U.S. Department of Energy				   		NOTICE
Washington, D.C.					   	       DOE N 351.1

					  		Approved:  4-27-06
		    					   Expires:  4-27-07

SUBJECT:  CONTRACTOR EMPLOYEE PENSION AND MEDICAL BENEFITS POLICY

1.	OBJECTIVES.

	a.	To ensure that reimbursement of costs incurred by Department
		of Energy (DOE) Contractors (as defined in this Notice) for
		Contractor pension and medical benefits under Contracts (as
		defined in this Notice) are reasonable in accordance with
		applicable laws, regulations and contract requirements, and
		reflect prudent business practices.
		
	b.	To moderate the volatility and improve the predictability of
		the Department’s annual cost-reimbursement obligations for
		Contractor benefit costs.

	c.	To mitigate the growth in costs reimbursed by the Department
		associated with Contractor benefit liabilities.

	d.	To provide direction for the treatment and disposition of
		Contractor post-closure benefit obligations that result from
		successful Contract completion at DOE closure sites.

2.	CANCELLATION.  None.
	
3.	APPLICABILITY.

	a.	DOE Elements.  Except for the exclusions in Section 3.c, this
		Notice applies to all DOE Elements, including the
		National Nuclear Security Administration (NNSA)
		(Attachment 1) having cognizance over Contracts and
		Contractors.  Departmental compliance with this
		Notice is subject to applicable laws and other
		Departmental obligations.
		
	b.	DOE Contractors.  The Contractor Requirements Document (CRD) 
		(Attachment 2) sets forth requirements of this Notice that will
		apply to Contracts that incorporate the CRD.
		Contractor compliance with the CRD is subject to
		applicable laws and other enforceable obligations
		(e.g., reimbursement of costs pursuant to DOE-
		approved collective bargaining agreements and benefit
		plans).
		
	c.	Exclusions.  This Notice does not apply to the Power Marketing
		Administrations and activities conducted pursuant to
		the authority of the Director, Naval Nuclear
		Propulsion Program, under 50 U.S.C. 2406
		requirements.
		
  4.	BACKGROUND.

	a.	Since Fiscal Year 2000, the assets to liabilities
		ratios in defined benefit (DB) pension plans sponsored
		by DOE Contractors at many DOE sites have experienced
		significant volatility as a result of market
		conditions, investment choices, and other factors.
		Currently, the majority of Contractor DB pension plans
		have accrued liabilities that exceed the value of
		assets in the plan trust funds, although the plans
		continue to have assets sufficient to meet all current
		obligations.  As a result, DOE has experienced
		significant fluctuations in outlays for reimbursement
		of Contractor contributions to these plans.  In a
		number of cases, growth in Contractor plan liabilities
		has been the result of benefit augmentations
		implemented when plan assets exceeded liabilities.
		Such augmentations have increased DOE long-term
		liabilities and in many cases have caused DOE to
		increase the level of reimbursement for Contractor
		pension plan contributions to pay for the incremental
		liability created by benefit augmentation.  The
		financial pressures experienced by Contractor DB
		pension plans are similar to the financial pressures
		experienced by many private sector organizations that
		sponsor DB pension plans.  In response, many private
		sector organizations across a broad spectrum of
		industries and businesses have taken actions to
		mitigate cost volatility and liability growth in their
		DB pension plans.
		
	b.	Similarly, the costs associated with Contractor employee
		medical benefits have grown dramatically as a result of the
		rapidly rising costs of medical services.  This growth is also
		similar to the experience of many private sector organizations
		that sponsor medical benefit plans for their employees and
		retirees.  In response, organizations across a broad spectrum of
		industries and businesses also have taken actions to mitigate
		cost volatility and liability growth of medical benefit plans.
		
	c.	Due to changes in mission requirements at certain sites and
		the successful remediation of legacy environmental issues at
		several sites, site closure has become an achievable goal at a
		number of locations both in the near and mid-term.  As a
		consequence, work under certain Contracts will terminate so that
		the need for a continuing operational Contractor workforce at
		particular job sites will cease and employment of the current
		workforce will end.  Contractor and Departmental liabilities for
		disposition of pension and retiree medical benefit plans
		associated with these closure sites has become a concern for DOE,
		closure Contractors, and closure Contractors’ current and retired
		employees.

	d.	The Department anticipates amending, as appropriate, DOE
		Order 350.1, Contractor Human Resource Management Programs, Chg
		1, (DOE O 350.1) to incorporate the contents of this Notice.  The
		Department also anticipates amending the Department of Energy
		Acquisition Regulation to include a clause that will address the
		requirements in the CRD.

5.	REQUIREMENTS.

	a.	Mitigation of Cost Volatility and Liability Growth in
		Contractor Pension Plans.

		(1)	The Department shall continue to reimburse allowable costs
			for pension benefits for Incumbent Defined Benefit (DB) Pension
			Plan Participants (as defined in this Notice) that meet the
			requirements of a total benefit package evaluated under
			DOE O 350.1 and/or specific contractual terms and conditions as
			applicable.
			
		(2)	After a date to be negotiated with each Contractor, but no
			later than March 1, 2007, the Department will not reimburse
			Incremental Pension Costs (as defined in this Notice) except as
			required by law.

		(3)	After a date to be negotiated with each Contractor, but no
			later than March 1, 2007, the Department will not report on its
			annual consolidated financial statement Incremental Pension
			Liability (as defined in this Notice) except as required by law.

		(4)	After a date to be negotiated with each Contractor, but no
			later than March 1, 2007, new Contractor DB pension plans shall
			not be approved for reimbursement under a Contract, and a new
			Defined Contribution (DC) pension plan shall not be approved
			unless it is market-based as described in Section 5.a(5).

		(5)	Contractor pension plans are market-based for purposes of
			reimbursement by DOE when the Contractor’s:

			(a)	Pension plan is a DC Plan; and,
				
			(b)	The pension plan meets the following requirements:

				1	the pension Relative Benefit Value Index (RBVI) does not
					exceed the market average pension RBVI by more than five percent
					for New Employees (as defined in this Notice), and the average
					pension per capita cost as a percent of payroll does not exceed
					the market average pension per capita cost as a percent of
					payroll by more than five percent for New Employees; and,
					
				2	the total benefit package RBVI does not exceed the market
					average total RBVI by more than five percent for New Employees,
					and the total benefit average per capita cost as a percent of
					payroll does not exceed the total benefit market average per
					capita cost as a percent of payroll by more than five percent for
					New Employees.

		(6)	Absent a compelling reason (e.g., required by law) and then
			only with the written approval of the Secretary of Energy,
			Departmental Elements shall not approve costs for reimbursement
			of any amendments to an Existing DB Pension Plan(s) (as defined
			in this Notice) that augment or potentially augment in any way
			the benefit for any plan participant, including any early
			retirement incentive.  The fact that an Existing DB Pension Plan
			may be fully funded or have assets in excess of currently
			estimated liabilities is in itself not a compelling reason for
			benefit augmentation.
			
		(7)	Absent a compelling reason (e.g., required by law) and then
			only with the written approval of the Secretary of Energy, and
			after incorporation of the CRD into a Contract, Departmental
			Elements shall not approve reimbursement of costs for lump sum
			pension distributions of all or any part of a plan participant’s
			benefit (other than lump sum distributions less than or equal to
			$5,000) for Incumbent DB Pension Plan Participants, except that
			costs for lump sum distributions for existing accruals for
			Incumbent DB Plan Participants in Existing DB Pension Plans that
			contain a lump sum distribution feature shall remain allowable.

		(8)	Absent a compelling reason (e.g., required by law) and then
			only with the written approval of the Secretary of Energy,
			Departmental Elements shall not approve the reimbursement of
			costs for pension benefits under collective bargaining agreements
			negotiated subsequent to the effective date of this Notice unless
			the negotiated costs are consistent with the requirements of this
			Notice, applicable law and other DOE directives, and any written
			guidance by the Contracting Officer pursuant to this Notice.

		(9)	DOE will reimburse the allowable costs for a Contractor to
			provide a one time opportunity for Incumbent DB Pension Plan
			Participants to transfer to a market-based pension plan within
			one year of the effective date of the new market-based pension
			plan.

	b.	Mitigation of Cost Volatility and Growth in Contractor
		Medical Benefit Plans.

		(1)	The Department shall continue to reimburse the allowable
			costs for medical benefits for Incumbent Medical Benefit Plan
			Enrollees (as defined in this Notice) that meet the requirements
			of a total benefit package evaluated under DOE O 350.1 and/or
			specific contractual terms and conditions as applicable.
			
		(2)	After incorporation of the CRD in a Contract, the Department
			shall not reimburse Incremental Medical Benefit Costs (as defined
			in this Notice) except as required by law.  The Department will
			reimburse the allowable costs of a Contractor enrolling a New
			Employee in an Existing Medical Benefit Plan (as defined in this
			Notice) if the plan meets the requirements of a market-based
			medical benefit plan as described in Section 5.b(4) or if the New
			Employee shares in the cost of the Existing Medical Benefit Plan
			so that the New Employee’s benefits are brought into compliance
			with market-based medical benefit plans.

		(3)	After incorporation of a CRD into a Contract, the Department
			shall not report on its annual consolidated financial statement
			Incremental Medical Benefit Liability (as defined in this Notice)
			except as required by law.

		(4)	Medical benefit plans are market-based when the Contractor’s

			(a)	medical benefit RBVI does not exceed the market average
				medical benefit RBVI by more than five percent for New Employees
				and the medical benefit per capita cost as a percent of payroll
				does not exceed the market average medical benefit per capita
				cost as a percent of payroll by more than five percent for new
				employees; and,
				
			(b)	the total benefit package RBVI does not exceed the market
				average total benefit RBVI by more than five percent for New
				Employees, and the total benefit average per capita cost as a
				percent of payroll does not exceed the total benefit market
				average per capita cost as a percent of payroll by more than five
				percent for New Employees;

			(c)	provided, however, that the Contracting Officer shall have
				the discretion to weigh the findings of the per capita medical
				benefit cost comparison against the medical RBVI when 	
				determining whether a medical benefit plan is market-based.

		(5)	New medical benefit plans shall not be approved for
			reimbursement under a Contract unless they are market-based as
			described in Section 5.b(4).
			
		(6)	Absent a compelling reason (e.g., required by law) and then
			only with the written approval of the Secretary of Energy,
			Departmental Elements shall not approve the reimbursement of
			costs for medical benefits under collective bargaining agreements
			negotiated subsequent to the effective date of this Notice unless
			the negotiated costs are consistent with the requirements of this
			Notice, applicable law and other DOE directives, and any written
			guidance by the Contracting Officer pursuant to this Notice.

		(7)	Department Elements are not authorized, either orally or in
			writing, to compromise a Contractor’s right to unilaterally
			change, suspend, or terminate any medical plan, coverage or
			contribution at any time.

		(8)	After incorporation of the CRD into the Contract, the
			Department will not reimburse the costs of medical benefits for
			future retirees unless the Contractor conditions eligibility for
			retiree medical benefits based on at least five years of
			continuous service under a Contract(s) immediately prior to
			retirement unless otherwise required by law.

	c.	Administration of Departmental Obligations for Existing DB
		Pension Plans at DOE Sites Scheduled for Closure.

		(1)	Departmental Elements accountable for program management and
			administration of Contracts for designated closure sites, in
			consultation with the Chief Financial Officer, shall begin
			preparations no later than three fiscal years in advance of
			anticipated site closure to enable the full discharge of the
			Department’s obligations for Existing DB Pension Plan costs as
			part of Contract close-out procedures.
			
		(2)	When a DOE site is determined by the cognizant program
			office to be a closure site, the Chief Financial Officer, the
			Office of Legacy Management, the Office of Management, and
			Departmental Elements accountable for program management and
			contract administration of the site operating Contract shall
			perform the following functions as applicable:

			(a)	Determine the funding status (i.e., status of assets and
				liabilities) on a plan termination basis, of an Existing DB
				Pension Plan(s) at the closure site.
				
			(b)	Prepare a budget plan that reflects sufficient funds to
				effect settlement of the Department’s liabilities at the earliest
				practicable date, i.e., a strategy to reduce unfunded liabilities
				to zero by the scheduled closure date if the pension plan
				liabilities exceed the assets in the pension plan fund.  The
				budget plan:

				1	shall include, as applicable, an assessment that weighs the
					risks of funding an Existing DB Pension Plan with additional
					contributions in excess of the required annual minimum
					contribution, compared to the risk of relying on out year budgets
					that may be constrained to provide funding at the time of
					Contract close-out; and,
					
				2	shall reflect analysis of the financial cost of the
					settlement of liabilities at the time of Contract close-out
					(e.g., at a time when rates may be relatively expensive) versus
					other Department priorities.

			(c)	As necessary, ensure that the cognizant Contracting Officer
				takes the steps to require and approve Contractor pension plan
				contributions in excess of the annual minimum contribution
				required by the Employee Retirement Income Security Act (ERISA),
				and ensure that any approved contributions above the minimum
				required contributions do not exceed tax deductible limitations
				on contributions.
				
		(3)	When it is not practicable to discharge Departmental
			obligations for Existing DB Pension Plan costs at the time of a
			site closure, in accordance with applicable contract terms and
			conditions, the cognizant Contracting Officer shall provide
			direction to the Contractor for post-closure sponsorship and
			management of such plans until such time as it is practicable to
			fully discharge the Department’s cost reimbursement obligations
			for such plans.  Such direction shall include continued
			reimbursement of costs incurred by the Contractor or entity
			succeeding to sponsorship and/or management and administration of
			the plans.
			
	d.	Administration of Departmental Obligations for Retiree
		Medical Benefits at DOE Sites Scheduled for Closure.
		
		(1)	Subject to applicable laws and other enforceable
			obligations, the Department shall continue to reimburse the
			allowable costs of Contractor retiree medical benefits subsequent
			to closure of a Contract.
			
		(2)	In accordance with applicable contract terms and conditions,
			the Contracting Officer shall provide direction to the Contractor
			regarding post-closure sponsorship and administration of retiree
			medical plans (e.g., regarding whether sponsorship and plan
			management are to be transferred to another DOE Contract or a
			third party entity).  Such direction shall include continued
			reimbursement of allowable costs incurred by the Contractor or
			entity succeeding to sponsorship and/or management and
			administration of the plans.

6.	DEPARTMENTAL RESPONSIBILITIES.

	a.	Director, Office of Management.

		(1)	Chair a DOE policy steering committee established by the
			Secretary to oversee the implementation of this Notice, to
			oversee the development, issuance, and administration of any
			other policy directive necessitated or implicated by this Notice,
			and to provide Department-wide advice on any matter which, as a
			result of this Notice, requires the Secretary’s written approval.
			The steering committee shall be composed of the Under Secretary
			for National Nuclear Security, the Under Secretary for Energy and
			Environment, the Under Secretary for Science, the General
			Counsel, and the Chief Financial Officer.
			
		(2)	In coordination with the Director, Office of Legacy
			Management, will complete a study of alternative vehicles for the
			long-term administration of reimbursement for Contractor retiree
			medical benefits plans, including Contractor retiree medical
			benefit plans at closure sites.

	b.	Director, Office of Procurement and Assistance Management,
		or Director, Office of Acquisition and Supply Chain Management,
		NNSA.

		(1)	Pursuant to the requirements of this Notice, reviews and
			approves as appropriate (a) any new Contractor pension and
			medical benefit plans and changes thereto, and (b) any changes to
			Existing DB Pension Plans and Existing Medical Benefit Plans,
			that may result in Incremental Pension Costs, Incremental Pension
			Liabilities Incremental Medical Benefit Costs, or Incremental
			Medical Benefit Liabilities or involve matters of special
			interest to the Department prior to Contracting Officer written
			approval.
			
		(2)	Ensures that cognizant Contracting Officers comply with this
			policy.

		(3)	Issue and/or amend, as needed, the Department’s procurement
			regulations and related orders and other directives to reflect
			and/or implement this Notice.

	c.	Office of General Counsel.

		(1)	In consultation with the Contracting Officer, reviews
			Contract provisions; cost parameters for pension and medical
			benefits prior to negotiation of collective bargaining
			agreements, new Market-Based Medical Benefit Plans, new Market-
			Based Pension Plans, Existing Medical Benefit Plans, and Existing
			DB Pension Plans and underlying trust and fiduciary documents and
			material changes thereto.
			
		(2)	Consult and advise DOE/NNSA elements (in coordination with
			the NNSA General Counsel, as appropriate) regarding compliance
			with applicable law and policy regarding Contractor pension and
			medical benefit matters including Contract closure issues.

	d.	Office of Legacy Management.

		(1)	Assume responsibility for funding reimbursement of the
			allowable costs of Contractor pension and medical benefits at
			designated closure sites as agreed by the Director, Office of
			Management, the Chief Financial Officer, and the head of
			Departmental Elements with cognizance for a designated closure
			site.
			
		(2)	In cooperation with the Director, Office of Management,
			oversee implementation of any vehicle for long-term
			administration of and reimbursement for Contractor retiree
			medical benefit plans.

	e.	Office of the Chief Financial Officer.

		(1)	In coordination with the Office of Management, develop and
			manage the annual call for Contractor reports relating to
			Financial Accounting Standards (FAS) No. 87, Employers Accounting
			for Pensions, and FAS No. 106, Employers’ Accounting for
			Postretirement Benefits Other Than Pensions.
			
		(2)	Evaluate and confirm the accuracy of annual Contractor FAS
			87 and FAS 106 submissions.

		(3)	Annually report aggregate Contractor FAS 87 and FAS 106
			assets and liabilities in the DOE annual consolidated financial
			statement.

		(4)	Upon request provide individual Contractor FAS 87 and FAS
			106 data to the Office of Management and, as appropriate, NNSA
			Office of Acquisition and Supply Chain Management.

		(5)	Advise and consult with Heads of Departmental elements to
			support the development of a budget plan and strategy to make
			adequate funds available to discharge Departmental obligations
			for reimbursement of Existing DB Pension Plans coincident with
			closure.

	f.	Heads of Departmental Elements.

		(1)	Implement the requirements of this Notice through the
			cognizant Contracting Officer for each Contract for which they
			are responsible.
			
		(2)	Coordinate all implementation issues with the Offices of
			Management, Legacy Management, Chief Financial Officer, and
			General Counsel.

	g.	Contracting Officers.

		(1)	Immediately notify Contractors under their cognizance that
			for New Employees:
			
			(a)	Except as required by law, after a date negotiated with the
				Contractor, but no later than March 1, 2007, the Contractor shall
				establish a market-based pension plan for New Employees, and the
				Department will not reimburse Incremental Pension Costs, or
				report Incremental Pension Liabilities on the DOE annual
				consolidated financial statement.
				
			(b)	Except as required by law, after incorporation of a CRD into
				a Contract the Department will not reimburse Incremental Medical
				Benefit Costs or report Incremental Medical Benefit Liabilities
				on the DOE annual consolidated financial statement.

		(2)	Incorporate the CRD in Contracts no later than 90 days after
			the effective date of this Notice, unless a different date is
			approved by the Director, Office of Management.
			
		(3)	Ensure that the Office of Procurement and Assistance
			Management and NNSA Procurement and Supply Chain Management
			review and approve for reimbursement in writing and prior to
			Contracting Officer approval:

			(a)	Any prospective Contracting Officer determinations of cost
				allowability under Existing DB Pension Plans and market-based
				pension plans as described in Section 5.a(5) above;
					
			(b)	Any Contractor-proposed market-based pension plans and any
				material amendments to Existing DB Pension Plans and approved
				market-based pension plans that are not required by law prior to
				the adoption of such plans or amendments;

			(c)	Any Contractor-proposed pension plan amendment that augments
				or potentially augments in any way the benefit for any plan
				participant;

			(d)	Contractor-proposed lump sum pension distributions for
				either New Employees or Incumbent DB Plan Participants except as
				required by law;
				
			(e)	Except as required by law, Contractor-proposed new medical
				benefit plans and any changes to Existing Medical Benefit Plans
				that augment or potentially augment in any way the benefit for
				any plan participant(s), prior to the adoption of such plans or
				changes; and

			(f)	Contractor-proposed economic bargaining parameters for
				reimbursement of pension and medical benefits under collective
				bargaining agreements prior to the Contractor entering into the
				collective bargaining agreement.

		(4)	Ensure that Contractors take appropriate steps to preserve
			existing rights to modify, change, suspend, or terminate in whole
			or in part, (e.g., by annually communicating to both active and
			retired plan participants an appropriate reservation of rights as
			permitted by law) the medical benefit plans they sponsor and not
			compromise any such rights in existing or new medical benefit
			plans without prior written approval for cost-reimbursement.
		
		(5)	Assess the results of the contractor’s relative benefit
			value indices and per capita employee benefits cost comparisons
			for Incumbent DB Pension Plan Participants, Incumbent Medical
			Benefit Plan Enrollees and New Employees in accordance with
			applicable requirements.  The Contracting Officer shall provide
			the Office of Procurement and Assistance Management and, as
			appropriate, the NNSA Office of Acquisition and Supply Chain
			Management, with copies of the Contracting Officer’s assessments
			and supporting Contractor documentation.

		(6)	In accordance with applicable Contract terms and conditions,
			provide direction to the Contractor regarding the allowability of
			cost-reimbursement for post-closure sponsorship and
			administration of retiree medical plans.

		(7)	Ensure that direction provided to a Contractor for post-
			closure medical benefit administration requires that the medical
			benefit plans remain subject to the cost containment requirements
			of DOE O 350.1 and/or specific contractual terms and conditions
			as applicable.

7.	DEFINITIONS.

	a.	Contract means for purposes of this Notice:  (1) a DOE 
		management and operating contract, or (2) any other contract 
		where work had been previously performed under a DOE
		management and operating contract and the successor
		Contractor is (a) required to employ all or part of the
		former Contractor’s workforce and sponsors the employee
		pension and benefit plans; or (b) retains sponsorship
		of benefit plans that survive performance of the
		contract work scope.  Contracts in this latter category
		include, but are not limited to, environmental
		remediation, infrastructure services and other site-
		specific project completion contracts.
		
	b.	Contractor  means the legal entity (other than DOE) that enters into a
		Contract, and is legally and contractually obligated to
		perform under a Contract.
		
	c.	Existing Defined Benefit (DB) Pension Plans means 
		Contractor-sponsored DB pension plans in existence and
		under a Contract prior to the date that the Contractor
		establishes a market-based plan as described in Section
		5.a(5).
		
	d.	Existing Medical Benefit Plans means Contractor-sponsored 
		medical benefit plans in existence
		and under a Contract prior to the date the CRD is
		incorporated into a Contract.
		
	e.	Incremental Pension Cost means any cost incurred in excess 
		of the Existing DB Pension Plan cost as of the date a Contractor
		establishes a market-based pension plan as described in
		Section 5.a(5) (or as of March 1, 2007, if a Contractor
		has not yet established a market-based plan) that is
		attributable to:  (1) New Employees who the Contractor
		permits to participate in an Existing DB Pension
		Plan(s), and/or (2) any plan amendment that augments or
		potentially augments in any way the benefit to any plan
		participant that the Secretary of Energy has not
		approved in writing prior to adoption of the amendment.
		
	f.	Incremental Pension Liability means any liability incurred 
		in excess of the Existing DB Pension Plan liability as of the 
		date a Contractor establishes a market-based pension plan as 
		described in Section 5.a(5) (or as of March 1, 2007, if a 
		Contractor has not yet established a market-based plan) that is:
		(1) attributable to New Employees who the Contractor
		permits to participate in an Existing Defined Benefit
		Pension Plan(s), and/or (2) any plan amendment that
		augments or potentially augments in any way the benefit
		to any plan participant that the Secretary of Energy
		has not approved in writing prior to adoption of the
		amendment.
		
	g.	Incremental Medical Benefit Cost means any cost 
		incurred in excess of the Existing Medical
		Benefit Plan cost after the CRD is incorporated into a
		Contract that is attributable to:  (1) New Employees
		who are permitted to participate in an Existing Medical
		Benefit Plan(s) that is not market-based as described
		in Section 5.b(4), and/or (2) any plan change or
		amendment that augments or potentially augments in any
		way the benefits to any plan participant that the
		Secretary of Energy has not approved in writing prior
		to implementation of the change.
		
	h.	Incremental Medical Benefit Liability 
		 means any liability incurred in excess of the existing
		retiree medical benefit liability after the CRD is
		incorporated into a Contract that is attributable to:
		(1) New Employees who the Contractor permits to
		participate in an Existing Medical Benefit Plan(s) that
		is not market-based as described in Section 5.b(4),
		and/or (2) any benefit change or amendment that
		augments or potentially augments in any way the
		benefits to any plan participants that the Secretary of
		Energy has not approved in writing prior to
		implementation of the change.
		
	i.	Incumbent Defined Benefit (DB) Plan Participants 
		 means Contractor employees on the payroll and retirees
		currently participating in or who are eligible to
		participate in their same Existing DB Pension Plan
		prior to the date that a market-based pension plan, as
		described in Section 5.a(5) is established under the
		Contract.
		
   	j.	Incumbent Medical Benefit Plan Enrollees 
		means Contractor employees on the payroll and retirees
		currently participating in or who are eligible to
		participate in their same Existing Medical Benefit Plan
		prior to incorporation of the CRD into a Contract.
		
	k.	New Employees (with respect to pension requirements) 
 		are employees who are hired by a Contractor after the
		establishment of a market-based pension plan as
		described in Section 5.a(5).
		
	l.	New Employees (with respect to medical benefits
		requirements) 
		are employees who are hired by a Contractor after
		incorporation of the CRD into a Contract.
		
8.	EFFECTIVE DATE.  This Notice shall take effect immediately.

9.	CONTACT.  For information about this Notice, contact the Office of
	Procurement and Assistance Management, at (202) 287-1310.
	
BY ORDER OF THE SECRETARY OF ENERGY:


					CLAY SELL
					Deputy Secretary

	    DOE ELEMENTS TO WHICH DOE N 351.1 IS APPLICABLE


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		 CONTRACTOR REQUIREMENTS DOCUMENTDOE N 351.1
	CONTRACTOR EMPLOYEE PENSION AND MEDICAL BENEFITS POLICY
						  
The Contractor shall comply with the requirements of this CRD.
To the extent that there are any conflicts between this CRD and
the CRD requirements related to DOE Order 350.1, Contractor Human
Resources Management Programs, Chg 1 (DOE O 350.1), this CRD is
to take precedence.  Contractor compliance with this CRD is
subject to applicable laws and other enforceable obligations
(e.g., reimbursement of costs pursuant to approved collective
bargaining agreements and benefit plans).

1.	DEFINITIONS.

	a.	Contract  means for purposes of this CRD:  (1) a DOE management and
		operating contract, or (2) any other contract where
		work had been previously performed under a DOE
		management and operating contract and the successor
		Contractor is (a) required to employ all or part of the
		former Contractor’s workforce and sponsors the employee
		pension and benefit plans; or (b) retains sponsorship
		of benefit plans that survive performance of the
		contract work scope.  Contracts in this latter category
		include, but are not limited to, environmental
		remediation, infrastructure services and other site-
		specific project completion contracts.
		
	b.	Existing Defined Benefit (DB) Pension Plans
 		means Contractor-sponsored DB pension plans in existence and
		under this Contract prior to the establishment of a
		Market-Based Pension Plan (as defined below).
		
	c.	Existing Medical Benefit Plans
 		means Contractor-sponsored medical benefit plans in existence
		and under this Contract.
		
	d.	Incremental Pension Cost
		 means any cost incurred in excess of the Existing DB Pension
		Plan cost as of the date the Contractor establishes a
		Market-Based Pension Plan (but not later than March 1,
		2007, if a Contractor has not yet established a Market-
		Based Pension Plan) that is attributable to:  (1) New
		Employees who the Contractor permits to participate in
		an Existing DB Pension Plan(s) and/or (2) any plan
		amendment that augments or potentially augments in any
		way the benefit to any plan participant that the
		Secretary of Energy has not approved in writing prior
		to adoption of the amendment.
		
	e.	Incremental Pension Liability
		means any liability incurred in excess of the Existing DB
		Pension Plan liability after the Contractor establishes
		a Market-Based Pension Plan (but not later than March
		1, 2007, if a Contractor has not yet established a
		Market-Based Pension Plan) that is attributable to:
		(1) New Employees who the Contractor permits to
		participate in an Existing Defined Benefit Pension
		Plan(s) and/or (2) any plan amendment that augments or
		potentially augments in any way the benefit to any plan
		participant that the Secretary of Energy has not
		approved in writing prior to adoption of the amendment.
		
	f.	Incremental Medical Benefit Cost
 		means any cost incurred in excess of the Existing Medical
		Benefit Plan cost that is attributable to:  (1) New
		Employees who the Contractor permits to participate in
		an Existing Medical Benefit Plan(s) that are not market-
		based as described in the Section 7, and/or (2) any
		plan change that augments or potentially augments in
		any way the benefits to any plan participant that the
		Secretary of Energy has not approved in writing prior
		to implementation of the benefit change.
		
	g.	Incremental Medical Benefit Liability
		means any liability incurred in excess of the existing retiree
		medical benefit liability that is attributable to:  (1)
		New Employees who the Contractor permits to participate
		in an Existing Medical Benefit Plan(s) that are not
		market-based as described in the Section 7, and/or (2)
		any plan change that augments or potentially augments
		in any way the benefits to any plan participant that
		the Secretary of Energy has not approved in writing
		prior to implementation of the benefit change.
		
	h.	Incumbent Defined Benefit (DB) Pension Plan Participants
		means Contractor employees on the payroll and retirees currently
		participating in or who are eligible to participate in
		their same Existing DB Pension Plans.
		
	i.	Incumbent Medical Benefit Plan Enrollees (Incumbent Enrollees)
		means Contractor employees on the payroll and retirees currently
		participating in or who are eligible to participate in
		their same Existing Medical Benefit Plans.
		
	j.	Market-Based Pension Plan means a pension plan as 
		described in Section 4.
		
	k.	Market-Based Medical Benefit Plan
		means a medical benefit plan as described in Section 7.
		
	l.	New Employees (with respect to pension requirements)
		means employees who are hired by the Contractor after the
		establishment of a Market-Based Pension Plan.
		
	m.	New Employees (with respect to medical benefits
		requirements)
		means employees who are hired after incorporation of this CRD,
		unless a different date is approved by the Contracting
		Officer.
		
	n.	Notice means DOE N 351.1.
		
2.	PENSION PLAN REQUIREMENTS FOR BOTH INCUMBENT DB PENSION PLAN
	PARTICIPANTS AND NEW EMPLOYEES.

	a.	Unless authorized by the Secretary of Energy, the Department
		will not approve reimbursement of costs for new DB Pension Plans
		or any amendments to an Existing DB Pension Plan(s) that augment
		or potentially augment in any way the benefits for any plan
		participant, including but not limited to:  (1) lump sum pension
		distributions of all or any part of a participant’s benefit
		(other than lump sum distributions less than or equal to $5,000)
		for Incumbent DB Plan Participants; except that costs for lump
		sum distributions for existing accruals for Incumbent DB Pension
		Plan Participants in Existing DB Pension Plans that contain a
		lump sum distribution feature shall remain allowable; and (2) any
		early retirement incentive.
		
	b.	Except to the extent required by law, DOE will not reimburse
		(1) lump sum pension distributions, including any lump sum
		distribution option for future accruals and, (2) the adoption of
		future changes in the actuarial assumptions basis in Internal
		Revenue Code §417(e).

	c.	The Contractor shall submit for review and approval by the
		Contracting Officer in writing any material amendments to
		Existing DB Pension Plans and proposed Market-Based Pension Plans
		and changes thereto or proposed changes to the underlying trust
		documents of such plans, prior to the adoption of any such plans
		or amendments.

	d.	The Contractor shall consult with, and obtain the approval
		of, the Contracting Officer regarding appropriate economic
		bargaining parameters for pension costs prior to the Contractor
		entering into the collective bargaining process.

3.	REQUIREMENTS FOR EXISTING DB PENSION PLANS AND INCUMBENT DB
	PENSION PLAN PARTICIPANTS.

	a.	The Department shall not reimburse costs for New Employees’
		participation in Existing DB Pension Plans as of the date of
		establishment, but not later than March 1, 2007, of a new Market-
		Based Pension Plan(s).  DOE will reimburse the allowable costs of
		providing Incumbent DB Plan Participants with a one-time
		opportunity to transfer to a Market-Based Pension Plan within one
		year of the effective date of the new Market-Based Pension Plan.
		
	b.	Benefit value and costs for the total benefit package
		provided for Incumbent DB Pension Plan Participants will continue
		to be evaluated consistent with DOE O 350.1 and/or specific
		contractual terms and conditions as applicable.

4.	REQUIREMENTS FOR MARKET-BASED PENSION PLANS AND NEW
	EMPLOYEES.

	a.	The Contractor shall establish a Market-Based Pension
		Plan(s) for New Employees as described in this Section 4.  Within
		60 days after incorporation of this CRD into the Contract, the
		Contractor shall submit to the Contracting Officer for approval
		an evaluation of the Contractor total employee benefit program
		for New Employees based on two performance measures:  a Relative
		Benefit Value Index (RBVI) and Per Capita Employee Benefit Cost
		Comparison (Cost Comparison).  Subsequently, for New Employees,
		an RBVI must be calculated every two years and the Cost
		Comparison performed annually.  Failure to conduct either the
		RBVI or Cost Comparison on a timely basis may result in a
		determination of unallowable pension plan costs.
		
	b.	The RBVI shall be an actuarial calculation of the relative
		value of the benefit programs offered by the Contractor for New
		Employees measured against the average value of benefit programs
		offered by at least 15 comparator companies and/or institutions
		that the Contractor competes against for recruitment and
		retention of employees, and that are approved in advance and in
		writing by the Contracting Officer as a bona fide comparator
		group.

	c.	The Cost Comparison shall analyze the Contractor’s average
		aggregate employee benefit costs on a per capita basis per full
		time equivalent New Employee as a percent of New Employee payroll
		and compare it to the findings of a nationally recognized survey
		approved in advance and in writing by the Contracting Officer.

	d.	Costs for a Market-Based Pension Plan will be allowable when
		the Contractor’s:

		(1)	Pension plan is a defined contribution (DC) pension plan;
			and,
			
		(2)	The pension plan meets the following requirements:

			(a)	the pension Relative Benefit Value Index (RBVI) does not
				exceed the market average pension RBVI by more than five percent
				for New Employees, and the pension average per capita cost as a
				percent of payroll does not exceed the market average pension per
				capita cost as a percent of payroll by more than five percent for
				New Employees; and,
				
			(b)	the total benefit RBVI does not exceed the market average
				total benefit RBVI by more than five percent for New Employees,
				and the total benefit average per capita cost as a percent of
				payroll does not exceed the market average total benefit per
				capita cost as a percent of payroll by more than five percent for
				New Employees.

	e.	New Employees may become participants in an existing DC plan
		if the existing DC plan is market-based as described in this
		Section 4.
		
	f.	After the date a Market-Based Pension Plan is established,
		but not later than March 1, 2007, the Department will not
		reimburse Incremental Pension Costs except as required by law.
	g.	After the date a Market-Based Pension Plan is established,
		but not later than March 1, 2007, DOE will not recognize or
		report in the DOE annual consolidated financial statement any
		Incremental Pension Liability.

5.	REQUIREMENTS FOR BOTH EXISTING MEDICAL BENEFIT PLANS AND
	MARKET-BASED MEDICAL BENEFIT PLANS.
   
	a.	Unless authorized by the Secretary of Energy, the Department
		will not approve reimbursement for costs incurred for changes to
		Existing Medical Benefit Plans and Market-Based Medical Benefit
		Plans, that augment or potentially augment in any way the benefit
		for any medical benefit plan participant except as required by
		law.
		
	b.	The Contractor shall submit for review and approval by the
		Contracting Officer for purposes of reimbursement by DOE any
		changes proposed to Existing Medical Benefit Plans so that DOE
		can determine that the changes proposed do not augment or
		potentially augment in any way the benefit for any medical
		benefit plan participant except as required by law.  Failure to
		do so may result in a determination of unallowable costs.

	c.	The Contractor shall submit for review and approval by the
		Contracting Officer for purposes of reimbursement by DOE any
		proposed Market-Based Medical Benefit Plans and changes thereto
		with supporting cost, value, and liability documentation that
		demonstrate consistency with market indicia, prior to the
		adoption of such plans or changes.  Failure to do so may result
		in a determination of unallowable costs.

	d.	The Contractor shall consult with, and obtain the approval
		of, the Contracting Officer regarding appropriate economic
		bargaining parameters for medical benefit costs prior to the
		Contractor entering into the collective bargaining process.

	e.	The Contractor shall take appropriate steps to preserve
		existing rights to modify, change, suspend, or terminate in whole
		or in part, (e.g., by annually communicating to both active and
		retired plan participants an appropriate reservation of rights as
		permitted by law) the medical benefit plans they sponsor and
		shall not compromise any such rights in existing or new medical
		benefit plans without prior written approval for cost
		reimbursement.

	f.	The Department will not reimburse costs for medical benefits
		for future retirees that are not allocable under a Contract(s)
		unless the Contractor conditions eligibility for retiree medical
		benefits based on at least five years of continuous service under
		a Contract(s) immediately prior to retirement except as required
		by law.

6.	REQUIREMENTS FOR EXISTING MEDICAL BENEFIT PLANS AND
	INCUMBENT ENROLLEES.

	a.	The Department will not reimburse costs for New Employees’
		participation in Existing Medical Benefit Plans except as
		provided in Section 7e.
		
	b.	Benefit value and costs for the total benefit package
		provided for Incumbent Enrollees will continue to be evaluated
		consistent with DOE O 350.1 and/or specific contractual terms and
		conditions as applicable.

7.	REQUIREMENTS FOR MARKET-BASED MEDICAL BENEFIT PLANS AND NEW
	EMPLOYEES.

	a.	The Contractor shall provide a Market-Based Medical Benefit
		Plan for New Employees.  To determine allowability of costs for
		the Market-Based Medical Benefit Plan, within 60 days after
		incorporation of this CRD into the Contract, the Contractor shall
		submit to the Contracting Officer for approval an evaluation of
		the Contractor total benefit program for New Employees based on
		two nationally recognized performance measures:  a Relative
		Benefit Value Index (RBVI) and Per Capita Employee Benefit Cost
		Comparison (Cost Comparison).  Subsequently, for New Employees,
		an RBVI must be calculated every two years and the Cost
		Comparison performed annually.  Failure to conduct either the
		RBVI or Cost Comparison on a timely basis may result in a
		determination of unallowable medical benefit costs.
		
	b.	The RBVI shall be an actuarial calculation of the relative
		value of the benefit programs offered by the Contractor for New
		Employees measured against the average value of benefit programs
		offered by at least 15 comparator companies and/or institutions
		that the Contractor competes against for recruitment and
		retention of employees, and that are approved in advance and in
		writing by the Contracting Officer as a bona fide comparator
		group.

	c.	The Cost Comparisons shall analyze the Contractor’s average
		aggregate New Employee total benefit cost as a percent of New
		Employee Payroll on a per capita basis per full time equivalent
		New Employee and compare it to the findings of a nationally
		recognized benefit survey approved in advance and in writing by
		the Contracting Officer.

	d.	Costs for new Market-Based Medical Benefit Plans will be
		allowable when the Contractor’s

		(1)	Medical benefit RBVI does not exceed the market average
			medical benefit RBVI by more than five percent for New Employees
			and the medical benefit per capita cost as a percent of payroll
			does not exceed the market average medical benefit per capita
			cost as a percent of payroll by more than five percent for new
			employees, and
			
		(2)	The total benefit package RBVI does exceed the market
			average total benefit RBVI by more than five percent for New
			Employees, and the total benefit average per capita cost does not
			exceed the total benefit market average per capita cost by more
			than five percent for New Employees;

		(3)	Provided, however, that the Contracting Officer shall have
			the discretion to weigh the findings of the per capita medical
			benefit cost comparison against the medical RBVI when determining
			whether a medical benefit plan is market-based.

	e.	Costs for New Employees in an Existing Medical Benefit Plan
		may be allowable if the Existing Medical Benefit Plan is market-
		based as described in this Section 7, or if New Employees share
		in the cost of the Existing Medical Benefit Plan so that the New
		Employee benefits are brought into compliance with Market-Based
		Medical Benefit Plans.
		
	f.	Incremental Medical Benefit Costs will not be allowable and
		will not be reimbursed.

	g.	DOE will not recognize or report in the DOE annual
		consolidated financial statement Incremental Medical Benefit
		Liabilities.

8.	POST-CLOSURE BENEFIT PLAN REQUIREMENTS FOR DOE CLOSURE SITES.

	a.	Pension Benefits.

		(1)	When a DOE site closes and work will not be transferred to
			another Contractor so that there is no successor contractor to
			assume sponsorship and responsibility for Existing DB Pension
			Plans, the Department’s policy is to use its best efforts to
			discharge Department obligations for reimbursement of costs
			associated with these plans as part of the close-out procedures
			for the closure Contract.  The Contractor shall cooperate with
			the Department in the development of budget plans and any
			necessary amendments to pension benefit plan documents to
			facilitate discharge of the Department’s obligations during the
			close-out period.
			
		(2)	When it is not practicable to settle Departmental
			obligations as part of Contract close-out procedures, in
			accordance with applicable Contract terms and conditions the
			Contracting Officer shall provide direction to the Contractor for
			continued post-closure sponsorship and management of Existing DB
			Pension Plans.  The Contractor shall remain responsible for
			sponsorship and administration of Existing DB Pension Plans in
			accordance with applicable Contract terms and conditions until
			such time as it is practicable to fully discharge the
			Department’s cost-reimbursement obligations for such plans.  Such
			direction shall include continued reimbursement of costs incurred
			by the Contractor or entity succeeding to sponsorship and/or
			management and administration of the pension benefit plans in
			accordance with applicable law and contractual terms and
			conditions.

	b.	Medical Benefit Plans.

		When a DOE site closes and work will not be transferred to
		another Contractor so that there is no successor contractor to
		assume sponsorship and responsibility for Existing Medical
		Benefit Plans and any Contractor Market-Based Medical Benefit
		Plans, in accordance with applicable Contract terms and
		conditions the Contracting Officer shall provide direction to the
		Contractor for disposition of the medical benefit plans.  The
		Contractor shall remain responsible for sponsorship and
		administration of the medical benefit plans in accordance with
		applicable law and contract terms and conditions.  The Department
		will continue to reimburse the allowable costs incurred by the
		Contractor, or another entity succeeding to sponsorship and/or
		management and administration of the medical benefit plans, in
		accordance with applicable law and contractual terms and
		conditions.
			
9.	FLOW DOWN.

	Contractors are responsible for flowing down CRD
	requirements to subcontractors at any tier to the extent
	necessary to ensure compliance.
	
10.	REFERENCE.

	The Value Study Desk Manual, February 1999, as amended and
	updated from time to time, sets forth the requirements for a
	Relative Benefit Value Index.