[Federal Register Volume 77, Number 96 (Thursday, May 17, 2012)]
[Proposed Rules]
[Pages 29305-29307]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2012-11959]


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DEPARTMENT OF DEFENSE

GENERAL SERVICES ADMINISTRATION

NATIONAL AERONAUTICS AND SPACE ADMINISTRATION

48 CFR Part 31

[FAR Case 2011-019; Docket 2011-0019; Sequence 1]
RIN 9000-AM23


Federal Acquisition Regulation; Updated Postretirement Benefit 
(PRB) References

AGENCY: Department of Defense (DoD), General Services Administration 
(GSA), and National Aeronautics and Space Administration (NASA).

ACTION: Proposed rule.

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SUMMARY: DoD, GSA, and NASA are proposing to amend the Federal 
Acquisition Regulation (FAR) to remove references to specific 
paragraphs in an accounting standard that were deleted in the Financial 
Accounting Standards Board's (FASB's) Accounting Standards Codification 
(ASC) of Generally Accepted Accounting Principles (GAAP). The immediate 
and delayed recognition procedures for the initial application 
transition obligation in paragraphs 111, 112, and 113, respectively, of 
superseded Financial Accounting Standard (FAS) 106, are obsolete and no 
longer exist in the authoritative GAAP (the ASC). DoD, GSA, and NASA, 
therefore, propose replacing the current references with replacement 
criteria for determining the allowability of the transition obligation, 
when converting from pay-as-you-go accounting for postretirement 
benefits (PRBs) to an accrual method of accounting for the purposes of 
government contract cost accounting.

DATES: Interested parties should submit written comments to the 
Regulatory Secretariat at one of the addressees shown below on or 
before July 16, 2012 to be considered in the formation of the final 
rule.

ADDRESSES: Submit comments in response to FAR Case 2011-019 by any of 
the following methods:
     Regulations.gov: http://www.regulations.gov. Submit 
comments via the Federal eRulemaking portal by searching ``FAR Case 
2011-019''. Select the link ``Submit a Comment'' that corresponds with 
``FAR Case 2011-019.'' Follow the instructions provided at the ``Submit 
a Comment'' screen. Please include your name, company name (if any), 
and ``FAR Case 2011-019'' on your attached document.
     Fax: 202-501-4067.
     Mail: General Services Administration, Regulatory 
Secretariat (MVCB), ATTN: Hada Flowers, 1275 First Street NE., 7th 
Floor, Washington, DC 20417.
    Instructions: Please submit comments only and cite FAR Case 2011-
019, in all correspondence related to this case. All comments received 
will be posted without change to http://www.regulations.gov, including 
any personal and/or business confidential information provided.

FOR FURTHER INFORMATION CONTACT: Mr. Edward N. Chambers, Procurement 
Analyst, at 202-501-3221 for clarification of content. For information 
pertaining to status or publication schedules, contact the Regulatory 
Secretariat at 202-501-4755. Please cite FAR Case 2011-019.

SUPPLEMENTARY INFORMATION: 

I. Background

    In June of 2009, the FASB announced, in its Statement Number 168, 
that effective for financial statements issued for interim and annual 
periods ending after September 15, 2009, the FASB ASC would become the 
source of authoritative U.S. GAAP recognized by the FASB to be applied 
by nongovernmental entities. The FASB stated that this codification in 
the ASC supersedes existing references in U.S. GAAP.

[[Page 29306]]

    On February 16, 2011, DoD, GSA, and NASA issued a proposed rule 
under FAR Case 2010-005, published in the Federal Register at 76 FR 
8989, which replaced the superseded GAAP references for three sections 
of the FAR, and also stated that the reference to ``prior GAAP'' in FAR 
31.205-6(o)(2)(iii)(A)(1) would be handled in a separate case. This 
proposed rule is the separate case, FAR Case 2011-019.
    The superseded GAAP provisions in FAR 31.205-6(o)(2)(iii)(A)(1) 
reference the description of ``transition obligation'' in paragraph 110 
of FAS 106 and the ``delayed recognition methodology'' in paragraphs 
112 and 113, also of FAS 106.
    These references to FAS 106 in the cost principle were added in FAR 
Case 91-42, published in the Federal Register at 56 FR 41738 on August 
22, 1991. At the time, DoD, GSA, and NASA decided not to allow 
contractors to claim the entire ``transition obligation'' associated 
with their initial application of FAS 106 as an allowable cost in 
accordance with the ``immediate recognition'' procedure (superseded 
paragraph 111) in FAS 106. (The transition obligation associated with 
initial application of FAS 106 is referred to hereafter as the 
``initial application transition obligation.'') Therefore, DoD, GSA, 
and NASA disallowed costs for the amortization of the initial 
application transition obligation in excess of the amount amortized 
using the delayed recognition method procedure in paragraphs 112 and 
113 of FAS 106.
    DoD, GSA, and NASA note that the immediate and delayed recognition 
procedures for the initial application transition obligation in 
paragraphs 111, 112, and 113, respectively, of superseded FAS 106, are 
obsolete because FAS 106 no longer exists in the authoritative GAAP 
(the ASC). When the FASB recodified FAS 106 into the ASC, paragraphs 
111 through 114 were not included because public companies recognized 
the transition obligation in the first fiscal period beginning after 
December 15, 1994, or shortly thereafter if exempted from the initial 
effective date. While the existing provision at FAR 31.205-
6(o)(2)(iii)(A)(1) remains in force because the referenced paragraphs 
can be found in the historical accounting literature, the passage of 
time raises concerns that these paragraphs may become less readily 
available. DoD, GSA, and NASA conclude, therefore, that replacement 
criteria are needed for determining the allowability of the transition 
obligation, when converting from pay-as-you-go accounting for PRBs to 
an accrual method of accounting for the purposes of government contract 
cost accounting.
    DoD, GSA, and NASA propose replacing the current reference to the 
recognition of the transition method in accordance with provisions of 
GAAP that no longer exist with explicit criteria that generally 
replicates the former GAAP methodology.
    DoD, GSA, and NASA acknowledge that contractors have in the past 
and may continue to propose a change to their government contract cost 
accounting practice whereby the ``pay-as-you-go'' method is replaced by 
the ``accrual'' method and this may give rise to a transition 
obligation that is similar in its nature, but not its amount, to the 
initial application transition obligation that arose when (now 
superseded) FAS 106 first became applicable in the early 1990's for 
financial reporting purposes.
    Consequently, DoD, GSA, and NASA are removing the obsolete 
references to paragraphs 110, 112, and 113 in FAR 31.205-
6(o)(2)(iii)(A)(1). The revision is intended to allow a general 
continuation of the obsolete GAAP delayed recognition method for 
contractors that move from a pay-as-you-go method of accounting to an 
accrual basis of accounting for PRB costs for government contract cost 
accounting.

II. Executive Orders 12866 and 13563

    Executive Orders (E.O.s) 12866 and 13563 direct agencies to assess 
all costs and benefits of available regulatory alternatives and, if 
regulation is necessary, to select regulatory approaches that maximize 
net benefits (including potential economic, environmental, public 
health and safety effects, distributive impacts, and equity). E.O. 
13563 emphasizes the importance of quantifying both costs and benefits, 
of reducing costs, of harmonizing rules, and of promoting flexibility. 
This is not a significant regulatory action and, therefore, was not 
subject to review under section 6(b) of E.O. 12866, Regulatory Planning 
and Review, dated September 30, 1993. This rule is not a major rule 
under 5 U.S.C. 804.

III. Regulatory Flexibility Act

    Department of Defense (DoD), General Services Administration (GSA), 
and National Aeronautics and Space Administration (NASA) do not expect 
this proposed rule to have a significant economic impact on a 
substantial number of small entities within the meaning of the 
Regulatory Flexibility Act, 5 U.S.C. 601, et seq., because the rule 
only removes references to specific paragraphs in an accounting 
standard that were deleted in the Financial Accounting Standards 
Board's (FASB's) Accounting Standards Codification (ASC) of Generally 
Accepted Accounting Principles (GAAP) and replaces these references 
with explicit criteria that generally replicates the former GAAP 
methodology. Therefore, an Initial Regulatory Flexibility Analysis has 
not been performed. DoD, GSA, and NASA invite comments from small 
business concerns and other interested parties on the expected impact 
of this rule on small entities.
    DoD, GSA, and NASA will also consider comments from small entities 
concerning the existing regulations in subparts affected by this 
proposed rule in accordance with 5 U.S.C. 610. Interested parties must 
submit such comments separately and should cite 5 U.S.C. 610 (FAR Case 
2011-019) in correspondence.

IV. Paperwork Reduction Act

    The proposed rule does not contain any information collection 
requirements that require the approval of the Office of Management and 
Budget under the Paperwork Reduction Act (44 U.S.C. chapter 35).

List of Subjects in 48 CFR Part 31

    Government procurement.

    Dated: May 14, 2012.
Laura Auletta,
Director, Office of Governmentwide Acquisition Policy, Office of 
Acquisition Policy, Office of Governmentwide Policy.

    Therefore, DoD, GSA, and NASA propose amending 48 CFR part 31 as 
set forth below:

PART 31--CONTRACT COST PRINCIPLES AND PROCEDURES

    1. The authority citation for 48 CFR part 31 continues to read as 
follows:

    Authority:  40 U.S.C. 121(c); 10 U.S.C. chapter 137; and 42 
U.S.C. 2473(c).

    2. Amend section 31.205-6 by revising the introductory text of 
paragraph (o)(2)(iii)(A) and paragraph (o)(2)(iii)(A)(1) to read as 
follows:


 31.205-6  Compensation for personal services.

* * * * *
    (o) * * *
    (2) * * *
    (iii) * * *
    (A) Be measured and assigned in accordance with one of the 
following two methods described under paragraphs (o)(2)(iii)(A)(1) or 
(o)(2)(iii)(A)(2) of this subsection:
    (1) Generally accepted accounting principles. However, transitions 
from the pay-as-you-go method to the accrual

[[Page 29307]]

accounting method must be handled according to paragraphs 
(o)(2)(iii)(A)(1)(i) through (iii) of this section:
    (i) In the year of transition from the pay-as-you-go method to 
accrual accounting for purposes of government contract cost accounting, 
the transition obligation shall be the excess of the accumulated PRB 
obligation over the fair value of plan assets determined in accordance 
with subparagraph (E) of this section; the fair value must be reduced 
by the prepayment credit as determined in accordance with subparagraph 
(o)(2)(iii)(F) of this subsection.
    (ii) PRB cost attributable to the transition obligation assigned to 
the current year that is in excess of the amount assignable to 
accounting periods on the basis of a straight line amortization of the 
transition obligation over the average remaining working lives of 
active employees covered by the PRB plan or a 20-year period, whichever 
period is longer, is unallowable. However, if the plan is comprised of 
inactive participants only, the PRB cost attributable to the transition 
obligation assigned to the current year that is in excess of the amount 
assignable to accounting periods on a straight line amortization of the 
transition obligation over the average future life expectancy of the 
participants is unallowable.
    (iii) For a plan that transitioned from pay-as-you-go to accrual 
accounting for government contract cost accounting prior to (Date of 
Final Rule), the unallowable amount of PRB cost attributable to the 
transition obligation amortization shall continue to be based on the 
cost principle in effect at the time of the transition until the 
original transition obligation schedule is fully amortized.
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[FR Doc. 2012-11959 Filed 5-16-12; 8:45 am]
BILLING CODE 6820-EP-P