Federal Register / Vol. 73, No. 170 / Tuesday, September 2, 2008 / Proposed Rules 51261 

number by any of the following 

methods: 

• Federal eRulemaking Portal: http:// 

www.regulations.gov. Follow the 

instructions for submitting comments. 

• Mail: Edward M. DeHarde, Senior 

Policy Analyst, Insurance Policy Group, 

Office of Personnel Management, 1900 E 

Street, NW., Room 3415, Washington, 

DC 20415. 

SUPPLEMENTARY INFORMATION: The 

purpose of this proposed regulation is to 

clarify requirements with respect to the 

rate setting process for community rated 

carriers and to require rate 

reconciliation for the final contract term 

for community rated carriers that leave 

the FEHBP. 

In prior years, carriers were not 

subjected to rate reconciliation in the 

final year of their contracts. Information 

technology and electronic transmission 

and storage of data now make it possible 

to efficiently perform rate reconciliation 

for the final contract year. Therefore, 

OPM will begin conducting such rate 

reconciliation on community rated 

contracts that terminate after January 1, 

2009. 

Regulatory Flexibility Act 

I certify that this regulation will not 

have a significant economic impact on 

a substantial number of small entities 

because all the small plan FEHBP 

contracts fall below the threshold for 

submitting cost or pricing data. 

Executive Order 12866, Regulatory 

Review 

This rule has been reviewed by the 

Office of Management and Budget in 

accordance with Executive Order 12866. 

Lists of Subjects in 48 CFR Parts 1652 

Government employees, Government 

procurement, Health insurance, 

Reporting and recordkeeping 

requirements. 

Office of Personnel Management. 

Michael W. Hager, 

Acting Director. 

Accordingly, OPM proposes to amend 

chapter 16 of title 48, CFR as follows: 

PART 1652—CONTRACT CLAUSES 

1. The authority citation for part 1652 

continues to read as follows: 

Authority: 5 U.S.C. 8913; 40 U.S.C. 486(c); 

48 CFR 1.301. 

Subpart 1652.2—Texts of FEHBP 

Clauses 

2. Amend § 1652.216–70 by revising 

paragraphs (b)(2) through (b)(4) and 

(b)(6), and adding paragraphs (b)(7) and 

(b)(8) to read as follows: 

1652.216–70 Accounting and price 

adjustment. 

* * * * * 

(b) * * * 

(2) The subscription rates agreed to in 

this contract shall be equivalent to the 

subscription rates given to the carrier’s 

similarly sized subscriber groups 

(SSSGs) as defined in FEHBAR 

1602.170–13. The subscription rates 

shall be determined according to the 

carrier’s established policy which must 

be applied consistently to the FEHBP 

and to the carrier’s similarly sized 

subscriber groups (SSSGs). If an SSSG 

receives a rate lower than that 

determined according to the carrier’s 

methodology, it is considered a 

discount. The FEHBP must receive a 

discount equal to or greater than the 

carrier’s largest SSSG discount. 

(3) If, at the time of the rate 

reconciliation, the subscription rates are 

found to be lower than the equivalent 

rates for the lower of the two SSSGs, the 

carrier may include an adjustment to the 

Federal group’s rates for the next 

contract period, except as noted in 

paragraph (b)(7) of this clause. 

(4) If, at the time of the rate 

reconciliation, the subscription rates are 

found to be higher than the equivalent 

rates for the lower of the two SSSGs, the 

Carrier shall reimburse the Fund, for 

example, by reducing the FEHB rates for 

the next contract term to reflect the 

difference between the estimated rates 

and the rates which are derived using 

the methodology of the lower rated 

SSSG, except as noted in paragraph 

(b)(7) of this clause. 

* * * * * 

(6) For contract years beginning on or 

after January 1, 2009, in the event this 

contract is not renewed, the final rate 

reconciliation will be performed. The 

carrier must promptly pay any amount 

owed to OPM. Any amount recoverable 

by the carrier is limited to the amount 

in the contingency reserve for the 

terminating plan as of December 31 of 

the terminating year. 

(7) Carriers may provide additional 

guaranteed discounts to the FEHBP that 

are not given to SSSGs. Any such 

guaranteed discounts must be clearly 

identified as guaranteed discounts. After 

the beginning of the contract year for 

which the rates are set, these guaranteed 

FEHBP discounts may not be adjusted. 

(8) Carriers may not impose 

surcharges (loadings not defined based 

on an established rating method) on the 

FEHBP subscription rates or use 

surcharges in the rate reconciliation 

process irrespective of whether 

surcharges are applied to the SSSGs. 

[FR Doc. E8–20269 Filed 8–29–08; 8:45 am] 

BILLING CODE 6325–39–P 

OFFICE OF MANAGEMENT AND 

BUDGET 

Office of Federal Procurement Policy 

48 CFR Part 9904 

Harmonization of Cost Accounting 

Standards 412 and 413 With the 

Pension Protection Act of 2006 

ACTION: . Advance Notice of Proposed 

Rulemaking. 

SUMMARY: The Office of Federal 

Procurement Policy, Cost Accounting 

Standards Board, invites public 

comments concerning an Advance 

Notice of Proposed Rulemaking on the 

harmonization of Cost Accounting 

Standards 412 and 413 with the Pension 

Protection Act of 2006. 

DATES: Comments must be in writing 

and must be received by November 3, 

2008. 

ADDRESSES: The full text of the Advance 

Notice of Proposed Rulemaking, 

including the Board’s response to public 

comments on the Staff Discussion Paper 

and the draft proposed amendments to 

Cost Accounting Standards 412 and 413, 

is available at: http:// 

www.whitehouse.gov/omb/ 

procurement/casb/2008_anprm.pdf and 

http://www.regulations.gov. 

All comments to this Advance Notice 

of Proposed Rulemaking must be in 

writing. Due to delays in the receipt and 

processing of mail, respondents are 

strongly encouraged to submit 

comments electronically to ensure 

timely receipt. Electronic comments 

may be submitted in any one of three 

ways: 

1. Comments may be directly sent via 

http://www.regulations.gov—a Federal 

E-Government Web site that allows the 

public to find, review, and submit 

comments on documents that agencies 

have published in the Federal Register 

and that are open for comment. Simply 

type ‘‘CAS Pension Harmonization 

ANPRM’’ (without quotes) in the 

Comment or Submission search box, 

click Go, and follow the instructions for 

submitting comments; 

2. Comments may be included in an 

e-mail message sent to 

casb2@omb.eop.gov. The comments 

may be submitted in the text of the email message or as an attachment; or 

3. Comments may also be submitted 

via facsimile to (202) 395–5105. 


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51262 Federal Register / Vol. 73, No. 170 / Tuesday, September 2, 2008 / Proposed Rules 

Be sure to include your name, title, 

organization, postal address, telephone 

number, and e-mail address in the text 

of your public comment and reference 

‘‘CAS Pension Harmonization ANPRM’’

in the subject line. Comments received 

by the date specified above will be 

included as part of the official record. 

Please note that all public comments 

received will be available in their 

entirety at 

http://www.whitehouse.gov/omb/ 

procurement/casb/ 

index_public_comments.html and 

http://www.regulations.gov after the 

close of the comment period. 

FOR FURTHER INFORMATION CONTACT: Eric 

Shipley, Project Director, Cost 

Accounting Standards Board (telephone: 

410–786–6381). 

SUPPLEMENTARY INFORMATION: 

A. Regulatory Process 

Rules, Regulations and Standards 

issued by the Cost Accounting 

Standards Board (Board) are codified at 

48 CFR Chapter 99. The Office of 

Federal Procurement Policy Act, 41 

U.S.C. 422(g), requires that the Board, 

prior to the establishment of any new or 

revised Cost Accounting Standard (CAS 

or 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. 

2. Promulgate an Advance Notice of 

Proposed Rulemaking. 

3. Promulgate a Notice of Proposed 

Rulemaking. 

4. Promulgate a Final Rule. 

This Advance Notice of Proposed 

Rulemaking is step two of the four-step 

process. 

B. Background and Summary 

The Office of Federal Procurement 

Policy (OFPP), Cost Accounting 

Standards Board, is today releasing an 

Advance Notice of Proposed 

Rulemaking (ANPRM) on the 

harmonization of Cost Accounting 

Standards (CAS) 412 and 413 with the 

Pension Protection Act (PPA) of 2006 

(Pub. L. 109–280, 120 Stat. 780). The 

Office of Procurement Policy Act, 41 

U.S.C. 422(g)(1), requires the Board to 

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 prior to the promulgation of 

any new or revised CAS. 

The PPA amended the minimum 

funding requirements and taxdeductibility of contributions to pension 

plans under the Employee Retirement 

Income Security Act of 1974 (ERISA). 

The PPA requires the Board to revise 

Standards 412 and 413 of the CAS to 

harmonize with the amended ERISA 

minimum required contribution not 

later than January 1, 2010. 

On July 3, 2007, the Board published 

a Staff Discussion Paper (72 FR 36508) 

in accordance with 41 U.S.C. 422(g) to 

solicit public views with respect to the 

Board’s statutory requirement to 

‘‘harmonize’’ CAS 412 and 413 with the 

PPA. Differences between CAS 412 and 

413 and the PPA, as well as issues 

associated with pension harmonization 

were identified in the Staff Discussion 

Paper (SDP). Respondents were invited 

to identify and comment on any issues 

related to pension harmonization that 

they felt were important. The SDP 

identified issues related to pension 

harmonization and did not necessarily 

represent the position of the Board. 

The SDP noted basic conceptual 

differences between the CAS and the 

PPA that affect all contracts and awards 

subject to CAS 412 and 413. The PPA 

utilizes a settlement or liquidation 

approach to value pension plan assets 

and liabilities, including the use of 

accrued benefit obligations and interest 

rates based on current corporate bond 

rates. On the other hand, CAS utilizes 

the going concern approach to plan 

asset and liability valuations, i.e., 

assumes the company (or in this case 

the pension plan and trust) will 

continue in business, and follows 

accrual accounting principles that 

incorporate long-term, going concern 

assumptions about future asset returns, 

future years of employees’ service, and 

future salary increases. These 

assumptions about future events are 

absent from the settlement approach. 

The full text of the public comments 

to the SDP is available at: http:// 

www.whitehouse.gov/omb/ 

procurement/casb/ 

index_public_comments.html under 

‘‘Combined Public Comments on the 

Staff Discussion Paper on the 

Harmonization of Cost Accounting 

Standards 412 and 413 with the Pension 

Protection Act of 2006,’’ and http:// 

www.regulations.gov. 

The Board believes that the 

accounting for pension costs for contract 

costing purposes should continue to 

reflect the long-term nature of the 

pension plan for a going-concern. The 

Cost Accounting Standards are intended 

to provide cost data not only to 

determine the incurred cost for the 

current period, but also to provide 

consistent and reasonable cost data for 

forward-pricing contracts over the near 

future. Financial statement accounting, 

on the other hand, is intended to report 

the change in an entity’s financial 

position and results of operations 

during the current period. ERISA does 

not prescribe a unique cost or expense 

for a period. The minimum required 

contribution rules of ERISA, as 

amended by the PPA, instead require 

that the plan achieves funding of its 

current settlement liability within a 

short period of time. On the other hand, 

the ERISA tax-deductible maximum 

contribution is based on the plan’s longterm benefit levels plus a reserve against 

adverse experience. ERISA permits the 

entity a wide contribution range that 

allows the company to set long-term 

financial management decisions on the 

funding of the ongoing pension plan. 

The Board recognizes that contract 

cost accounting for a going concern 

must, nevertheless, address the risk 

associated with inadequate funding of a 

plan’s settlement liability and therefore 

proposes implementation of a minimum 

liability based on the accrued benefits 

valued based on corporate bond rates. 

Furthermore, harmonization with the 

PPA minimum required contribution, 

which is based on the ERISA ‘‘funding 

target’’ and ‘‘target normal cost,’’ will 

help alleviate the disparity in timing 

between ERISA’s minimum funding 

requirements and recognition of such 

required funding in contract costing. 

Once harmonization is achieved, 

maintaining the going concern basis for 

contract costing allows contractors to set 

long-term funding goals that avoid 

undue cost/contribution volatility. 

The Board continues to believe that 

issues of benefit design, investment 

strategy, and financial management 

decisions for the pension plan fall under 

the contractor’s purview. The Board also 

believes that the Cost Accounting 

Standards must remain sufficiently 

robust to accommodate evolving 

changes in financial statement reporting 

and theory as well as Congressional 

changes to ERISA. 

After considering the effects of 

accelerating recognition of actuarial 

gains and losses, the Board proposes 

changing the amortization period for 

gains and losses to a 10-year 

amortization period from its current 15- 

year period to provide more timely 

adjustment of plan experience while not 

introducing unmanageable volatility. 

This shorter amortization period also 

more closely follows the 7-year period 


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Federal Register / Vol. 73, No. 170 / Tuesday, September 2, 2008 / Proposed Rules 51263 

required by ERISA to fully fund the 

plan’s settlement liability. 

In assessing the potential for volatility 

that would adversely impact forward 

pricing, the Board noted that for 

pension plans that are close to being 

fully funded, the sudden and 

unpredictable elimination or emergence 

of significant pension costs has been 

problematic for many years. 

Accordingly, the Board proposes to 

revise the ‘‘assignable cost limitation’’

so that it does not apply until the 

actuarial value of assets equals or 

exceeds 125% of the actuarial accrued 

liability plus normal cost. In addition, 

the actuarial gains that give rise to 

surplus assets will be amortized over 10 

years and will reduce the surplus in an 

orderly and timely fashion. 

The Board proposes a specific 

transition method for implementing 

harmonization. This transition method 

would apply to all contractors subject to 

CAS 412 and 413 through full CAScoverage or Federal Procurement 

Regulation (FAR) § 31.205–6(j). The 

proposed transition will phase-in 

revisions to the liability and normal cost 

measurement and to the amortization 

periods during the first 5 years as new 

contracts are priced and awarded so that 

the cost effects of harmonization are 

gradually recognized. 

The proposed transition phase-in lasts 

for a specific 5-year period that tracks 

the typical contracting cycle. More 

importantly, the proposed transition 

phase-in should provide at least partial 

harmonization relief for contractors 

with contracts that are exempt from 

CAS-Coverage. At the same time the 

proposed phase-in provisions are 

intended to make the possible cost 

increases due to harmonization more 

manageable for the procuring agencies. 

The draft proposed rule allows 

companies to use the same actuarial 

methods and valuation software for 

ERISA, financial statement and 

government contract costing purposes. 

Except for the interest rate, the same 

general set of actuarial assumptions can 

be used for all three purposes. This will 

allow agencies and government auditors 

to place reliance on data from ERISA 

and financial statement valuations, and 

allow contractors to avoid unnecessary 

actuarial effort and expense. 

C. Paperwork Reduction Act 

The Paperwork Reduction Act, Public 

Law 96–511, does not apply to this draft 

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 draft proposed 

rule are those normally maintained by 

contractors who claim reimbursement of 

post-retirement 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 

draft proposed rule on contractors and 

subcontractors is expected to be minor. 

As a result, the Board has determined 

that this draft proposed rule will not 

result in the promulgation of an 

‘‘economically significant rule’’ under 

the provisions of Executive Order 

12866, and that a regulatory impact 

analysis will not be required. 

Furthermore, this draft 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 

draft proposed rule does not require a 

regulatory flexibility analysis under the 

Regulatory Flexibility Act of 1980. 

Paul A. Denett, 

Chairperson, Cost Accounting Standards 

Board. 

[FR Doc. E8–20255 Filed 8–29–08; 8:45 am] 

BILLING CODE 3110–01–P 


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