- assigning actuarial gains and losses to cost accounting periods,
- valuing pension fund assets and
- allocating pension costs to segments.
Actuarial gains and losses represent differences between actuarial assumptions and actual experience. For example, you might have assumed that the pension funds held in trust would grow by five percent whereas the actual growth was only four percent. The difference between five and four percent represent an actuarial loss. CAS 413 requires that actuarial gains and losses be calculated every year and assigned to current and subsequent cost accounting periods. Typically, these gains and losses are amortized over 15 years including the current period.
Disputes frequently arise between contractors and the Government on how to assign pension costs equitably to segments. The standard provides several options but bottom line, pension costs must follow the employees that generated the costs. Contractors can use a composite method if there are no significant disparities in actuarial factors between segments and allocate costs to segments on a base which represents the factors used in computing pension costs.
Contractors may also compute pension costs on a segment basis. Under this basis, costs shall be based on the assets and liabilities of the individual segment.
The standard also includes criteria for adjustments when there are segment closings, plan terminations, and plan curtailments.