TITLE: B-305402, National Aeronautics and Space Administration--Retention of Demutualization Compensation, January 3, 2006
BNUMBER: B-305402
DATE: January 3, 2006
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B-305402, National Aeronautics and Space Administration--Retention of Demutualization Compensation, January 3, 2006
Decision
Matter of: National Aeronautics and Space Administration--Retention of
Demutualization Compensation
File: B-305402
Date: January 3, 2006
DIGEST
1. The National Aeronautics and Space Administration may not retain
proceeds from the sale of demutualization compensation received from its
contractor, California Institute of Technology (Caltech). Caltech had
received demutualization compensation in the form of stock from Prudential
Life Insurance Company on policies held for the benefit of employees who
operated a NASA laboratory pursuant to a long-standing contract between
NASA and Caltech. The proceeds do not qualify as a repayment to NASA, and
NASA has no authority to retain and credit to its appropriation proceeds
from the sale of the compensation. Accordingly, NASA must deposit them
into the Treasury as miscellaneous receipts under 31 U.S.C. sect. 3302(b).
2. After NASA determined that proceeds from the sale of demutualization
compensation were public moneys, NASA should have ensured that such
proceeds were deposited in the United States Treasury the day following
receipt of those proceeds. Directing Caltech officials to deposit proceeds
in an interest-bearing money market account violated 31 U.S.C. sect.
3302(c)(1) and Treasury Regulation, 31 C.F.R. sect. 206.5(a)(1).
DECISION
This responds to a request for a legal decision regarding the appropriate
treatment of demutualization compensation that National Aeronautics and
Space Administration (NASA) received from its contractor, California
Institute of Technology (Caltech). Caltech had received the
demutualization compensation in the form of stock as a policyholder of
Prudential Life Insurance Company (Prudential) policies that Caltech held
for its employees operating the Jet Propulsion Laboratory (JPL) for NASA.
NASA and Caltech agree that, under NASA's contract with Caltech, the
demutualization compensation belongs to the U.S. government. NASA asked
whether the proceeds from this demutualization compensation, approximately
$17,300,000, must be deposited in the Treasury as miscellaneous receipts,
pursuant to 31 U.S.C. sect. 3302(b), or may be retained by NASA and
credited to its appropriation. For the reasons stated below, we conclude
that NASA must deposit the proceeds from the demutualization compensation
in the Treasury as miscellaneous receipts.
BACKGROUND
NASA has a longstanding contract with Caltech for operation of JPL in
Pasadena, California. Letter to David M. Walker, Comptroller General, from
John G. Mannix, Deputy General Counsel, NASA, April 27, 2005 (April
Letter). Until 1993, Caltech provided JPL employees with a defined benefit
plan funded by a group annuity policy with Prudential. Under the contract
between NASA and Caltech, NASA reimbursed Caltech for the costs associated
with JPL employees' retirement plans. Caltech terminated the defined
benefit plan in 1993. Under the termination plan, some beneficiaries
elected to received accrued benefits through annuitized payments. To
ensure that payments were made, Caltech continued to hold policies with
Prudential.
In December 2000, Prudential reorganized from a mutual life insurance
company to a stock life insurance company owned by shareholders. Under
this reorganization, the Prudential policyholders, including Caltech,
received demutualization compensation in the form of stock in exchange for
their ownership interests in Prudential. Prudential issued 453,520 shares
of stock to Caltech. Caltech notified NASA of the compensation and
complied with NASA's instruction to liquidate the stock and pay the
proceeds from the liquidation to the government. NASA noted that the
contract with Caltech requires that
"[T]he contractor shall pay to the Government any refunds, rebates,
credits, or other amounts (including interest, if any) accruing to or
received by the Contractor or any assignee under this contract, to the
extent that those amounts are properly allocable to costs for which the
Contractor has been reimbursed by the Government."
April Letter at 2. In accordance with NASA's instructions, Caltech placed
the proceeds in an interest-bearing account until NASA could determine
whether NASA could retain the proceeds from the liquidation or whether
such proceeds must be deposited in miscellaneous receipts. April Letter at
2, n.1. The amount of proceeds from the sale of the stock is approximately
$17,300,000.
DISCUSSION
An agency, with two exceptions, must deposit moneys received for the
government from any source into the general fund of the Treasury as
miscellaneous receipts. 31 U.S.C. sect. 3302(b). The two exceptions to
this rule are: (1) where an agency has specific authority to retain money
it collects, and (2) where moneys received qualify as a repayment to an
appropriation. See B-281064, Feb. 14, 2000. NASA informed us that it has
no applicable authority to retain money it collects from Caltech or other
sources, April Letter at 3, and our research confirms this assertion.
Accordingly, for NASA to retain the proceeds from the sale of the
Prudential stock as a credit to its appropriation, the demutualization
compensation that Caltech received and liquidated must qualify as a
repayment to NASA's appropriation.
Repayments of appropriations fall into two general
categories--reimbursements and refunds. Reimbursements are amounts
collected from outside sources for commodities or services furnished,
which by law may be credited directly to the appropriations. See 65 Comp.
Gen. 666, 671 (1986). The demutualization compensation does not represent
a collection of funds for a commodity or service provided by NASA. The
only remaining way for NASA to retain the funds and credit its own
appropriation is for the demutualization compensation to be characterized
as a refund.
Refunds represent repayments for excess payments that are to be credited
to the appropriation from which the excess payments were made. 65 Comp.
Gen. 600, 602 (1986). Refunds have been defined as "amounts collected from
outside sources for payments made in error, overpayments, or adjustments
for previous amounts dispersed." Id. (citing Treasury Department-GAO Joint
Regulation No. 1, reprinted as Appendix B to Title 7 of GAO's Policy and
Procedures Manual for Guidance of Federal Agencies, available at
www.gao.gov/special.pubs/ppm.html). See also OMB Circular A-11,
Preparation, Submission, and Execution of the Budget (June 2005) at 20.10
("Refunds are the repayments of excess payments. The amounts are directly
related to previous obligations incurred and outlays made against the
appropriation.") A key component in determining whether a repayment is a
refund is whether the payment represents an "excess of what is actually
due." 5 Comp. Gen. 734, 736 (1926). See also 69 Comp. Gen. 260 (1990)
(recoveries under the False Claims Act were refunds to the extent that
recovery was for reimbursement for erroneous payments); 33 Comp. Gen. 176
(1953) (recovery from a renegotiated contract price was a refund of an
omitted overpayment made under the original contract price); B-139348, May
12, 1959 (refund of overcharge of public utility should be credited to
appropriation from which original charge was paid).
The proceeds from the liquidation of the demutualization compensation that
Caltech paid to NASA do not represent a repayment of funds that were in
"excess of what was actually due;" that is, the proceeds do not reflect a
repayment from Caltech of an amount that NASA had previously overpaid
Caltech. At the time NASA paid allocable costs of the defined benefit
retirement plan, the amounts were correct. Prudential issued the
demutualization compensation to Caltech in exchange for ownership rights
that Caltech had maintained as a policyholder of Prudential policies.[1]
Prudential's issuance of the stock in the reorganization of its company
from a policyholder-owned company to a stock life insurance company
reflected a change in the form of ownership. When Caltech liquidated the
stock divesting its ownership in Prudential, the stock and Caltech's
ownership in Prudential had grown to $17.3 million. This amount represents
not only the value of the ownership in Prudential held by Caltech after
the termination of the defined benefit plan in 1993 but also the
investment in those policies between 1993 and the date Caltech liquidated
the demutualization compensation stock.
The fact that the moneys NASA received are related to the terminated
retirement plans the costs for which NASA had earlier reimbursed Caltech
does not make the proceeds a refund that may be credited to NASA's
appropriation. NASA has provided us with no evidence to suggest that the
payments it had made to reimburse Caltech's costs of JPL employees'
retirement plans were made in error, subject to some readjustment in
amount due, or an excessive payment on what was due. Further, there is no
indication that Prudential issued demutualization compensation to Caltech
to repay Caltech for overpayments that Caltech may have made to
Prudential. Indeed, the demutualization compensation in question was
issued to provide holders of Prudential policies a similar ownership stake
in the company after it reorganized.
As the demutualization compensation cannot be properly characterized as a
refund, the proceeds from the sale of the demutualization compensation
that NASA ordered Caltech to pay to the government must be deposited in
the general fund of the Treasury as miscellaneous receipts, in accordance
with 31 U.S.C. sect. 3302(b).
We note that your April letter states that NASA officials directed Caltech
to place the proceeds of the liquidated demutualization compensation in an
interest-bearing money market account while determining whether such
proceeds should be credited to NASA's appropriation or deposited in the
Treasury as miscellaneous receipts. See April Letter at 2, n.1. Pursuant
to federal law, a person having custody of public money "shall deposit the
money without delay in the Treasury . . . [such money] shall be deposited
not later than the third day after the custodian receives the money."
31 U.S.C. sect. 3302(c)(1). Furthermore, Treasury regulations[2] require
agencies to make same-day deposits, or in cases where same-day deposits
are not cost-effective or practical, an agency must deposit public moneys
the next day. 31 C.F.R. sect. 206.5(a)(1). The deposit timing requirements
apply whether an agency deposits money in an appropriation account or as
miscellaneous receipts. See 10 Comp. Gen. 382, 383 (1931) (statutory
deposit requirements apply to receipts and credits for all accounts in the
Treasury, including appropriation accounts, revolving funds, trusts, or
the general fund). See also B-72105, Nov. 7, 1963. NASA should not have
directed Caltech officials to deposit public money in a money market
account. Once NASA determined that proceeds were received for the
government, it should have ensured that such proceeds were deposited in an
account in the Treasury by the following day to comply with Treasury
regulations and statutory requirements of 31 U.S.C. sect. 3302(c). While
we understand that NASA was unclear as to what account it should have
deposited the proceeds, such dilemma is not sufficient to delay the time
of deposit of public moneys in the United States Treasury.
CONCLUSION
The demutualization compensation that resulted from Prudential's corporate
reorganization represented a change in the form of Caltech's ownership
interest from a policyholder to a shareholder. The liquidated proceeds
from the sale of the stock received represented a divestiture in ownership
rights in Prudential. Because NASA has no authority to retain and credit
demutualization compensation and the compensation was not a repayment of a
prior expense incurred by NASA, NASA must deposit the proceeds from the
liquidation of the demutualization compensation into the Treasury as
miscellaneous receipts.
We also find that NASA's direction that proceeds of the demutualization
compensation be deposited in a money-market account violated 31 U.S.C.
sect. 3302(c) and applicable Treasury regulations. To comply with timing
rules established by statute and regulation, NASA was required to deposit
the proceeds in the account the day after receiving such proceeds.
Directing that such moneys be deposited in a money market account while
determining what account the proceeds should be deposited is a violation
of 31 U.S.C. sect. 3302(c) and 31 C.F.R. sect. 206.5(a)(1).
/signed/
Anthony H. Gamboa
General Counsel
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[1] As a policyholder of a mutual insurance company, Caltech was eligible
to receive surplus distributions prior to 2000. In a telephone
conversation with NASA officials, we asked whether Caltech had ever
received such distributions and whether Caltech had paid those
distributions to NASA. The NASA officials told us that NASA had not
received funds from a surplus distribution nor were officials aware that
Caltech had ever received distribution from Prudential.
[2] Under 31 U.S.C. sect. 3302(c)(2), Congress authorized the Secretary of
the Treasury to adopt regulations prescribing that a person in possession
of public moneys deposit money in the Treasury during a period of time
that is greater or lesser than the period of time specified by statute.