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Panoptic Enterprises' FEDERAL CONTRACTS DISPATCH

DATE: January 30, 2003

SUBJECT: Federal Acquisition Regulation (FAR); Insurance and Pension Costs

SOURCE: Federal Register, January 30, 2003, Vol. 68, No. 20, page 4879

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

ACTION: Proposed Rule

SYNOPSIS: It is proposed that paragraph (j) of FAR 31.205-6, Compensation for Personal Services (the portion that addresses pension costs), and FAR 31.205-19, Insurance and Indemnification, be amended to clarify the cost principles involved and reflect current policy.

EDITOR'S NOTE: The Cost Accounting Standards (CAS) are Title 48 of the Code of Federal Regulations, Chapter 99. They available at http://www.acqnet.gov/far/97/html/appendix.html.

DATES: Comments are due on or before March 31, 2003.

ADDRESSES: Submit written comments on proposed rule to General Services Administration, FAR Secretariat (MVA), 1800 F Street, NW, Room 4035, Attn: Laurie Duarte, Washington, DC 20405. Submit e-mail comments to: farcase.2001-037@gsa.gov. Cite "FAR case 2001-037" when referring to this proposed rule.

FOR FURTHER INFORMATION CONTACT: Ralph De Stefano, 202-501-1758.

SUPPLEMENTAL INFORMATION: The Civilian Agency Acquisition Council and the Defense Acquisition Regulations Council performed a comprehensive review of FAR 31.205-6(j) and FAR 31.205-19 and propose the following revisions:

• The current paragraph FAR 31.205-6(j)(1) would be eliminated because FAR 31.001, Definitions, already has a definition of "pension plan" that is the same as the definition in CAS 412, Cost Accounting Standard for Composition and Measurement of Pension Cost (Title 48 of the Code of Federal Regulations, Chapter 99, Section 9904.409 (48 CFR 9904.409)), and CAS 413, Adjustment and Allocation of Pension Cost.
  
  
• The term "assign" would be substituted for the term "account" in the renumbered paragraphs (j)(1) and (j)(5) of FAR 31.205-6 (current paragraphs (j)(2) and (j)(6)) to be consistent with the terminology used in CAS 412 and 413.
  
  
• Renumbered paragraph (j)(3)(i) of FAR 31.205-6 (current paragraph (j)(4)(1)) and paragraph (b) of FAR 52.215-15, Pension Adjustments and Asset Reversions, would be revised to specifically address how the government will receive the pension cost adjustment amount when there is a segment closing, a pension plan termination, or a curtailment of benefits for CAS-covered and non-CAS-covered contracts.
  
  
• FAR 31.205-6(j)(8), which addresses employee stock ownership plans (ESOPs), would be moved to new paragraph (q) and revised as follows:
  
  
  • The term "individual" would be deleted from the phrase "individual stock bonus plan" to preclude misinterpretation that a separate plan is required for each employee.
    
    
  • The term "primarily" would be added to the phrase "invest primarily in the stock of the employer corporation" to clarify that an ESOP does not have to invest 100% in the stock of the employer corporation.
    
    
  • The language would clarify that ESOP costs are to be measured, assigned, and allocated in accordance with CAS 412 for ESOPs that meet the definition of a pension plan, and in accordance with CAS 415, Accounting for the Cost of Deferred Compensation, for all other ESOPs. (EDITOR'S NOTE: With regard to this proposed change, the introduction to the proposed rule states, "As ESOP accounting techniques continue to evolve, this FAR provision may require further modifications, e.g., if the present CAS treatment of this topic is changed as a result of the current ESOP project being pursued by the CAS Board.")
    
    
  • The limitation on ESOP contributions in any one year would be increased from 15% to 25% percent, which is consistent with the Internal Revenue Code limitation on ESOP contributions for corporations.
    
    
  • The requirement for the contracting officer to approve the contribution rate would be removed to be consistent with the requirements for defined contribution pension and deferred compensation plans that are not ESOPs.
  
  
• The descriptions of defined-benefit pension plans at FAR 31.205-6(j)(3) and defined-contribution pension plans at FAR 31.205-6(j)(5) would be deleted since the definitions of these terms are currently in FAR 31.001.
  
  
• References to "reasonableness" and "allocability" found at FAR 31.205-6(j)(2)(ii) and (j)(3)(ii) would be removed because these general allowability standards are already addressed at FAR 31.201-2, Determining Allowability, and FAR 31.201-3, Determining Reasonableness.
  
  
• The discount rate provision at the current paragraph FAR 31.205-19(a)(3)(i) would be eliminated. The CAS Board revised CAS 416, Accounting for Insurance Costs, to use the Treasury Rate, which is the same rate currently contained in the insurance and indemnification cost principle. Therefore, it is no longer necessary for the cost principle to specify the discount rate.

FOR FURTHER INFORMATION CONTACT: Panoptic Enterprises at 703-451-5953 or by e-mail to Panoptic@FedGovContracts.com.

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