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. ( printed 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.

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).