DoD contractors are among the largest sponsors of defined benefit pension plans and factor pension costs into the price of defense contracts, but additional guidance is needed to ensure those costs are consistent and reasonable, GAO has said
Defined benefit plan costs reported by the contractors grew considerably over the last decade, from less than $500 million in 2002 to almost $5 billion in 2011 – some of which were allocated to DoD contracts, according to GAO-13-158.
It said that pension costs are further expected to rise as they are harmonized with more varying and market-sensitive costs calculated under the Employee Retirement Income Security Act, which establishes minimum contributions required to fund plans.
This is expected to increase the burden on DoD contract specialists, as it will make it harder to forecast future pension costs calculated under the cost accounting standard – CAS, and reduce the consistency of cost projections used in contract pricing.
GAO recommended that DoD clarify responsibility for and guidance on assessing pension reasonableness and determining discount rates for pension cost projections, and that the CAS Board set a schedule for revising the parts of CAS that address the settlement of plan curtailments.
DoD agreed with the recommendations to the secretary of defense, and OMB said that when the CAS Board meets it would consider a schedule for revision.
