The Cost Accounting standards Board recently issued a proposed rule on the harmonization of CAS 412 and 413 with the Pension Protection Act (PPA) of 2006. The PPA amended the minimum funding requirements of contributions to pension plans under ERISA (generally resulting in higher contributions than that prescribed by CAS) which required the CAS Board to revise the two pension related standards to “harmonize” them with the PPA.  The lengthy 72-page proposal is available at www.whitehouse.gov/omb/procurement/cash/2008-anprm.pdf where some noteworthy items are:

1. Change the amortization period for gains to 10 years which is down from the current CAS required 15 year period but longer than the 7-year period required under ERISA.

2. A different interest rate assumption from that used by ERISA would hold though the same actuarial methods and valuation assumptions used for ERISA and financial statement purposes would apply to government contracting.

3. For pension plans close to being fully funded that have several recurring problems, the assignable cost limitation does not apply until the actuarial value of assets equal or exceed 125 percent of the actuarial liability plus normal costs.

4. Actuarial gains that give rise to surplus assets would be amortized over 10 years to reduce the surplus in an “orderly and timely fashion.”

5. A five year transition period would apply that would delay recognition of the increased costs of harmonization. The proposed phase-in of the minimum actuarial liability would also apply to segment closing adjustments.

6. The transition method would apply to all contractors covered either by CAS or FAR 31.205-6(j) (Fed. Reg. 15261)

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