Cost Accounting Standards Board Issues ESOP Reimbursement Rules

The Cost Accounting Standards Board, part of the Office of Federal Procurement Policy at the Office of Management and Budget, has issued proposed regulations on how companies with ESOPs will be reimbursed in government contracts. The issue has been controversial for over two decades. Prior rules were at best ambiguous and often illogical, treating ESOPs that paid out in annuities as different from ESOPs that did not, for instance. The new proposed rules would reimburse contractors based on the actual cost of contributions to fund the ESOP, typically the amount contributed directly in a non-leveraged plan or the amount used to pay principal on a loan. However, if the plan is structured so that there is not a match in a year between the shares actually allocated and the amount paid on the loan (such as when there is a contribution carryover, additional shares are contributed, or additional shares attributable to a loan payment will be allocated in a future period), then the cost assignable as deferred compensation would be adjusted to reflect these additional allocations. The regulations would only apply to future contracts. Comments on the proposed standards are ebbing solicited. Details are available in the Federal Register, v. 68, No. 161, August 20, 2003.