
established a Working Group (WG) on pension adjustments for 
extraordinary events to support its consideration of revisions to CAS 
413. The WG, comprised of the

[[Page 40667]]

staff and subject matter experts from the Departments of Defense (DOD), 
Energy (DOE), Health and Human Services (HHS), the National 
Aeronautical Space Administration (NASA), and the Pension Benefit 
Guaranty Corporation (PBGC), has been tasked by the CAS Board to frame 
and evaluate issues, and develop options to address them. The CAS Board 
has directed the staff, supported by the WG, to conduct fact-finding in 
order to develop a Staff Discussion Paper for the CAS Board's 
consideration.
    Subsequently, the General Accountability Office (GAO) observed that 
the CAS Board did not harmonize the discount rates used for settling up 
if a contractor curtails a pension plan. This means that liabilities 
could be calculated differently under ERISA and CAS rules if a 
contractor terminates a plan or freezes new benefit accruals for all 
participants. GAO recommended that the CAS Board set a schedule for 
revising the part of CAS 413 dealing with the settlement of pension 
plan curtailments (in GAO-13-158, ``PENSION COSTS ON DOD CONTRACTS--
Additional Guidance Needed to Ensure Costs are Consistent and 
Reasonable,'' dated January 2013). The CAS Board reviewed the report, 
and advised GAO that its tasking to the WG generally addresses the GAO 
recommendation. In addition, the CAS Board Chair advised Congress that 
while the CAS Board has begun the fact-finding step of the four-step 
CAS rulemaking process, it has not yet set a schedule as there are a 
number of factors that may affect timing, such as the extent and 
complexity of comments received in response to the SDP, that make a set 
schedule too speculative at this time.
    The staff, supported by the WG, has begun research on the subject 
matter. The CAS Board has authorized the WG to consult with interested 
persons concerning the advantages, disadvantages and improvements 
anticipated in the pricing and administration of Government contracts 
as a result of a possible amendment to the Standards, specifically CAS 
412 and 413.
    In additional to potential revisions to 9904.413-50(c)(12), the WG 
has identified other CAS 412 and 413 provisions that are potentially 
directly impacted by revisions to CAS 413-50(c)(12).
    These provisions include:
     412-50(c)(2)(ii) Assignable Cost Credits,
     413-50(c)(3) Pension Plan Merger or Spin-Off,
     413-50(c)(5) Initial Allocation of Plan Assets,
     413-50(c)(8) Participant Transfers Between Segments, and
     413-50(c)(9) Inactive Segments.
     Definitions of Segment Closing and Benefit Curtailment
     CAS 412-50(b)(7) Minimum Actuarial Liability

C. Issues To Consider Relative to CAS 413 Pension Adjustments for 
Extraordinary Events

    To focus the fact-finding to address CAS 413 pension adjustments 
for extraordinary events with any revisions to CAS 413-50(c)(12) and 
associated provisions, the WG has prepared a series of topical 
questions for the consideration of interested parties in the 
development of their comments on the subject matter. The WG will 
consider all comments germane to its tasking from the CAS Board, i.e., 
CAS 413 pension adjustments for extraordinary events, and not just the 
comments responding to the list of scenarios and questions, in drafting 
the SDP. Comments that are deemed by the WG to be outside the scope of 
the CAS Board's tasking to the WG will not be considered in developing 
the SDP. The format of this list of questions presents a scenario based 
on a CAS subsection, paragraph or subparagraph followed by a series of 
questions on the scenario. The order of the scenarios and questions 
does not imply any assessment of their relative importance by the CAS 
Board or WG.
    1. Issues related to CAS 413-50(c)(12): If a segment is closed, if 
there is a pension plan termination, or if there is a curtailment of 
benefits, the contractor shall determine the difference between the 
actuarial accrued liability for the segment and the market value of the 
assets allocated to the segment, irrespective of whether or not the 
pension plan is terminated. 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.
    (a) Should all benefit curtailments be excluded?
    (b) The original promulgation of CAS 413 implemented adjustments 
for large actuarial gains from ``abnormal forfeiture.'' The 1995 
amendments introduced the concept of a true-up of assets and 
liabilities. What should be the purpose of this provision in the 
future?
    (c) There are few plans with benefit formulas based on final pay. 
Qualified plans can no longer have significant delays for vesting. Is 
the concept of an ``abnormal forfeiture'' still valid?
    (d) Assets and liabilities were accumulated across many years and 
market environments and cycles--Is a ``mark-to-market'' true-up still 
appropriate?
    2. Issues related to CAS 413-50(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). How should the actuarial accrued 
liability be measured for the following conditions:
    (a) If the Minimum Actuarial Liability is greater than accrued 
benefit cost method liability in the period the segment closing occurs?
    (b) If benefit obligation is settled by payment of lump sums and/or 
annuity?
    (c) If there are ``changed conditions'' due to segment closing, 
i.e., is the retirement assumption still valid?
    (d) If there have been prior mergers, spin-offs or other 
reorganizations?
    (e) If liabilities were accumulated across many years and market 
environments/cycles--Is a ``mark-to-market'' true-up still appropriate?
    3. Issues related to CAS 413-50(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.e., CAS 413-50]. 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 412-50(a)(2).
    (a) How should CAS 413-50(c)(5) handle the lack of historical 
records on plan contributions, benefits and earnings (see Teledyne, 
Inc. v. U.S., 50 Fed. Cl. 155 (2001), aff'd sub nom, 316 F.3d 1366 
(Fed. Cir. 2003))? 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?
    (b) What if there have been prior mergers, spin-offs or other 
reorganizations that cause tracing the segment's legacy difficult?
    (c) Assets were accumulated across many years and market 
environments

[[Page 40668]]

and cycles--Is a ``mark-to-market'' true-up still appropriate?
    4. Issues related to CAS 413-50(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.g., 
contract termination, plan amendment, plant closure) that caused the 
closing of the segment, pension plan termination, or curtailment of 
benefits. 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.
    (a) Does the CAS Board need to address the intent or use of the 
phrase: ``If its use can result in an inequitable calculation?''
    5. Issues related to CAS 413-50(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.
    (a) What about automatic Internal Revenue Code (IRC) sections 415 
(Limitations on benefits and contribution under qualified plans) and 
401(a)(17) (Compensation limit) improvements?
    (b) What about ``prudent'' benefit improvements and how could 
``prudent'' be determined?
    (c) What if a plan is replaced by a new defined benefit plan or 
replacement defined benefit plan?
    6. Issues related to CAS 413-50(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. 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.
    (a) What happens when the actual assets transferred are not based 
on the assets accumulated and accounted for under CAS 412 and 413, 
i.e., assets transfers based on IRC 414(l) (Merger and consolidation of 
plans or transfers of plan assets) or the negotiated sales agreement?
    (b) How should you handle the difference between the transferred 
assets and the assets allocated to the segment under CAS 413?
    (c) If the segment is partially sold and partially retained, how 
are the plan assets and liabilities accounted for? Does the CAS Board 
need to address how plan assets and liabilities are divided and 
transferred?
    (d) Should the provisions on applicable interest rate used for CAS 
413-50(c)(12)(i) purposes reflect whether the contractor has retained 
the plan liability or settled the liability?
    7. Issues related to CAS 413-50(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.
    (a) How should the lack of historical accrued and allocated cost 
data be handled?
    (b) What if there have been prior mergers, spin-offs or other 
reorganizations?
    8. Issues related to CAS 413-50(c)(12)(vii): The full amount of the 
Government's share of an adjustment is allocable, without limit, as a 
credit or charge during the cost accounting period in which the event 
occurred and contract prices/costs will be adjusted accordingly. 
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.
    (a) If the contractor has other cost-based contracts how is the 
adjustment credit recognized in future cost accounting periods? Should 
the contractor create prepayment credit equal to the gross adjustment 
credit amount?
    (b) If the contractor has other cost-based contracts how is the 
adjustment debit recognized in future cost accounting periods? Should 
the contractor create an unfunded accrual equal to the gross adjustment 
charge amount?
    (c) What if adjustment is paid into or out of the pension fund?
    9. Issues related to CAS 413-50(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 412 and 413.
    (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.
    (a) Now that the CAS Pension Harmonization Rule been in effect for 
over a year, have there been any issues related to this subparagraph?
    10. General Questions: Besides the questions raised concerning 
specific provisions within CAS 413-50(c)(12), the staff has identified 
a few general questions.
    (a) Should the CAS Board eliminate CAS 413-50(c)(12) in its 
entirety, i.e., is this provision still needed?
    (b) Should the CAS Board consider special issues related to CAS 
413-50(c)(12) when short, non-repetitive contracts (e.g., 5-years) are 
awarded? Should such contracts be subject to CAS 413-50(c)(12)?
    (c) Should the CAS Board amend CAS 412-50(c)(2)(ii) to allow an 
Assignable Cost Limitation ``buffer'' to better ensure that the plan or 
segment has adequate resources in case of segment closings,

[[Page 40669]]

plan terminations or sudden market declines?
    (d) If the CAS Board continues to require a ``true-up'' of assets 
and liabilities or permits an Assignable Cost Limitation Buffer, should 
the CAS Board remove the CAS 412-50(c)(2)(i) $0 floor and permit 
negative pension costs instead?

Joseph G. Jordan,
Chair, Cost Accounting Standards Board.
[FR Doc. 2013-16113 Filed 7-5-13; 8:45 am]
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