Pension Costs on DOD Contracts: Additional Guidance Needed to Ensure Costs Are Consistent and Reasonable
GOVERNMENT ACCOUNTABILITY OFFICE WASHINGTON DC
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DOD contractors are among the largest sponsors of defined benefit pension plans in the United States and factor pension costs into the price of DOD contracts. Since the 2008 market downturn, these pension costs have grown thereby increasing DOD contract costs and recent changes in rules for calculating pension costs have raised the prospect of further cost increases. Given this possibility, GAO assessed how 1 contractor pension costs are determined 2 DOD ensures the contractor pension costs it pays are appropriate 3 DOD contractors defined benefit pension plans compare with plans sponsored by similar companies 4 pension costs have affected DOD contract costs and the factors that contributed to these pension costs and 5 the harmonization of CAS with ERISA will affect the amounts DOD will pay in pension costs in coming years. To do this, GAO analyzed defined benefit pension plans for the largest contractors interviewed contractor and DOD officials and reviewed relevant laws and regulations, including changes made to harmonize CAS with ERISA. GAO recommends that the Secretary of Defense clarify responsibility for and guidance on assessing pension reasonableness and determining discount rates for pension cost projections. GAO recommends 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 will consider a schedule for revision.
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