Watson Wyatt Comments on Pension Harmonization for Government Contractors

The Pension Protection Act of 2006 (PPA) requires the Cost Accounting Standards Board (CASB) to harmonize the PPA’s funding requirements with the cost accounting standards applicable to government contractors by January 1, 2010. Watson Wyatt has filed comments with the CASB regarding the harmonization project, making the following points:

• The CAS pension harmonization rule should reflect the legislative intent behind the PPA’s new minimum funding requirements. Otherwise, any mismatch between sponsors’ cash outlays for pension contributions and pension reimbursements under government contracts could create a disincentive for sponsors to continue their plans.

• Because both the Financial Accounting Standards Board (FASB) and the funding rules are moving toward a mark-to-market basis, including the use of corporate bond rates rather than projected asset returns for measuring pension plan liabilities, CASB's accounting standards should reflect the same approach.

• The pension harmonization rule should ensure that differences between the minimum required contribution and contract costs are reconciled within a reasonable period of time. CASB requirements historically have closely mirrored the minimum funding requirements, and maintaining that symmetry between the government’s requirements and its own reimbursements is important.

• The pension harmonization rule should apply uniformly to all government contractors. While the PPA requires pension harmonization only for certain defense contractors with at least $5 billion in contracting revenues, the principles of equity, uniformity and consistency suggest that pension harmonization should apply to all government contractors.

• The rule should address transition issues, and implementation should be sooner rather than later.
  
  October 2007