Allocation of an Air Force Contractor's Pension Fund Assets May Be Inequitable

HRD-81-152: Published: Sep 23, 1981. Publicly Released: Sep 23, 1981.

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The Air Force has contracted for services at the Eastern Test Range, Cape Canaveral, with Pan American World Airways for over 25 years. Pan American provided pension benefits for its employees through its Cooperative Retirement Income Plan and is reimbursed by the Government for contributions to the plan for employees working on the Eastern Test Range contract.

During a review of contractors' compliance with cost accounting standards relating to pension costs, GAO found that the pension plan had experienced significant actuarial gains from unanticipated job terminations of employees working on the Air Force contract. For 1975 through 1977, the number of employees working on four projects in the Aerospace Services Division who were expected to terminate was consistently underestimated, and actuarial gains and losses were assigned without regard to which groups of plan participants contributed to them. In 1979, Pan American had initiated actions to establish separate pension plans which would ensure that the Government received proper credit for these termination gains. However, as of July 1981, these actions had not been completed, and it appears that the method proposed by Pan American for allocating pension plan assets may not be equitable to the Government. Also, the method proposed may result in an inequitable distribution of assets. Using 1969 as the starting point for determining plan assets based on contributions would not recognize any termination gains as they related to the employees who terminated prior to January 1, 1969. Because the terminations have resulted in reduced liability for Government contract employees, the Government would receive a reduced share of assets distributed on the basis of actuarial liability, and an employee who terminated before that date is likely to generate greater termination gains because the employee is less likely to be vested.

Recommendation for Executive Action

  1. Status: Closed

    Comments: Please call 202/512-6100 for additional information.

    Recommendation: The Secretary of the Air Force should ensure that the distribution of assets among the Cooperative Retirement Income Plan (CRIP) and the various CRIP/Aerospace Services Division projects is equitable and timely. The net contribution method should be used for determining what Aerospace Services Division/CRIP projects' assets should be for years before 1969, as well as for 1969 and later years.

    Agency Affected: Department of Defense: Department of the Air Force


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