The Cost Accounting Standards Board has issued an Advance Notice of Proposed Rulemaking (ANPR) which is part of the process required to change the CAS.  The amendment addresses how the costs of Employee Stock Ownership Plans (ESOPs) will be recognized under Government cost-based contracts and subcontracts where criteria will be provided for measuring the costs and assigning the costs to accounting periods.  Basically, the proposed changes modify CAS 415 covering deferred compensation and states that ESOP costs should be measured by the contribution made to the ESOP not by the value of compensation received by the employee.  Also, the costs should be assigned to the cost accounting period in which ESOP awards are made to employees.  The allocation of the assigned ESOP costs to contracts and subcontracts are addressed in other standards (e.g. CAS 410, 403, 418).  

The ANPR follows an earlier discussion paper addressing numerous ESOP issues such as whether they should be accounted for under CAS 412, Pension costs or CAS 415, deferred compensation.  ESOPs are individual stock bonus plans designed specifically to invest in the stock of the contractor’s company.  An ESOP can be structured as a form of pension plan if it offers participants benefits for life (“pension plans”); otherwise, they are “deferred compensation ESOPs.”  The Board concluded that neither Generally Accepted Accounting Principles nor current CAS provide adequate guidance on how to treat these sometime pension-sometime deferred compensation costs.  Several cases (e.g. Ball Crop. ASBCA 49118; Ralph M. Parsons Co. ASBCA 37931) have concluded CAS 415 should govern the measurement of ESOPs for government costing purposes and the CAS Board has decided to amend CAS 415 so that ESOP contributions are treated like deferred compensation while CAS 412 will be amended to exclude coverage of ESOP costs that meet the definition of a pension plan.

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