Inclusion of Recent Benefit Increases Proper for Segment Closing

A dispute over the correct date to use for a segment closing adjustment was summarily resolved in the contractor’s favor by the Court of Federal Claims because the contractor’s inclusion of pension benefit increases added shortly before the segment closing did not result in an inequitable calculation under original Cost Accounting Standard 413-50(c)(12). The parties each moved for summary judgment on the proper date to use for calculating, under the 1978 version of CAS 413-50(c)(12), the actuarial liability of the contractor’s closed business segment. The contractor argued the segment closing calculation must be made as of the segment closing date, which would include actuarial liabilities associated with benefit improvements the contractor added to its pension plans one month before the closing date. The government countered that a different date had to be used because including the benefit improvements would result in an “inequitable calculation” within the meaning of CAS 413-50(c)(12).

Not Inherently Inequitable

The court agreed with the contractor and rejected the government’s argument that including the recently added benefits in the segment closing calculation was inconsistent with the “purpose” of a closing adjustment and resulted in an “inequitable” calculation. The court found nothing in the plain language of CAS 413 or its regulatory history that barred the inclusion of newly-adopted plan benefits in a segment closing calculation. The court also found the benefit improvements, which were adopted as part of regular improvements to the contractor’s pension plans, were lawfully adopted, so including those benefits in the segment closing calculation was not inconsistent with the purposes of the CAS and was not inherently “inequitable.” Also, the government’s audit reports indicated the government recognized the benefit improvements as benefits to be included in the CAS segment closing calculation. Finally, the court looked at the changes in the revised CAS and confirmed the original CAS did not exclude the benefit improvements from the contractor’s segment closing adjustment. As recognized by the Federal Circuit in Allegheny Teledyne, et al. v. U.S. ( 47 CCF ¶78,020), clear changes made to the original CAS by the 1995 revisions should be presumed to indicate a change of CAS requirements. Here, revised CAS 413-50 expressly changed the original CAS, which showed the original CAS did not require exclusion of recent plan improvements from a segment closing adjustment. ( General Motors Corp. v. U.S., FedCl, 57 CCF ¶80,177)