MRD 07-PAC-013(R) - Audit Guidance on the Impact of the Pension Protection Act of 2006

DEFENSE CONTRACT AUDIT AGENCY DEPARTMENT OF DEFENSE 8725 JOHN J. KINGMAN ROAD, SUITE 2135 FORT BELVOIR, VA 22060-6219 IN REPLY REFER TO PAC 730.3.B.08/2009-01 June 1, 2009 09-PAC-007(R) MEMORANDUM FOR REGIONAL DIRECTORS, DCAA DIRECTOR, FIELD DETACHMENT, DCAA HEADS OF PRINCIPAL STAFF ELEMENTS, DCAA SUBJECT: Audit Alert on Reviewing Projected Pension Costs SUMMARY This memorandum provides guidance on auditing pension costs in forward pricing proposals. Due to the recent global stock market decline, Government contractors’ defined benefit pension plans may have become underfunded or barely fully funded, which may necessitate contractors to increase their annual contributions to the pension plans. Auditors should request the assistance of the DCMA CIPR Center when auditing significant pension costs included in forward pricing proposals. The CIPR Center can be reached by calling 718-354-3767 or e-mail to CIPRInbox@dcma.mil. This is particularly important when the projected pension costs are significantly increased from prior years and when the plan is near full-funding status. An increase in projected pension costs resulting from the contractor’s use of an interest rate lower than the assumed long-term rate of return and immediate recognition of the investment loss experienced in the recent months should be questioned. BACKGROUND Discussions with DCMA and information received from certain Field Audit Offices ...