GAO study: Defense Department pension accounting rules need more oversight

New pension accounting rules for federal contractors are going to require greater oversight from the Department of Defense, according to a Government Accountability Office study released Tuesday.

GAO looked at the defined benefit plans of the 10 largest DOD contractors, which are among the largest sponsors of defined benefit pension plans in the U.S., and found that they use two separate standards for determining pension cost allocations — ERISA and cost accounting standards, which have “diverged further apart,” in recent years, according to GAO.

To correct that divergence, starting in 2013, new cost accounting standards for allocating pension costs in government contracts will start converging with the ERISA funding requirements followed by Defense Department contractors, and GAO officials recommend that the secretary of defense clarify how the DOD will handle pension discount rates and reasonable pension costs.