B-122489, MARCH 8, 1956, 35 COMP. GEN. 507

B-122489: Mar 8, 1956

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COSTS OF AN EMPLOYEE'S PROFIT-SHARING PLAN ARE FOR ALLOWANCE. 1956: REFERENCE IS MADE TO LETTER DATED FEBRUARY 23. THE QUESTIONED REIMBURSEMENT WAS MADE UNDER COST-REIMBURSEMENT CONTRACT NO. THE PARTICULAR PARAGRAPH OF SECTION XV OF ASPR DEEMED APPLICABLE TO THE COSTS INVOLVED IS ASPR 15-601. THAT THE COSTS OF SUCH "PENSION AND RETIREMENT PLANS" AS ARE APPROVED BY THE INTERNAL REVENUE SERVICE WILL BE ACCEPTED AS REIMBURSABLE COSTS. THE RHEEM COMPANY PLAN WAS APPROVED BY THE INTERNAL REVENUE SERVICE. AS IS THE RHEEM PLAN. IS NOT A . THE QUESTION THEN IS WHETHER ASPR 15-601 PERMITS REIMBURSEMENT FOR THE COSTS OF A . " IS NOT WELL CHOSEN TO PERMIT REIMBURSABILITY UNDER PROFIT-SHARING PLANS.

B-122489, MARCH 8, 1956, 35 COMP. GEN. 507

CONTRACTS - COST - PROFIT-SHARING PLANS ALTHOUGH A PROFIT-SHARING PLAN FOR EMPLOYEES OF A GOVERNMENT CONTRACTOR MAY NOT BE REGARDED AS A PENSION PLAN WITHIN THE MEANING OF SECTION 15-601 OF THE ARMED SERVICES PROCUREMENT REGULATIONS, WHICH PERMITS THE REIMBURSEMENT OF COSTS FOR EMPLOYEE PENSION AND RETIREMENT PLANS, SUBPARAGRAPH 15-601.2 (F) OF THE REGULATIONS PERMITS REIMBURSEMENT FOR THE COST OF PLANS BASED ON PROFITS AND, THEREFORE, COSTS OF AN EMPLOYEE'S PROFIT-SHARING PLAN ARE FOR ALLOWANCE.

TO THE SECRETARY OF THE ARMY, MARCH 8, 1956:

REFERENCE IS MADE TO LETTER DATED FEBRUARY 23, 1956, FROM THE ASSISTANT SECRETARY OF THE ARMY ( LOGISTICS), REQUESTING RECONSIDERATION OF AN EXCEPTION TAKEN TO REIMBURSEMENT OF COSTS INCURRED BY THE RHEEM MANUFACTURING COMPANY IN CONNECTION WITH ITS EMPLOYEES' INCENTIVE BONUS PLAN AND TRUST.

THE QUESTIONED REIMBURSEMENT WAS MADE UNDER COST-REIMBURSEMENT CONTRACT NO. DA-36-034-ORD-691 WHICH PROVIDES FOR CONVERTING THE BURLINGTON ORDNANCE PLANT INTO A FACILITY FOR THE MANUFACTURE OF STEEL CARTRIDGE CASES. AS A CRITERION FOR DETERMINING REIMBURSABLE COSTS, THE CONTRACT INCORPORATES THE PRINCIPLES OUTLINED IN PART 2 OF SECTION XV OF THE ARMED SERVICE PROCUREMENT REGULATION. THE PARTICULAR PARAGRAPH OF SECTION XV OF ASPR DEEMED APPLICABLE TO THE COSTS INVOLVED IS ASPR 15-601, DEALING WITH PENSION AND RETIREMENT PLANS. THAT PARAGRAPH PROVIDES, GENERALLY, THAT THE COSTS OF SUCH "PENSION AND RETIREMENT PLANS" AS ARE APPROVED BY THE INTERNAL REVENUE SERVICE WILL BE ACCEPTED AS REIMBURSABLE COSTS. THE RHEEM COMPANY PLAN WAS APPROVED BY THE INTERNAL REVENUE SERVICE, NOT, HOWEVER, AS A "PENSION" OR "RETIREMENT" PLAN, BUT AS A "PROFIT-SHARING" PLAN. THE REGULATIONS OF THE INTERNAL REVENUE SERVICE (SECTION 29.165-1, INTERNAL REVENUE REGULATIONS 111, 26 C.F.R., PART 29) MAKE A CLEAR DISTINCTION BETWEEN "PENSION" PLANS AND "PROFIT-SHARING" PLANS, AND SPECIFICALLY STATE THAT A PLAN DEPENDENT ON PROFITS, AS IS THE RHEEM PLAN, IS NOT A ,PENSION" PLAN.

THE QUESTION THEN IS WHETHER ASPR 15-601 PERMITS REIMBURSEMENT FOR THE COSTS OF A ,PROFIT-SHARING" PLAN, AS WELL AS OF A "PENSION" PLAN, IF APPROVED BY THE INTERNAL REVENUE SERVICE. IN VIEW OF THE CLEAR AND MUTUALLY EXCLUSIVE DISTINCTION MADE IN THE INTERNAL REVENUE REGULATIONS BETWEEN "PENSION" AND "PROFIT-SHARING" PLANS, THE LANGUAGE USED IN ASPR 15 -601, WHICH REFERS ONLY TO "PENSION AND RETIREMENT PLANS," IS NOT WELL CHOSEN TO PERMIT REIMBURSABILITY UNDER PROFIT-SHARING PLANS. SUBPARAGRAPH 15-601.2 (F) THEREOF, FOR EXAMPLE, SPEAKS OF PENSION PLANS BASED ON PROFITS WHICH MEET THE PROVISIONS OF INTERNAL REVENUE REGULATIONS. UNDER THE LATTER REGULATIONS, ANY PLAN BASED ON PROFITS CANNOT BE A "PENSION" PLAN, ALTHOUGH IT MAY RECEIVE APPROVAL AS A PROFIT-SHARING PLAN. THE EXCEPTION UNDER CONSIDERATION APPEARS TO HAVE RESULTED FROM THIS AMBIGUITY IN ASPR 15-601.

HOWEVER, SECTION 15-601.2 (F) OF ASPR APPARENTLY IS INTENDED TO SANCTION REIMBURSEMENT FOR THE COST OF PLANS BASED ON PROFITS IF THEY COMPLY WITH INTERNAL REVENUE REGULATIONS. HENCE, EVEN THOUGH SUCH PLANS ARE NOT "PENSION OR RETIREMENT" PLANS UNDER THE REGULATIONS, IT APPEARS TO HAVE BEEN INTENDED TO TREAT THE COST THEREOF AS ALLOWABLE WITHIN THE LIMITATIONS SPECIFIED IN THE ASPR.

THE RECLAIM VOUCHER FORWARDED WITH THE LETTER OF FEBRUARY 23, 1956, IS RETURNED HEREWITH, AND YOU ARE ADVISED THAT PAYMENT THEREON IS AUTHORIZED.