CAS 412 - Composition and Measurement of Pension Cost

9904.412-20 Purpose

(a) The purpose of this Standard 9904.412 is to provide guidance for determining and measuring the components of pension cost. The Standard establishes the basis on which pension costs shall be assigned to cost accounting periods. The provisions of this Cost Accounting Standard should enhance uniformity and consistency in accounting for pension costs and thereby increase the probability that those costs are properly allocated to cost objectives.

(b) This Standard does not cover the cost of Employee Stock Ownership Plans (ESOPs) that meet the definition of a pension plan. Such plans are considered a form of deferred compensation and are covered under 9904.415

Definitions

Accrued Benefit Cost Method

Actuarial Accrued Liability

Actuarial Assumption

Actuarial Cost Method

Actuarial Gain and Loss

Actuarial Valuation

Assignable Cost Credit

Assignable Cost Deficit

Assignable Cost Limitation

Defined-Benefit Pension Plan

Defined-Contribution Pension Plan

Funded Pension Cost

9904.412-40 Fundamental requirement

For Defined-Benefit Pension Plans

Except for plans accounted for under the pay-as-you-go cost method, the components of pension cost for a cost accounting period are

• (i) the normal cost of the period, *(ii) a part of any unfunded actuarial liability,
• (iii) an interest equivalent on the unamortized portion of any unfunded actuarial liability, and
• (iv) an adjustment for any actuarial gains and losses.

For Defined-Contribution Pension Plans

The pension cost for a cost accounting period is the net contribution required to be made for that period, after taking into account dividends and other credits, where applicable.

For Pay-As-You-Go

For defined-benefit pension plans accounted for under the pay-as-you-go cost method, the components of pension cost for a cost accounting period are:

• (i) The net amount of periodic benefits paid for that period, and
• (ii) An amortization installment, including an interest equivalent on the unamortized settlement amount, attributable to amounts paid to irrevocably settle an obligation for periodic benefits due in current and future cost accounting periods.

Measurement of Pension Cost

(1) For defined-benefit pension plans other than those accounted for under the pay-as-you-go cost method, the amount of pension cost of a cost accounting period shall be determined by use of an immediate-gain actuarial cost method.

(2) Each actuarial assumption used to measure pension cost shall be separately identified and shall represent the contractor's best estimates of anticipated experience under the plan, taking into account past experience and reasonable expectations. The validity of each assumption used shall be evaluated solely with respect to that assumption. Actuarial assumptions used in calculating the amount of an unfunded actuarial liability shall be the same as those used for other components of pension cost.

(3) For qualified defined benefit pension plans, the measurement of pension costs shall recognize the requirements of 9904.412-50(b)(7) for periods beginning with the “Applicability Date of the CAS Pension Harmonization Rule.” However, paragraphs 9904.413-50(c)(8), (9) and (12) are exempt from the requirements of 9904.412-50(b)(7).

Assignment of pension cost

Except costs assigned to future periods by 9904.412-50(c) (2) and (5), the amount of pension cost computed for a cost accounting period is assignable only to that period. For defined-benefit pension plans other than those accounted for under the pay-as-you-go cost method, the pension cost is assignable only if the sum of (1) the unamortized portions of assignable unfunded actuarial liability developed and amortized pursuant to 9904.412-50(a)(1), and (2) the unassignable portions of unfunded actuarial liability separately identified and maintained pursuant to 9904.412-50(a)(2) equals the total unfunded actuarial liability.

Allocation of Pension Cost

Pension costs assigned to a cost accounting period are allocable to intermediate and final cost objectives only if they meet the requirements for allocation in 9904.412-50(d). Pension costs not meeting these requirements may not be reassigned to any future cost accounting period