The Department of Energy could be facing as much as $1.7 billion in pension contributions to its civilian contractors in fiscal year 2012, which begins Oct. 1, thanks to an economic downturn that caused liabilities to jump, according to a report from the Government Accountability Office.
The report, prepared for Sen. Lamar Alexander, R-Tenn., and the appropriations subcommittee responsible for DOE funding, found the department paid $750 million in contractor pension costs in fiscal year 2009, more than double from the previous year “and significantly more than it had budgeted.” In 2009, DOE estimated contributions to its 10 largest contractor pension plans could vary by $2 billion or more annually between fiscal year 2012 through 2019, based on interest rate changes, the report noted.
The economic downturn and lower interest rates led to “a perfect storm,” said lead author Mark Gaffigan, GAO managing director for natural resources and environment, in an interview. “Shrinking investment returns led to increased unfunded liabilities.”
The largest civilian contracting agency by far, DOE spends about 90% or $22 billion of its annual budget on facilities under management and operating contracts. Of the 46 current contracts, the 12 largest had 86% of the $36.7 billion in total pension liabilities. Neither the GAO nor DOE identified the plans at press time.
Mr. Gaffigan said DOE officials are providing more oversight of contractor pension costs, and that both DOE and congressional appropriators “are looking to see where they can control more” to free up resources for core missions. “We have the bill today. The question is, what we do to reduce it going forward?”
In a written response to the GAO report, DOE Deputy CFO Christine Marcus said some cost increases were triggered by 2006 Pension Protection Act rules for lower interest rates and shorter smoothing periods, but that actual reimbursements should be lower than the report’s projections. She said DOE has improved its oversight of benefit costs and will continue to have a “robust interchange” with contractors over the pension issue.