[Federal Register Volume 59, Number 248 (Wednesday, December 28, 1994)] [Unknown Section] [Page ] From the Federal Register Online via the Government Publishing Office [www.gpo.gov] [FR Doc No: 94-30647] [Federal Register: December 28, 1994] ======================================================================= ----------------------------------------------------------------------- DEPARTMENT OF DEFENSE DEPARTMENT OF DEFENSE GENERAL SERVICES ADMINISTRATION NATIONAL AERONAUTICS AND SPACE ADMINISTRATION 48 CFR Parts 31 and 52 [FAC 90-23; FAR Case 91-42; Item XXII] RIN 9000-AE69 Federal Acquisition Regulation; Postretirement Benefits- Transition Costs AGENCIES: Department of Defense (DOD), General Services Administration (GSA), and National Aeronautics and Space Administration (NASA). ACTION: Interim rule adopted as final. ----------------------------------------------------------------------- SUMMARY: The Civilian Agency Acquisition Council (CAAC) and the Defense Acquisition Regulations Council (DARC) have agreed to convert the interim rule published in the Federal Register at 56 FR 41738, August 22, 1991, as Item IX of FAC 90-7, to a final rule with minor modifications. The final rule addresses the treatment of costs for postretirement benefits other than pensions (PRB) which are attributable to employees' past service. This regulatory action was not subject to Office of Management and Budget review under Executive Order 12866, dated September 30, 1993. EFFECTIVE DATE: February 27, 1995. FOR FURTHER INFORMATION CONTACT: Mr. Jeremy Olson at (202) 501-3221 in reference to this FAR case. For general information, contact the FAR Secretariat, Room 4037, GS Building, Washington, DC 20405 (202) 501- 4755. Please cite FAC 90-23, FAR Case 91-42. SUPPLEMENTARY INFORMATION: A. Background An interim rule was published in the Federal Register at 56 FR 41738, August 22, 1991, as item IX of FAC 90-7. This interim rule changed FAR 31.205-6 to add a new paragraph (j)(3)(v), revised the first sentence of paragraph (j)(4), redesignated the existing paragraph (o)(4) as (o)(5), and added a new paragraph (o)(4). The final rule differs from the interim rule in that it also amends FAR 31.205-6(o)(2) to allow costs generated using the terminal funding method allowed for CAS-covered contractors. Both the terminal funding method and cash basis (pay-as-you-go) accounting are allowable assignment methods under CAS but are not sanctioned by the Generally Accepted Accounting Principles. It is intended that the methods allowed by CAS for prefunding retiree insurance programs be allowable for all contractors. Subsequent paragraphs are redesignated as (o)(3) through (o)(6) with minor clarifications made in paragraphs (o)(3) and (o)(5). A change is made in the clause at 52.215-39, Reversion or Adjustment of Plans for Postretirement Benefits Other Than Pensions (PRB), to reflect the change in paragraph numbering at FAR 31.205-6(o). The amended cost principle provides guidance for any transfer of pension funds to another employee benefit fund. In effect, the cost principle requires any increase in current or future Government costs for the pension fund due to such a withdrawal to be offset by equivalent decreases in Government costs for the employee benefit fund receiving the transfer. Transfers made without an advance agreement shall be treated as if the contractor withdrew the funds and are subject to FAR 31.205-6(j)(4), and the deposit to the receiving fund is subject to the cost allowability rules governing the receiving fund in regard to measurement and assignment of costs. Under 31.205-6(j)(4), the Government is entitled to its equitable share of the gross amount withdrawn from pension fund assets. FAR 31.205-6(o)(5) limits the allowable amount of contractor PRB transition costs for any fiscal year to the amount which would be assigned to that year using the amortization method described in Financial Accounting Standards Board Statement 106. This limitation is necessary because Government fiscal policy dictates that the past service cost element be amortized rather than immediately recognized. 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 under the Regulatory Flexibility Act, 5 U.S.C. 601, et seq., because most contracts awarded to small entities are awarded on a competitive, fixed-price basis and the cost principles do not apply. 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 31 and 52 Government procurement. Dated: December 7, 1994. Albert A. Vicchiolla, Director, Office of Federal Acquisition Policy. Therefore, 48 CFR parts 31 and 52 are amended as set forth below: 1. The authority citation for 48 CFR parts 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 31--CONTRACT COST PRINCIPLES AND PROCEDURES 2. Section 31.205-6 is amended by revising paragraph (o)(2); redesignating paragraphs (o)(3) through (o)(5) as (o)(4) through (o)(6) and adding a new paragraph (o)(3); and amending the newly designated paragraph (o)(5) by inserting the words ``in paragraph (o)(2)(iii) of this section'' after ``benefits'' to read as follows: 31.205-6 Compensation for personal services. * * * * * (o) * * * (2) To be allowable, PRB costs must be reasonable and incurred pursuant to law, employer-employee agreement, or an established policy of the contractor. In addition, to be allowable, PRB costs must also be calculated in accordance with paragraphs (o)(2)(i), (ii), or (iii) of this section. (i) Cash basis. Cost recognized as benefits when they are actually provided, must be paid to an insurer, provider, or other recipient for current year benefits or premiums. (ii) Terminal funding. If a contractor elects a terminal-funded plan, it does not accrue PRB costs during the working lives of employees. Instead, it accrues and pays the entire PRB liability to an insurer or trustee in a lump sum upon the termination of employees (or upon conversion to such a terminal-funded plan) to establish and maintain a fund or reserve for the sole purpose of providing PRB to retirees. The lump sum is allowable if amortized over a period of 15 years. (iii) Accrual basis. Accrual costing other than terminal funding must be measured and assigned according to Generally Accepted Accounting Principles and be paid to an insurer or trustee to establish and maintain a fund or reserve for the sole purpose of providing PRB to retirees. The accrual must also be calculated in accordance with generally accepted actuarial principles and practices as promulgated by the Actuarial Standards Board. (3) To be allowable, costs must be funded by the time set for filing the Federal income tax return or any extension thereof. PRB costs assigned to the current year, but not funded or otherwise liquidated by the tax return time, shall not be allowable in any subsequent year. * * * * * PART 52--SOLICITATION PROVISIONS AND CONTRACT CLAUSES 52.215-39 [Amended] 3. Section 52.215-39 is amended in the clause heading by revising the date to read ``(FEB 1995)''; and in the second sentence of the clause by removing the reference ``31.205-6(o)(5)'' and inserting ``31.205-6(o)(6)'' in its place. [FR Doc. 94-30647 Filed 12-27-94; 8:45 am] BILLING CODE 6820-34-P