[Federal Register Volume 72, Number 220 (Thursday, November 15, 2007)]
[Proposed Rules]
[Pages 64185-64186]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 07-5669]


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DEPARTMENT OF DEFENSE

GENERAL SERVICES ADMINISTRATION

NATIONAL AERONAUTICS AND SPACE ADMINISTRATION

48 CFR Part 31

[FAR Case 2006-021; Docket 2007-0001; Sequence 10]
RIN: 9000-AK84


Federal Acquisition Regulation; FAR Case 2006-021, Post 
Retirement Benefits (PRB), FAS 106

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

ACTION: Proposed rule.

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SUMMARY: The Civilian Agency Acquisition Council and the Defense 
Acquisition Regulations Council (Councils) are proposing to amend the 
Federal Acquisition Regulation (FAR) to permit the contractor to 
measure accrued PRB costs using either the criteria in Internal Revenue 
Code (IRC) 419 or the criteria in Financial Accounting Standard (FAS) 
106.

DATES: Interested parties should submit written comments to the FAR 
Secretariat on or before January 14, 2008 to be considered in the 
formulation of a final rule.

ADDRESSES: Submit comments identified by FAR case number 2006-021 by 
any of the following methods:
    Federal eRulemaking Portal: http://www.regulations.gov.
    <bullet> To search for any document, first select under ``Step 1,'' 
``Documents with an Open Comment Period'' and select under ``Optional 
Step 2,'' ``Federal Acquisition Regulation'' as the agency of choice. 
Under ``Optional Step 3,'' select ``Proposed Rules''. Under ``Optional 
Step 4,'' from the drop down list, select ``Document Title'' and type 
the FAR Case number ``2006-021''. Click the ``Submit'' button. Please 
include your name and company name (if any) inside the document. You 
may also search for any document by clicking on the ``Search for 
Documents'' tab at the top of the screen. Select from the agency field 
``Federal Acquisition Regulation'', and type ``2006-021'' in the 
``Document Title'' field. Select the ``Submit'' button.
    <bullet> Fax: 202-501-4067.
    <bullet> Mail: General Services Administration, Regulatory 
Secretariat (VIR), 1800 F Street, NW, Room 4035, ATTN: Laurieann 
Duarte, Washington, DC 20405.
    Instructions: Please submit comments only and cite FAR case 2006-
021 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: Edward Chambers, Procurement Analyst, 
at (202) 501-3221, for clarification of content. For information 
pertaining to status or publication schedules, contact the FAR 
Secretariat at (202) 501-4755. Please cite FAR case 2006-021.

SUPPLEMENTARY INFORMATION:

A. Background

    FAR 31.205-6(o) allows contractors to choose among three different 
accounting methods for PRB costs: cash basis, terminal funding, and 
accrual basis.
    When the accrual basis is used, the FAR currently requires that 
costs must be measured based on the requirements of FAS 106.
    However, the tax-deductible amount that is contributed to the 
retiree benefit trust is determined using IRC 419, which has different 
measurement criteria than FAS 106. As a result, the FAS 106 amount can 
often exceed the IRC 419 measured costs, and contractors that choose to 
accrue PRB costs for Government reimbursement face a dilemma: whether 
to fund the entire FAS 106 amount to obtain Government reimbursement of 
the costs, regardless of tax implications, or fund only the tax 
deductible amount and not be reimbursed for the entire FAS 106 amount 
under their Government contracts.

[[Page 64186]]

    The Councils are proposing to amend FAR 31.205-6(o) to alleviate 
this dilemma. This amendment would provide the contractor an option of 
measuring accrued PRB costs using criteria based on IRC 419 rather than 
FAS 106, thereby permitting the contractor to fund the entire tax 
deductible amount without having a portion disallowed because it did 
not meet the FAR's current measurement criteria. The Councils note that 
this amendment will not change the total measured PRB costs, i.e., the 
total measured PRB costs over the life of the PRB plan would be the 
same whether the contractor chose to apply the criteria in FAS 106 or 
IRC 419.
    The Councils note that the proposed rule may result in the 
Government paying higher PRB costs, since under the current rule some 
contractors may have chosen to fund the IRC amount rather than the full 
FAS amount in current and future accounting periods. Absent this 
proposed revision, the resulting difference will be an unallowable 
cost. However, the Councils are unable to estimate the specific cost 
impact because the number of contractors who may choose to use the 
proposed IRC 419 measurement option is unknown. Moreover, the Councils 
further note that there may be a cost impact if the rule remains 
unchanged. For example, in lieu of funding the lower IRC amount, 
contractors could decide to fund the full FAS amount (and forego the 
tax benefit), change from accrual to pay-as-you go accounting, or 
terminate their PRB plans rather than fund amounts that are not tax 
deductible.
    This is not a significant regulatory action and, therefore, was not 
subject to review under Section 6(b) of Executive Order 12866, 
Regulatory Planning and Review, dated September 30, 1993. This rule is 
not a major rule under 5 U.S.C. 804.

B. Regulatory Flexibility Act

    The Councils 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 most small entities do not accrue PRB costs for Government 
contract costing purposes.

C. Paperwork Reduction Act

    The Paperwork Reduction Act does apply; however, these changes to 
the FAR do not impose additional information collection requirements to 
the paperwork burden previously approved under OMB Control Number 9000-
0013.

List of Subjects in 48 CFR Part 31

    Government procurement.

    Dated: October 24, 2007
Al Matera,
Director, Office of Acquisition Policy.
    Therefore, DoD, GSA, and NASA propose amending 48 CFR part 31 as 
set forth below:
    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).

PART 31--CONTRACT COST PRINCIPLES AND PROCEDURES

    2. Amend section 31.205-6 by revising paragraphs (o)(2)(iii)(A) and 
(B) to read as follows:


31.205-6  Compensation for personal services.

* * * * *
    (o) * * *
    (2) * * *
    (iii) * * *
    (A) Measured and assigned in accordance with--
    (1) Generally accepted accounting principles. However, the portion 
of PRB costs attributable to the transition obligation assigned to the 
current year that is in excess of the amount assignable under the 
delayed recognition methodology described in paragraphs 112 and 113 of 
Financial Accounting Standards Board Statement 106 is unallowable. The 
transition obligation is defined in Statement 106, paragraph 110; or
    (2) The costs shall--
    (i) Be measured using reasonable actuarial assumptions, which may 
include a healthcare inflation assumption;
    (ii) Be assigned to accounting periods on the basis of the average 
future working lives of active employees covered by the PRB plan or a 
15 year period, whichever period is longer; and
    (iii) Exclude Federal income taxes, whether incurred by the fund or 
the contractor (including those taxes associated with any increase in 
PRB costs), unless the fund holding the plan assets is tax-exempt under 
the provisions of 26 U.S.C. 501(c);
    (B) Paid to an insurer or trustee to establish and maintain a fund 
or reserve for the sole purpose of providing PRB to retirees. The 
assets shall be segregated in the trust, or otherwise effectively 
restricted, so that they cannot be used by the employer for other 
purposes; and
* * * * *
[FR Doc. 07-5669 Filed 11-14-07; 8:45 am]
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