Federal Register: October 5, 2000 (Volume 65, Number 194)
DOCID: FR Doc 00-24801
OFFICE OF MANAGEMENT AND BUDGET
Veterans Employment and Training, Office of Assistant Secretary
CFR Citation: 48 CFR Part 9904
NOTICE: Part II
DOCUMENT ACTION: Advance notice of proposed rulemaking.
SUBJECT CATEGORY:
Cost Accounting Standards Board; Accounting for the Costs of Post-Retirement Benefit Plans Sponsored by Government Contractors
DATES: Comments must be in writing and must be received by December 19, 2000.
DOCUMENT SUMMARY:
The Office of Federal Procurement Policy, Cost Accounting Standards Board (CASB), invites public comments on a proposed Cost Accounting Standard (CAS) on the costs of postretirement benefit plans to be recognized as contract cost under Government costbased contracts and subcontracts. This is a new Standard that would directly address the costs of postretirement benefit plans for the first time in detail. The proposed Standard provides criteria for measuring the costs of postretirement benefit plans, assigning the measured costs to cost accounting periods, and allocating the assigned costs to segments of an organization. The allocation of a segment's assigned postretirement benefit costs to contracts and subcontracts is addressed in other existing Standards. The proposed Standard also provides for the adjustment of postretirement benefit costs for the effect of a curtailment of a postretirement benefit plan, a settlement of a post retirement benefit obligation, a granting of termination benefits, a termination of a postretirement benefit plan, or a segment closing.
SUMMARY:
Office of Management and Budget, Federal Procurement Policy Office,
SUPPLEMENTAL INFORMATION
A. Regulatory Process
The Cost Accounting Standards Board's rules, regulations and Standards are codified at 48 CFR Chapter 99. Section 26(g)(1) of the Office of Federal Procurement Policy Act, 41 U.S.C. 422(g)(1), requires that the Board, prior to the establishment of any new or revised Cost Accounting Standard, complete a prescribed rulemaking process. The process generally consists of the following four steps:
1. Consult with interested persons concerning the advantages, disadvantages and improvements anticipated in the pricing and administration of Government contracts as a result of the adoption of a proposed Standard (e.g., promulgation of a Staff Discussion Paper.)
2. Promulgate an Advance Notice of Proposed Rulemaking (ANPRM).
3. Promulgate a Notice of Proposed Rulemaking (NPRM).
4. Promulgate a Final Rule.
This ANPRM is issued by the Board in accordance with the
requirements of 41 U.S.C. 422(g)(1)(B) and (C) and is step two of the fourstep process.
B. Background and Summary
Prior Promulgations
Postretirement benefit plans have existed for many years, sometimes as an adjunct to a company's pension plan, but they generally received little attention until the Financial Accounting Standards Board (FASB) decided to examine the potential liabilities and costs of these plans and ultimately issued Statement No. 106, ``Employers' Accounting for PostRetirement Benefits Other Than Pensions,'' (SFAS 106) in December of 1990. The adoption of SFAS 106 had the effect of exposing the substantial unfunded liabilities associated with post retirement benefit plans.
The Cost Accounting Standards Board has received numerous public comments recommending that it establish a case concerning the measurement, assignment, and allocation of the costs of postretirement benefit plans. These letters came from Federal Government agencies, Government contractors, law firms, trade associations and other respondents. The Board recognized the need to establish a case addressing contract cost accounting issues related to postretirement benefit plans, but because of the similarities between postretirement benefit plans and more traditional pension plans, it was decided to defer commencement of this case until the pension case was completed. The pension case was completed when the amendments to Cost Accounting Standards 9904.412 and 9904.413 were published as a final rule on March 30, 1995 (60 FR 16534). At its February 24, 1995 meeting, the CAS Board directed the staff to begin work on a Staff Discussion Paper addressing the accounting treatment of costs of postretirement benefit plans.
As part of the development of the Staff Discussion Paper, the staff solicited preliminary comments from certain interested and knowledgeable organizations and individuals from both the procuring agencies and contractor communities. The staff also sought comments from organizations and individuals from the accounting, actuarial, and legal professions. The staff asked for assistance in identifying existing guidance and operational practices that should be investigated. These comments provided important information and ideas that were incorporated into the Staff Discussion Paper.
The Board made available on September 20, 1996, (61 FR 49533), a Staff Discussion Paper, PostRetirement Benefit Plans Other Than Pension Plans Sponsored by Government Contractors, identifying the cost accounting issues related to postretirement benefit plans. The Staff Discussion Paper identified major topics for consideration by the Board in its deliberations concerning the possible promulgation of an Interpretation, an amendment to existing Standards, or a new Standard regarding postretirement benefit costs. The Staff Discussion Paper neither advocated nor assumed any position regarding the accounting treatment of postretirement benefit costs. Rather, the Staff Discussion Paper explored many different approaches in depth so that the Board would have an opportunity to fully consider alternative treatments for costs of postretirement benefit plans.
As the Board and its staff analyzed the comments and other
information submitted for consideration, it became apparent that many
commenters had strongly held opposing positions regarding the firmness
of the SFAS 106 liability and the role, if any, that funding should
play. To better understand these opposing positions, and hopefully to
be able to reconcile these positions, on January 12, 1999 the Board
sent a letter to all the respondents to the Staff Discussion Paper.
This letter was also made widely available for public comment on February 18, 1999 (64 FR 8141).
[[Page 59505]]
Public Comments
The Board received eighteen (18) sets of public comments in response to the Staff Discussion Paper. These comments came from contractors, Government agencies, professional associations, actuarial firms, and individuals. These public comments are briefly summarized as follows:
Most respondents did not favor the promulgation of a new
Standard and believed that the Board could adequately address post
retirement benefit costs through amendments to CAS 9904.412 and 9904.413. A few respondents expressed the belief that the
measurement, assignment, and allocation of postretirement benefit
costs were complex and technical subjects and recommended that the
Board address postretirement benefit costs in a comprehensive manner.
The respondents almost universally agreed that accrual accounting following the provisions of SFAS 106 was the most appropriate basis for measuring and assigning the costs of a post retirement benefit plan that created a firm liability. They stated that the payasyougo cost method (cash basis accounting) was appropriate if there was not a firm; i.e., compellable, liability to provide the promised benefits. However, there was no general agreement as to the criteria for ascertaining the firmness of a plan's liability; especially as to whether funding of the cost should serve as a criterion. There was agreement that if funding was to be a prerequisite for accrual accounting, then any rule or amendments should provide sufficient flexibility in the choice of accounting methods to permit contractors to align their cost accounting practice with their funding opportunities.
Respondents recommended that the Board address special events such as a curtailment of benefits or the termination of the post retirement benefit plan. Many commenters suggested that a funding requirement may not be necessary if the Board provided adequate safeguards in case of a plan termination or segment closing. Some respondents asked that the segment closing provisions for post retirement benefit costs be explicitly coordinated with the segment closing provisions of paragraph 9904.41350(c)(12) regarding pensions.
The Board also received ten (10) sets of comments in response to the Board's letter of January 12, 1999 which can be summarized as follows:
The comments from contractors and other industry representatives reiterated their belief that funding was not necessary to
substantiate the liability. Several of these respondents opined that
funding did not improve the firmness of the liability. Instead,
these respondents expressed the belief that the terms of the post
retirement benefit plan determined the firmness of the liability.
Most commenters, including the Office of the Under Secretary of Defense (OUSD), argued that funding was an allowability; i.e., procurement policy issue, and not an accounting issue. The other two Government respondents expressed a strong belief that funding demonstrated the contractor's intent to continue the postretirement benefit plan and to be financially prepared to provide the promised benefits.
The Board also reviewed proposed amendments to CAS 9904.412 and 9904.413 addressing postretirement benefit costs which were voluntarily submitted by the Council of Defense and Space Industry Associations (CODSIA), as well as comments submitted by the American Bar Association's (ABA) Public Contract Law Section regarding CODSIA's proposal.
The Board reviewed information from the Towers Perrin surveys of ``SFAS 87 [Statement 87 of the Financial Accounting Standards Board] and SFAS 106 Annual Report Footnote Data'' for years 1995, 1996, 1997, and 1998 which was extracted from the corporate financial statements of the ``Fortune Top 100'' companies. The Board notes three (3) major observations that one can generally conclude from this survey information that influenced the development of this proposed Standard.
1. For pensions, the plan assets generally equaled or exceeded the
liability for projected benefits, as measured by the SFAS 87 projected
benefit obligation. On the other hand, only slightly over onehalf (\1/
2\) \1\ of the companies included in the survey reported any plan
assets for their postretirement benefits plans. For companies that did
report plan assets, for 1998 the average plan assets only covered
around onethird (\1/3\) of the average SFAS 106 accumulated post retirement benefit obligation.
\1\ 82 companies reported pension plan assets in their SFAS 87
footnotes and 45 companies reported postretirement benefit plan assets in their SFAS 106 footnotes.
2. While the average SFAS 106 accumulated postretirement benefit
obligation for these Fortune 100 companies is less than onethird \2\
of the average SFAS 87 projected benefit obligation for pensions, at
$2,312.5 million for 1998, the average postretirement benefit obligation is still quite large.
\2\ The average Projected Benefit Obligation reported in the SFAS 87 footnotes was $7,170.6 million.
3. The 1998 average net periodic cost for postretirement benefit plans ($150.7 million) exceeds the average net periodic cost for pension plans ($58.4 million).
This proposed Standard is based upon the continuing research performed by the staff of the Cost Accounting Standards Board and the public comments received in response to the Staff Discussion Paper and the Board's January 12, 1999 letter.
The various comments and proposals are discussed in greater detail under Section E, Public Comments. The Board and its staff would like to thank all the organizations and individuals who provided comments and information in response to the Staff Discussion Paper and the Board's January 12, 1999 letter.
Conclusions
While accounting for postretirement benefits has some similarities with pension accounting, the Board has concluded that postretirement benefit costs should be treated distinctly from pension costs. The Board proposes to address the accounting treatment of postretirement benefit costs through the promulgation of a new Cost Accounting Standard rather than through an Interpretation of or an amendment to an existing Standard or Standards. Postretirement benefits, pensions, and insurance are each intrinsically complex and technical subjects. The Board has determined that it would be extremely difficult, if not impossible, to effectively and efficiently interleave coverage for postretirement benefit costs into either the pension or insurance Standards.
The Board believes that accrual accounting is the appropriate method for determining the costs of postretirement benefit plans that create a sufficiently firm liability for contract cost recognition. The Board has concluded that SFAS 106 with some modifications and restrictions provides adequate and appropriate accounting guidance regarding the measurement and period assignment of postretirement benefit costs when accrual accounting is utilized. In order to implement a definite determination of a firm liability, the Board decided that the annual accrual of the postretirement benefit cost must be compared to the nonforfeitable portion of the accumulated post retirement benefit obligation. Postretirement benefit plans that do not create a firm liability for contract costing purposes must be accounted for using the payasyougo cost method.
The Board has also determined that specific guidance is required
regarding the allocation of postretirement benefit cost to segments.
Specifically, the Board believes criteria are necessary regarding when
the postretirement benefit costs of a segment should be based on a
general allocation or a separate calculation. Furthermore, because the
current and future costs of postretirement benefit plans are dependent
upon the costs accrued in prior periods and the funding of such prior
accruals, the Board finds it necessary to provide for the accounting treatment for assets
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and for the accumulation and reporting of unfunded accruals at the segment level.
The Board has concluded that the SFAS 106 provisions on benefit curtailments, liability settlements, and the granting of special termination benefits are inadequate for contract costing purposes and additional guidance is needed. The Board further concluded that specific guidance is needed to address the appropriate contract cost accounting when a segment, as defined by paragraph 9904.40330(a)(4), is abandoned, sold, or otherwise closed.
Benefits
The Board's proposal will eliminate the existing confusion as to which Standard, if any, addresses the contract cost accounting for postretirement benefits. There have been various opinions and theories as to the proper basis for contract cost accounting for postretirement benefit plans. Various parties have advocated using either the pension Standards, CAS 9904.412 and 9904.413, or the insurance Standard, Cost Accounting Standard 9904.416. Others have expressed a belief that no existing Cost Accounting Standard addresses such costs. Many parties have argued that Generally Accepted Accounting Principles (GAAP) as evidenced by SFAS 106 should govern the accounting of postretirement benefit costs, and in fact, paragraph 31.2056(o) of the Federal Acquisition Regulation (FAR 31.2056(o)) specifies SFAS 106 as the basis for accrual accounting. A few have even suggested that the tax accounting rules for Internal Revenue Code (IRC) section 501(c) (26 U.S.C. 501(c)) trusts might be an appropriate basis. The Board proposes to clarify the accounting treatment of postretirement benefit costs for Government contract costing purposes by specifying SFAS 106 as the basis for measurement and period assignment when the proposed criteria for accrual accounting are satisfied.
The Board acknowledges that the accounting for postretirement benefit costs is a complex subject. When accrual accounting is used, the reliance on the methods and techniques of SFAS 106 for measurement and period assignment eases the burden of complying with this proposed Standard because contractors will be able to use much of the same data and methods used for financial accounting purposes. If use of the pay asyougo cost method is required, the determination of costs will be based on actual payments of benefits. Therefore, there should be minimal additional cost associated with complying with the Standard for the plan as a whole, although certain additional effort may be necessary to comply with the proposed provisions regarding the accounting for costs of segments. Furthermore, the proposed criteria regarding when to use accrual accounting or the payasyougo cost method will eliminate disputes and will increase uniformity among contractors.
In the Board's judgement, a Standard is needed to increase consistency of results between accounting periods. Various provisions of SFAS 106 permit contractors to select between full immediate recognition, amortization, and in the case of annual gains and losses, delayed recognition of the various components of postretirement benefit cost. The Standard being proposed today generally limits the contractor's cost recognition to the amortization method. Besides enhancing uniformity between accounting periods, dampening volatility through amortization will increase predictability when cost data is used to price contracts covering future periods.
The provisions of SFAS 106 and GAAP generally do not address the allocation of costs to segments of the contractor. The additional guidance being proposed addresses this point. While SFAS 106 addresses how major changes in the postretirement benefit plan; i.e., benefit curtailments, liability settlements, and granting special termination benefits, are to be reported within the results of operations for financial reporting purpose, SFAS 106 does not address how such results are allocated to cost objectives. This proposal provides guidance on how the costs resulting from such major changes in postretirement benefit plans are to be allocated and recognized for Government contract costing purposes. This proposed Standard also provides for a final settlement based on the proposed measure of the firm liability when the contracting relationship between the Government and a segment ends; this is not addressed by SFAS 106.
The proposed Standard also delineates how postretirement benefit assets and liabilities are to be accounted for when a segment is divided or combined with another segment as part of an internal reorganization, corporate merger, or when part of the segment is sold or ownership is transferred. This delineation will enable the parties to the sale or transfer to better determine the value of the segment's postretirement benefit plan assets and liabilities maintained for Government contracting purposes.
In summary, the Board believes that the consistency with financial accounting, specificity as to which benefits are recognized on an accrual or cash accounting basis, and the guidance on allocation of cost to segments will enhance the cost proposal, price negotiation, contract administration and audit processes. The benefits of such enhancements should be substantial and should greatly outweigh any added costs.
Summary Description of Proposed Standard
The proposed Standard is divided into six subsections which address
(a) the recognition and identification of postretirement benefit
costs, (b) the measurement and period assignment of postretirement
benefit costs, (c) the allocation of postretirement benefit costs to
segments, (d) the allocation of postretirement benefit costs from
segments to the intermediate and final cost objectives of a segment,
(e) the adjustment of the contractor's records when there is a
curtailment, settlement, or granting of special termination benefits,
and (f) the adjustment of contract pricing when a segment is closed.
Once it is determined under subsection (a) whether the cost of a
particular postretirement benefit plan is to be accounted for using
accrual accounting or the payasyougo cost method, the other sections present the relevant provisions in the following order of
applicability: all plans, plans using the payasyougo cost method,
definedcontribution plans using accrual accounting, and finally,
definedbenefit plans using accrual accounting. In this way,
readability and the ability to reference is enhanced. For example,
contractors using the more straightforward payasyougo cost method do
not need to search the entire subsection for applicable guidance. 1. Definitions
Proposed subsection 9904.41930(a) includes several new definitions
of terms that are unique to postretirement benefit plans. These new
definitions include modified SFAS 106 definitions and selected
unmodified SFAS 106 definitions that are frequently used in the
proposed Standard. Terms that are applicable to postretirement
benefits plans, but which have previously been defined for pensions,
have been modified (usually substituting ``postretirement benefit''
for ``pension'') in subsection 9904.41930(b) for purposes of this
proposed rule. Subsection (c) incorporates all other SFAS 106 definitions into the proposed Standard.
[[Page 59507]]
2. Recognition of PostRetirement Benefit Costs
(a) Criteria for accrual accounting. For SFAS 106 purposes, the
postretirement benefit promise arises from the written documents or
established practices that comprise the ``substantive plan.''
Subsection 9904.41940(a) sets forth criteria for determining when the
liability for the postretirement benefit is sufficiently estimable,
contractually obligated (compellable), and reasonably foreseeable to
warrant accrual accounting for government contract accounting purposes.
The proposed criteria require that the promise of future benefits be:
(i) Documented in writing, (ii) communicated to employees, (iii) nonforfeitable once earned, and (iv) legally enforceable.
The proposed Standard's requirement that the benefit promise be
formalized in writing is consistent with similar CAS provisions
regarding pension, insurance, and deferred compensation costs. The
pension and insurance Standards require that costs of employee benefits
contingent on postretirement events, such as mortality and inflation,
be actuarially determined and funded. This proposed Standard, like Cost
Accounting Standard 9904.415, which addresses the accounting for costs
of deferred compensation, does not require funding but instead requires
that the contractor have a duty to pay the benefit earned by the
employee which the contractor cannot unilaterally avoid. As with the
pension and insurance Standards, if the postretirement benefit plan
fails to meet the specified criteria for accrual accounting, then the contractor must use the payasyougo cost method.
(b) Identification of the postretirement benefit plan. Some
companies that have chosen to fund all or a portion of their post
retirement liability use a combination of investment vehicles to
achieve taxefficient funding of postretirement benefits. Companies
sometimes find they must sponsor somewhat different retiree insurance
plans for different plants, states, or classes of employees in order to
provide an overall general postretirement benefit promise. Thus, their
postretirement benefit program is frequently not a single benefit
plan, but several different benefit promises to different groups of employees.
To accommodate such pragmatic concerns associated with sponsoring and administering a postretirement benefit program, the proposal being published today permits contractors to combine different investment vehicles and trust arrangements when identifying the assets of a post retirement benefit plan. Similarly, the proposed Standard also provides that different benefits provided to the same group of employees, or the same benefit provided to different groups of employees may be aggregated for Government contract accounting purposes. Conversely, different benefits within a single overall plan may be accounted for separately.
Consistent with the position taken by the FASB, the proposed
paragraph 9904.41950(a)(7) explicitly covers separate accounts for
medical benefits that are a part of a qualified pension plan and trust
(IRC section 401(h) accounts) in this proposed Standard on post
retirement benefits. These medical benefit accounts, which are
established, accounted for, and funded distinctly from the retirement
income benefit of a qualified pension plan, are not an ``integral part of a pension plan.''
3. Measurement and Assignment of PostRetirement Benefit Costs
(a) Payasyougo cost method. The proposed Standard provides that
for plans using the payasyougo cost method, the assignable cost is
measured by an amount equal to the payments made to or on behalf of the
plan beneficiaries, providers, and insurers for benefits incurred
during the current period, except that any amount paid to settle or
terminally fund a liability for current and future benefits must be
amortized over fifteen (15) years. Because the fifteenyear period
represents an approximation to the life expectancy of a newly retired
employee, this provision is consistent with paragraph 52 of SFAS 106
which requires the cost to be spread over the life expectancy of the
retirees if the obligation is primarily attributable to such retirees.
The proposed Standard is also consistent with the analogous provisions
for pensions and insurance which are found at 9904.41240(b)(3)(ii) and
9904.41650(a)(1)(v)(C), respectively. The proposed transition
provisions permit the continued use of the terminal funding method
(without amortization) for contractors who have an established practice
of terminal funding prior to this proposed Standard becoming applicable.
When describing the postretirement benefit payments considered
under the payasyougo cost method, the proposed Standard augments the
CAS 9904.412 definition of the ``payasyougo cost method'' by adding
the phrase ``or on behalf of'' because postretirement benefit payments
are often made directly to third parties, e.g., health care providers.
The proposed Standard also refers to the ``net amount'' of the benefit
paid to indicate that the cost is based on the contractor's share of
the postretirement benefit after considering refunds, copayments,
deductibles, and amounts payable by unrelated third parties, such as
Medicare and Medicaid. This use of ``net amount'' is consistent with
the SFAS 106 provisions relating to ``incurred claim cost (by age)''
and ``net incurred claim cost (by age).'' This concept is also
consistent with subparagraphs 9904.41650(a)(1)(i) and (a)(1)(vi) of the insurance Standard, CAS 9904.416.
(b) Accrual accounting for definedcontribution plans. For defined
contribution plans using accrual accounting, the proposed Standard
follows paragraph 104 of SFAS 106 and measures the assignable cost as
the annual amount paid to or otherwise distributed to individual
participant accounts. However, in contrast to paragraph 105 of SFAS
106, the proposed Standard does not permit the preretirement accrual
of contributions expected to be made after retirement. Rather,
contributions made after retirement are recognized in the period when
the contribution is required under the terms of the plan. This proposed
provision, paragraph 9904.41940(b)(3), is generally consistent with paragraph 9904.41240(a)(2) of the pension Standard.
(c) Accrual accounting for definedbenefit plans. For post
retirement benefit plans that meet the proposed prerequisites for
accrual accounting, the Standard being proposed today accepts the
actuarial cost method and actuarial assumptions used by the contractor
for financial accounting purposes under SFAS 106. The assignable cost
is based on the same six (6) components used by SFAS 106, namely:
service cost, interest cost, actual return on assets, amortization of
prior service costs, amortization of gains and losses, and recognition
of the transition obligation.\3\ However, the Board proposes to modify
or restrict the SFAS 106 measurement and assignment of some components
as explained below. Therefore, the values of these components used for
contract costing purposes may differ from the values used for financial
accounting purposes. Because the proposed measurement and assignment
methods and techniques follow SFAS 106 rather than CAS 9904.412, there
is no floor placed on the measurement and assignment of the period cost; e.g., the
[[Page 59508]]
assignable postretirement benefit cost could be a negative amount.
\3\ Throughout this preamble, the term ``transition obligation''
is used to refer to either a transition obligation or a transition asset.
Because contractors may wish to maintain the right to curtail or
terminate the benefits for employees who have not yet reached full
eligibility, the Board has decided that it would be inappropriate for
Government contract costing purposes for the accumulated value of
accruals, whether funded or unfunded, to exceed the unavoidable
liability for postretirement benefits. The proposed rules include a
ceiling on the accrual cost recognition equal to the benefits paid
during the period plus the unfunded portion of the accumulated post
retirement benefit obligation for benefits that cannot be forfeited.\4\
The Board notes that the greater the portion of forfeitable benefits
included in the accumulated postretirement benefit obligation, the more restrictive will be the effect of the ceiling.
\4\ Hereafter, the accumulated postretirement benefit
obligation for benefits that cannot be forfeited is referred to as the ``nonforfeitable postretirement benefit obligation.''
(i) Service cost, amortization of prior service costs, and interest
components. The Board proposes to accept the SFAS 106 provisions
regarding the measurement and assignment of the service cost and the
amortization of prior service cost components of postretirement
benefit cost but restricts that measurement to the written terms of the
postretirement benefit plan rather than the ``substantive plan.''
Otherwise, there are no modifications or restrictions to the SFAS 106
measurement and assignment provisions for these three components of postretirement benefit cost.
(ii) Return on assets component and associated asset values. The
Board proposes to accept the same measurement of the fair value of
assets and the marketrelated value of assets used for financial
accounting. The terminology of the proposed Standard follows that of
SFAS 106 and differs from that used for pensions in CAS 9904.412 and
9904.413. The CAS 9904.412 term ``market value of plan assets'' is
analogous to the term ``fair value of plan assets'' as used in SFAS 106
and this proposed Standard. The term ``actuarial value of assets'' used
in the Employees' Retirement Income Security Act of 1974 (ERISA) and
CAS 9904.412 is defined similarly to the ``marketrelated value of plan
assets'' as used by SFAS 106 and this proposed Standard. For pensions
the actuarial value of assets not only affects the recognition of gains
and losses, but also is used to determine the unfunded actuarial
liability. However, the marketrelated value of plan assets is only
used to measure the annual asset gain or loss under SFAS 106 and this
proposal. In SFAS 106 and in this proposed Standard, the fair value of
assets is used to determine the unfunded accumulated postretirement benefit obligation.
SFAS 106 is not concerned with the sources of any net accumulated accrued (unfunded) or prepaid postretirement benefit cost. By contrast, the Board proposes that the contractor record and track each portion of unfunded accrual and prepayment credit. Consistent with CAS 9904.412, the accumulated values of unfunded accruals and prepayment credits are carried forward and adjusted for interest. The accumulated value of unfunded accruals is treated as if it were a plan asset and the accumulated value of prepayment credits is treated as a reduction to assets. The proposed Standard requires that the actual return on assets component be increased by an interest equivalent on the accumulated value of unfunded accruals to reflect that assets would have generated earnings had the full accrual amount been funded. Similarly, the actual return on assets component is reduced by an interest equivalent on the accumulated value of prepayment credits to reflect the additional earnings generated by any funding in excess of the annual accrual.
The Board has decided that the interest rate determined by the
Secretary of the Treasury pursuant to Public Law 9241, 85 Stat. 97,
shall be used to measure the interest equivalent on the accumulated
values of unfunded accruals and prepayment credits. The Board notes
that for unfunded plans, there are no assets (no investments) and the
contractor does not need to make an assumption concerning the longterm
expected rate of return. In other cases, the amount of plan assets may
be so small that reliance on this assumption may be inappropriate for
Government contracting purposes. Also, use of the Treasury rate is consistent with the other Standards.
(iii) Annual gain or loss component. In order to more closely
assign costs to cost accounting periods in which they arise, the
proposed Standard requires the amortization over the average remaining
service period of active participants \5\ of the full amount of the
annual gain or loss for a cost accounting period, that is, gains and
losses other than gains and losses attributable to curtailments,
settlements, or special termination benefits. While SFAS 106 permits
such amortization, SFAS 106 only requires amortization of that part of
the cumulative net gain or loss that falls outside a corridor defined
by 10% of the greater of the accumulated postretirement benefit
obligation or the marketrelated value of plan assets. Under SFAS 106,
recognition of any gain or loss within that corridor may be delayed
indefinitely. Such delayed recognition is not permitted by this proposed Standard.
\5\ If the plan population is composed primarily of retirees,
the gain or loss is spread over the life expectancies of the retirees. (See paragraphs 52 and 112 of SFAS 106.)
(iv) Amortization of the transition obligation component. This
proposed Standard restricts the measurement and period assignment of
the transition obligation to the delayed recognition method described
in paragraphs 112 and 113 of SFAS 106. The proposed Standard provides
that when a contractor first becomes subject to the proposed Standard,
the contractor will base its period costs on the annual amortization
installment for the unrecognized portion of the transition obligation
already established for financial accounting purposes. The proposed
transition provisions address the recognition of any portion of the
SFAS 106 transition obligation that was recognized for financial
statement purposes during prior periods for those contractors that used
the payasyougo cost method for Government contract costing purposes.
(d) Postretirement benefits provided through insurance contracts.
If the contractor provides all or a portion of the postretirement
benefit by purchasing insurance, the Board proposes that the contract
accounting cost be determined by the net premium paid for such
insurance and that the measurement, assignment to cost accounting
periods, and allocation of such premium be subject to the provisions of
CAS 416. However, if the insurance is acquired from a captive insurer,
then the cost of the postretirement benefit remains subject to the
provisions of this proposed Standard. Because the SFAS 106 definition
of ``captive insurer'' differs from the term as used in the FAR, a
potential for disputes exists. In addition, the proposed definition
clarifies that affiliates, related organizations and entities that are
``owned by or under the control of'' the contractor are also included
so that the proposed Standard incorporates the phrase found at FAR
31.20119(c) which is already in use for Government contracting
purposes. Consistent with SFAS 106, this proposed Standard permits
benefits provided by purchased insurance to be accounted for separately from any portion of a plan's benefits that are not
[[Page 59509]]
provided through such insurance. The Board notes that this treatment
contrasts with the analogous provision in the pension Standard,
paragraph 9904.41250(a)(6), which specifies the accounting for so called ``splitfunded'' plans.
4. Allocation of PostRetirement Benefit Costs to Segments
The proposed Standard applies to all postretirement benefit plans
regardless of whether accrual accounting or the payasyougo cost
method is used. It embraces the general precepts of paragraph 9904.403
40(b)(4) dealing with the allocation of central payments and accruals
to segments. However, this proposed Standard provides specific criteria
regarding the allocation of postretirement benefit costs to
intermediate home offices and segments.\6\ The contractor must allocate
a portion of the total postretirement plan cost to each segment,
including home offices, either by use of an appropriate allocation base
(i.e., indirect allocation) or, if certain conditions exist, by use of
postretirement benefit costs separately computed (i.e., direct allocation) at the segment level.
\6\ Throughout the discussions of allocations to segments and to
intermediate and final cost objectives, the term ``segment'' is used
to refer to a segment, home office, or intermediate home office.
Consistent with the pension and insurance Standards, the Board
proposes that the total postretirement benefit plan cost be allocated
to intermediate home offices and segments based upon the factors used
to determine the costs. For plans that are accounted for using the pay
asyougo cost method, the cost is to be allocated only to segments and
intermediate home offices that can be identified with the post
retirement benefit plan (e.g., those segments having inactive
participants who are eligible to receive benefits under that plan). For
definedbenefit plans using accrual accounting, the proposed Standard
requires that both active and inactive plan participants of the segment
or intermediate home office be included in the allocation base because
five of the six components of postretirement benefit cost are dependent upon the obligation for both groups.\7\
\7\ The service cost component is only determined for active
plan participants who are still in the attribution period, i.e.,
prior to the date of full eligibility. A service cost is not developed for inactive plan participants.
The criteria requiring separate calculation are similar to those found in CAS 9904.413 for pension costs of segments. If actual benefits are disproportionately paid to participants of certain segments, the proposed Standard requires a separate calculation of the cost for the segment instead of an allocation, even for costs determined under the payasyougo cost method. An additional criterion for separate calculation that looks at the ``cost of benefits'' reflects the fact that postretirement benefit costs may vary significantly due to differences in state laws, geographical location, or insurance market.
Unless the postretirement benefit cost allocable to a segment is separately calculated, the same set of actuarial assumptions is used to determine the cost for all segments. Similar to CAS 9904.413, if costs are separately calculated, only those assumptions relating to the demographic differences of a segment's employees are permitted to be different than the assumptions used for other segments. For example, the use of a different turnover assumption to reflect the unique termination of employment experience of one segment does not permit the contractor to use a different preretirement mortality assumption without evidence that the segment's mortality is materially different from the average mortality assumed for the plan as a whole.
For definedbenefit plans using accrual accounting the proposed Standard requires that the tracking of assets and funding at the segment level be maintained if costs are separately calculated for the segment. This provision increases the visibility and verifiability of postretirement benefit costs that are separately calculated for a segment.
This proposed Standard also requires that the marketrelated value of plan assets be allocated each year in proportion to the fair vale of plan assets allocated to the segments. This provision ensures that the sum of the marketrelated value of plan assets for all segments equals the total plan's marketrelated value of assets.
The proposed provisions regarding transfers of plan participants
between segments reflect the fact that the accumulated postretirement
benefit obligation is determined by and must follow the plan
participants. Therefore, both the assets that funded the obligation and
the unfunded portion of the accumulated postretirement benefit
obligation follow the participants, so that future contract costs
better follow the performance of future contracts. The Board notes that
the exception for immaterial transfers might create a small gain or loss because assets and other values are not transferred.
5. Allocation to Intermediate and Final Cost Objectives of the Segment
Once the postretirement benefit cost has been measured, assigned
to a period, and initially allocated to segments and home offices, the
Board believes that Cost Accounting Standard 9904.403 adequately
addresses the reallocation from home offices to segments and that Cost
Accounting Standard 9904.410 and Cost Accounting Standard 9904.418
fully and adequately address the intrasegment allocation of cost to intermediate and final cost objectives.
6. Adjustments for Curtailments, Settlements, and Special Termination Benefits
(a) Definedcontribution plans using accrual accounting. While a
definedcontribution plan is ongoing, any nonvested account balances
that are forfeited by participants who terminate employment during a
cost accounting period are typically either reallocated to the other
participants or used to reduce the contribution (deposit) required
under the terms of the plan. The Board presumes that such forfeiture
credits are fairly evenly distributed among periods and therefore no
undue volatility occurs. However, when a definedcontribution plan is
terminated, the forfeiture of nonvested account balances could cause an
inordinately large and nonrecurrent credit. In fact, the values of the
nonvested account balances could revert to the contractor. To prevent
the disruption to the budgeting process for cost type contracts and the
forward pricing process for costbased fixed price contracts, the Board
proposes that forfeiture credits due to a termination of a defined
contribution plan using accrual accounting be amortized over 10 years
so that the credit can flow to costs included in both cost type
contracts and the forward pricing of other negotiated costbased contracts.
The Board also proposes that this provision will apply to forfeitures that occur whenever the plan participants' rights to become vested are eliminated because the right to earn future vesting or retirement eligibility service is curtailed or terminated by plan amendment or other unilateral action of the contractor.
The pension Standards do not contain a similar provision because
qualified pension plans are subject to the vesting requirements of
ERISA. However, many postretirement benefit plans are not subject to
similar vesting standards and the Board believes these provisions are necessary to address the significant
[[Page 59510]]
amount of nonvested account balances that might be forfeited.
(b) Definedbenefit plans using accrual accounting. Consistent with
the Board's intention to accept the accounting provisions of SFAS 106
where practicable, the proposed Standard begins by accepting the SFAS
106 measurement of the adjustment for gains and losses due to benefit
curtailments, benefit settlements, and granting of special termination
benefits. SFAS 106 provides that any gain or loss not offset against
the unrecognized gain or loss, unrecognized transition obligation, or
unrecognized prior service cost, as appropriate under SFAS 106, will be
immediately recognized in income. To require an analogous immediate
recognition for Government contract costing purposes could disrupt the
budgeting of cost type contracts as well as the forwardpricing process
for costbased fixed price contracts. Regardless of whether or not the
postretirement plan is terminated, the proposed Standard requires that
an adjustment be recorded and that the adjustment for the curtailment,
settlement, or termination benefit gain or loss be amortized over a period of 10 years.
7. Adjustments for Segment Closings.
The Board proposes to adopt the CAS 9904.413 definition of segment
closing which encompasses three situations: (i) The ownership of the
segment changes by sale or transfer, (ii) the segment discontinues
operations or is abandoned, and (iii) the contractor is no longer
performing or actively seeking government contract work at that
segment. Based on comments regarding the amendments to the pension
rule, the Board has modified the CAS 9904.413 definition of segment
closing to explicitly state that segment mergers or splits within the
contractor's ongoing operations are not considered to be a segment closing for purposes of this proposed Standard.
(a) Payasyougo cost method. When a segment is closed for any of
the reasons described above, this proposed Standard does not provide
for any adjustment to current or previously determined postretirement
benefit costs for plans that use the payasyougo cost method. The
postretirement benefit costs attributable to current and prior periods
were previously determined by the net amount paid to or on behalf of
retired employees or their beneficiaries for postretirement benefits
incurred during those periods. The measurement of these prior actual
expenditures is unaltered by the segment closing. These previously
determined costs include any amortization installments assigned to such
prior periods for net amounts paid to irrevocably settle an obligation for postretirement benefits.
The proposed segment closing provisions also require that any
inactive participants left ``homeless'' (that is, inactive participants
that are no longer associated with an operational segment) when a
segment is sold or abandoned must be moved to the intermediate or
corporate home office to which the closed segment had directly
reported. In the future the payasyougo costs for these transferred
inactive participants will be included in the postretirement benefit
costs allocated by the closed segment's immediate home office (the
proximate home office to which the segment had reported.) Likewise the
amortization of lump sums and other settlements for these inactives
will continue unabated after being transferred to the closed segment's
immediate home office. Any Government contracts performed in other
segments reporting to that home office will receive an allocated
portion of the postretirement benefit costs attributable to the transferred inactive participants.
(b) Definedcontribution plans using accrual accounting. When a
segment is closed for any of the reasons described above, the Board
proposes that the contractor measure an immediate period adjustment to
recognize any unrecognized portions of any credits for forfeited
nonvested account balances due to plan termination or curtailment of
vesting or retirement eligibility service. Essentially, this provision
aborts the amortization of these credits because there will be no
Government contracts in future periods to absorb a share of the credit.
(c) Definedbenefit plans using accrual accounting. When a segment
is closed for any of the reasons described above, the Board proposes
that the contractor measure an immediate period adjustment based upon
the unavoidable liability for postretirement benefits. The adjustment
is measured as the difference between the nonforfeitable post
retirement benefit obligation and the sum of the plans assets plus the
accumulated value of unfunded accruals (net of any prepayment credits.)
Basing the segment closing adjustment on the nonforfeitable post retirement benefit obligation may appear to be a fundamental conceptual departure from both the original and amended CAS 9904.412 and 9904.413. The benefit liability for pension plans generally is subject to the stringent controls of ERISA. For postretirement benefit plans, the nonforfeitable postretirement benefit obligation provides the nearest analogue to the ERISA protected liability.
In addition to the above proposed general rules for segment closings, the following points should be noted:
(i) Massive layoff gains. The Board notes that when a segment
closes, often there is a sizable termination of employees which was one
of the original Board's concerns that eventually led to the original
9904.41350(c)(12) segment closing provision. For postretirement
benefit plans, the effects of any ``abnormal forfeitures'' or massive
layoff gain will dramatically reduce the liability such that the
remaining accumulated postretirement benefit obligation will
approximate or equal the nonforfeitable postretirement benefit obligation.
(ii) Sale or other transfer of ownership of a segment. When a
segment is sold or transferred, the active participants of the segment
immediately before the sale is effective can be: (i) Transferred with
the segment and become active employees of the buyer, (ii) transferred
as active employees to other operational segments of the seller, or
(iii) terminated and become inactive participants of the seller. When
analyzing the proposed provision concerning the sale or transfer of a
segment, the reader should carefully consider the plan participants'
status in the postretirement benefit plans of each party to the sale.
If both parties to the sale sponsor postretirement benefit plans, the
segment's employees can be both inactive participants in the seller's
postretirement benefit plan and active participants in the buyer's plan.
If only a portion of the operations of a segment is acquired, the proposed Standard provides that the selling contractor first divide the accounting records for the segment into two groups based upon the liability for participants being retained and transferred. Then the segment closing adjustment will be determined using the accounting records for the participants being transferred to the buyer or transferee. This proposed Standard also provides that, when a segment is divided into two or more segments as part of a reorganization, the assets shall be divided in proportion to the accumulated post retirement benefit obligation. This provision is more specific than the similar coverage found at 9904.41350(c)(v) for pension plans.
If no active employees are retained in the segment, the
unrecognized transition obligation, prior service cost, gains and
losses attributed to the remaining inactive participants are moved up
to the next immediate home office along with the associated fair [[Page 59511]]
value of plan assets, accumulated value of unfunded accruals and
accumulated value of prepayment credits. All amortizations continue
unabated. This amortization of these unrecognized amounts parallels the
treatment of the liability for future payments to remaining inactives under the payasyougo method.
Unless a segment is sold to a successorininterest, the adjustment
will be determined using the values of assets and accumulated benefit
obligations immediately prior to the sale. If the segment is sold to a
successorininterest, this proposed Standard provides that the segment
accounting will continue at the successor contractor based on the
segment accounting up to the time of the sale, taking into account any division of the segment's assets and obligations.
(iii) Government's share of segment closing adjustment. The
Government's share of the segment closing adjustment shall reflect the
Government's historical participation in postretirement benefit cost
from the time this proposed Standard first becomes applicable. The
intent of this provision is for the cognizant Federal agency official
and the contractor to generally determine the Government's historical
share of postretirement benefit costs that were allocated to cost type
and negotiated costbased fixed price contracts. The proposed
transition provisions extend this period of participation for
contractors who employed accrual accounting for Government contract
costing in accordance with SFAS 106 prior to this proposed Standard
becoming applicable. In such cases, the Government's participation
shall be measured from the date that SFAS 106 accruals used for
financial statement purposes were first used for Government contract
costing purposes. The proposed Standard also permits the parties to
negotiate a delayed recognition of the segment closing adjustment
through an amortization process. This proposed provision provides more
flexibility for the parties to determine the appropriate proportion than paragraph 9904.41350(c)(vii) of the pension Standard.
8. Illustrations
Generally the illustrations show the accumulated postretirement benefit obligation and other liabilities or losses as debit balances and the fair value of assets and other asset equivalent values and gains as credit balances. However, for consistency with financial accounting presentation, when the illustrations include SFAS 106 disclosures, the accumulated postretirement benefit obligations are shown as credit balances and fair values of assets and other asset equivalent values are shown as debit balances.
Because health and life benefits account for about 98% of all post retirement benefit plan obligations, there are no illustrations or special provisions for postretirement benefits other than health and life benefits. This lack of text or illustrations regarding other types of postretirement benefits does not imply nor indicate that the obligations for such benefits, if material, are excluded from coverage under this proposed Standard.
9. Transition Provisions
One of the issues raised in discussions about postretirement benefit costs concerns inactive plan participants who may have worked for a strictly commercial segment or a government segment that was sold or abandoned at some time in the past. It has been argued that the postretirement benefit costs associated with these socalled ``homeless'' inactives should be explicitly excluded from the post retirement benefit costs allocated to current and future Government contracts. However, often it is impossible to ascertain whether these ``homeless'' inactives were formerly employed in an abandoned or sold segment or if they are ``homeless'' because of incomplete human resource records. Rather than require a herculean and possibly futile effort to identify where these inactive participants had been employed, the Board proposes that the retained liability for these ``homeless'' inactive participants be assigned to an intermediate home office or corporate office in accordance with the contractor's past practice. The costs associated with these inactive participants will be treated as a general cost of doing business for such home office and allocated in accordance with CAS 9904.403.
Some contractors may not have established a specific practice or
method for assigning the ``homeless'' participants to a corporate or
intermediate home office. In that case, the Board envisions several
acceptable methods of making such an assignment to home offices. These include, but are not limited to:
(i) Assigning all ``homeless'' to the corporate home office if
the postretirement plan covers employees in all units that report to the corporate home office;
(ii) Assigning the ``homeless'' to the immediate home office
that had responsibility for the closed or abandoned segment;
(iii) If the closed or abandoned segment(s) were primarily
associated with a portion of the contractor's current business,
assigning the ``homeless'' to a home office which allocates the
postretirement benefit cost as a residual expense to segments
currently performing work for that portion of the contractor's business; or,
(iv) Those ``homeless'' participants for whom employment records
are unavailable, or who worked in a multiplicity of the contractor's operations could be assigned to the corporate home office.
In any of these cases, the Board accepts the fact that the costs
associated with these ``homeless'' will bear no relationship to its
current activities and the cost would be allocated to intermediate home offices and segments as an residual expense.
The proposed transition provisions address how a contractor's prior accounting practices are to be reconciled with the accounting provisions of the proposed rule. Some contractors who were using accrual accounting prior to becoming subject to the proposed rule will continue to use accrual accounting if the criteria for accrual accounting are satisfied. Likewise, other contractors who had been using the payasyougo method will continue to use the payasyougo method if those criteria are not satisfied. However, special provisions are needed whenever a contractor must change its previously disclosed accounting practice for postretirement benefit costs.
If a contractor changes from the payasyougo cost method to accrual accounting for contract costing purposes, the transition section of the proposed Standard provides for the establishment of a supplemental transition obligation so that prior SFAS 106 accruals measured during prior periods when the contractor had costbased Government contracts can be assigned to periods after the contractor becomes subject to the proposed Standard. Once established, the supplemental transition obligation is accorded the same treatment as the SFAS 106 transition obligation. The prior accruals included in the supplemental transition obligation are based on the delayed recognition of the transition obligation regardless of how the transition obligation was recognized for financial accounting purposes. As an alternative to establishing a supplemental transition obligation, the proposed Standard permits these contractors to use a socalled ``fresh start'' approach provided the contractor has continually been performing government costbased contracts since adopting SFAS 106. [[Page 59512]]
If a contractor switches from accrual accounting to the payasyou go cost method, this proposed Standard requires that the accumulated value of prior unfunded accruals measured during periods when the contractor had cost type or costbased fixed price Government contracts be carried forward. Like the analogous provision in the amendments to the pension Standard, CAS 9904.412, benefit payments must be charged against the accumulated value of unfunded accruals before payasyougo costs can be measured, assigned to cost accounting periods, and allocated to cost objectives.
If the contractor has an established practice of using terminal funding for its postretirement benefit costs, that contractor may continue the use of the terminal funding method. A switch from terminal funding to payasyougo accounting is permitted if the criteria for accrual accounting are not met. Any payments previously considered as terminal funding and allocated to cost objectives would not be subject to the fifteenyear amortization requirement. If the criteria for accrual accounting are met and the contractor switches from terminal funding to accrual accounting, then any prior SFAS 106 accruals that exceeded amounts paid for terminal funding may be treated as a supplemental transition obligation
C. Paperwork Reduction Act
The Paperwork Reduction Act, Public Law 96511, does not apply to
this proposed rule, because this rule imposes no paperwork burden on
offerors, affected contractors and subcontractors, or members of the
public which requires the approval of OMB under 44 U.S.C. 3501, et seq.
The records required by this proposed rule are those normally
maintained by contractors who claim reimbursement of postretirement benefit costs under government contracts.
D. Executive Order 12866 and the Regulatory Flexibility Act
Because most contractors must measure and report their post retirement benefit liabilities and expenses in order to comply with the requirements of SFAS 106 for financial accounting purposes, the economic impact of this final rule on contractors and subcontractors is expected to be minor. As a result, the Board has determined that this rule will not result in the promulgation of a ``major rule'' under the provisions of Executive Order 12866, and that a regulatory impact analysis will not be required. Furthermore, this proposed rule does not have a significant effect on a substantial number of small entities because small businesses are exempt from the application of the Cost Accounting Standards. Therefore, this rule does not require a regulatory flexibility analysis under the Regulatory Flexibility Act of 1980.
E. Public Comments
Public Comments: This proposed Standard is based upon responses to the Staff Discussion Paper made available for public comment on September 20, 1996, 61 FR 49533. Eighteen (18) sets of public comments were received from contractors, Government agencies, professional associations, actuarial firms, law firms, public accounting firms, and individuals. The proposed Standard is also based upon the ten (10) sets of responses to the Board's letter of January 12, 1999 which was also made available for public comment on February 18, 1999, 64 FR 8141. The comments received and the Board's actions taken in response thereto are summarized below:
1. Need for a Cost Accounting Standard
Comment: The industry associations and some contractors expressed the belief that a Standard might not be needed because GAAP, as articulated by SFAS 106 and augmented by CAS 9904.403, 9904.412, 9904.413, and 9904.418, provide full and adequate guidance on the measurement, assignment to periods, and allocation of postretirement benefit costs. Some commenters expressed the notion that the promulgation of a Cost Accounting Standard on any subject already addressed by a FASB Statement would be superfluous. But, many respondents noted subject areas where SFAS 106 was either inadequate or inappropriate for contract cost accounting purposes and suggested that some CASB guidance would be helpful.
Both contractor and Government commenters generally preferred amendments to the pension Standards, CAS 9904.412 and 9904.413, and possibly the insurance Standard, CAS 9904.416, rather than the promulgation of a new Standard. The commenters unanimously agreed that a Board Interpretation would be insufficient to address the new and complex issues concerning postretirement benefit costs. Several commenters opined that substantive action should be taken by the Board. SDP Technologies wrote: ``While many technical questions need to be resolved, SDP urges the CASB to pursue this effort and develop a comprehensive solution.'' And, TRW stated, ``the level of detail and range of issues posed in the Discussion Paper highlight the numerous accounting, legal, and practical considerations that must be addressed.'' The OUSD generally concurred when it stated: ``While it is generally preferable to amend existing Standards, a new Standard may be necessary if amendments of existing Standards cannot be accomplished without unreasonably complicating existing Standards.''
In its letter of August 4, 1997, CODSIA submitted a straightforward and simple proposal to illustrate how the Board might address post retirement benefit costs by amending CAS 9904.412 and CAS 9904.413. CODSIA did not support the development of a separate Cost Accounting Standard on postretirement benefits on the grounds that it would not be an economical and efficient way to address this issue. The Board also received a letter from the ABA discussing some of the shortcomings of the CODSIA proposal, but which generally favored CODSIA's approach of amending the pension Standards.
Response: The Board recognizes the concerns expressed regarding the promulgation of a new Standard. These concerns appear to be driven by fears that a new Standard might be conceptually different from the current pension and insurance Standards. However, the Board has determined that amending CAS 9904.412, 9904.413, and 9904.416 would be extremely cumbersome and would add unnecessary complexity. The Board notes that the FASB did not merely extend Statements 87 and 88 (SFAS 87 and 88) to postretirement benefits, but promulgated a separate Statement, SFAS 106, building upon the concepts and structures of SFAS 87 and 88. The Board believes that the most manageable approach to providing substantive measurement, assignment, and allocation criteria is the promulgation of a new and separate Standard addressing the costs of postretirement benefits. The Board does not see any reason to unnecessarily muddy the water for the sake of arbitrarily avoiding the promulgation of another Standard.
The Board believes it is appropriate to promulgate a separate Cost Accounting Standard on a subject matter that the FASB has addressed for financial accounting purposes. The Board notes the CASB Concepts Statement (57 FR 31039) which states:
The Board will give careful consideration to the pronouncements
affecting financial and tax reporting and, in the development of
Cost Accounting Standards, it will take those pronouncements into
account to the extent it can do so in accomplishing its objectives. [[Page 59513]]
The nature of the Board's authority and i
FOR FURTHER INFORMATION CONTACT
Eric Shipley, Project Director, (telephone: 4107866381 or email: EShipley@hcfa.gov) or Rein Abel, Director of Research, Cost Accounting Standards Board (telephone: 202 3953254).