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CAS Board Issues Pension Harmonization Rule

The Office of Federal Procurement Policy, Cost Accounting Standards Board, has issued a final rule to revise Cost Accounting Standard 412, Composition and Measurement of Pension Cost, and CAS 413, Adjustment and Allocation of Pension Cost. This revision, which harmonizes the measurement and period assignment of the pension cost allocable to government contracts and the minimum required contribution under the Employee Retirement Income Security Act of 1974 (PL 93-406), as amended, implements Paragraph (d) of Section 106 of the Pension Protection Act of 2006 (PL 109-280). The PPA amended the minimum funding requirements for qualified defined benefit pension plans. The rule revises CAS 412 and CAS 413 to include the recognition of a "minimum actuarial liability" and "minimum normal cost," which are measured on a basis consistent with the liability measurement used to determine the PPA minimum required contribution, and accelerate the recognition of actuarial gains and losses.


The primary harmonization provisions are consolidated within the "CAS Pension Harmonization Rule" at CASB 9904.412-50 (b)(7). This regulation clearly identifies the special accounting practices required for harmonization. The final rule makes corresponding changes to related CAS provisions, including CASB 9904.412-30, which amends the definitions for "Accrued benefit cost method," "Assignable cost deficit," "Assignable cost limitation," and "Prepayment credit." CASB 9904.412-40 is amended to provide that the measurement of pension costs must recognize CASB 9904.412-50 (b)(7) for periods beginning with the "Applicability Date of the CAS Pension Harmonization Rule," as specified in amended CASB 9904.412-63. The rule also updates many of the illustrations in CASB 9904.412-60 and adds a new illustrations provision at CASB 9904.412-60.1 to provide specific examples on the harmonization rule. A second new provision at CASB 9904.412-64.1 addresses the transition method for the harmonization rule. In addition, the final rule amends several provisions in CAS 413 to conform to the CAS 412 changes, including CASB 9904.413-30, Definitions; CASB 9904.413-40, Fundamental requirement; CASB 9904.413-50, Techniques for application; the illustrations at CASB 9904.413-60 ; and the effective date language at CASB 9904.413-63. In addition, the rule adds a new provision at CASB 9904.413-64.1, to state that the transition method for the CAS harmonization rule must be in accordance with CASB 9904.412-64.1.


The CAS Board intends the substantive revisions to better align both the measurement and period assignment of pension cost allocable to government contracts and other final cost objectives in accordance with CAS, and the measurement and period assignment requirements for determining the contractor's minimum pension contribution under the PPA. As identified in the rule's background and summary section, in addition to the revisions that implement harmonization, the rule makes technical corrections to cross references and minor inconsistencies within CAS 412 and CAS 413. The CAS board staff has created a document addressing frequently asked questions on the CAS harmonization rule that appears at http://www.whitehouse.gov/sites/default/files/omb/procurement/casb/111223_1602_ed_FAQs_%2812-27-2011%29.pdf. For the text of the final rule, which goes into effect February 27, 2012, see 70,055.25.




(The news featured above is a selection from the news covered in the Government Contracts Report Letter, which is published weekly and distributed to subscribers of the Government Contracts Reporter. )


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