Contract No.W-7 405 ENG-48

Modification No: M534

Section G.001

 

 

 

H.008    PENSION PLAN

 

(a)               Adoption of the principles and procedures in this clause shall not be deemed nor be intended to neither create rights in third parties nor abrogate existing rights of pension plan members performing services under this Contract.  All assets and liabilities associated with employee contributions to the ContractorÕs Defined Contribution Plan and the Tax-Deferred 403(b) Plan shall be excluded from these principles and procedures.  The following stipulations apply, as appropriate, to the defined benefit pension plan, the University of California Retirement Plan (UCRP), covering University of California employees working under contracts at DOE-owned and Contractor-operated facilities.

 

(b)               Basic requirements.

 

(1)               DOE shall be notified prospectively of each change to the UCRP that could have a significant impact on current or future Departmental funding or liabilities.

 

(i)                 Changes covered by this provision include any change to a benefit, right or feature of the Plan and any change to a funding method or assumption.

 

(ii)               A significant impact is a change that requires the approval of the Regents of the University of California.

 

(2)               Prospective notice will be provided to the DOE for each newly adopted pension plan or change requiring prospective notice as described in subparagraph (b)(1)(i) above, including any changes to non-DOE-reimbursed segments of commingled pension plans.

 

(3)               For purposes of this clause, prospective notice shall mean written notice, including a copy of the proposed change, at least thirty (30) days in advance of approval of each change to the URCP by the Regents of the University as trustees of the pension plan.

 

(4)               The pension plan shall be submitted to an annual, full-scope audit by an outside independent auditor.  The Contractor shall provide a report of such audit to DOE within seven months after the end of the plan year to which the audit applies.

 

(5)               The Contractor shall maintain a separate annual accounting of liabilities and assets attributable to each Laboratory.  Market value of assets on an accrual basis at the beginning of a plan year shall equal the assets at market value on an accrual basis at the end of the prior year based on the separate annual accounting of the prior plan year.  The procedures for annual accounting of contributions to UCRP are for each plan year (July 1 through June 30), the Contractor will provide an annual accounting of assets associated with DOE-funded employer contributions and employee contributions under Contract No. W-7405-ENG-36 as follows:

 

(i)                 Market value of assets at the beginning of a plan year;

 

(ii)               (A)             Employer contributions made during a plan year, less the employer contributions transferred to the Social Security Administration on behalf of Contract employee members of UCRP who elected Social Security coverage in 1976 or 1977; and

 

(B)             Employee contributions made during a plan year, less the employee contributions transferred to the Social Security Administration on behalf of Contract employee members of UCRP who elected Social Security coverage in 1976 or 1977;

 

(iii)             The dollar amount of investment income from applying the rate of return on the accrual-basis market value of UCRP assets to subparagraphs (b)(5)(i), (ii), (iv) and (v);

 

(iv)             Benefits disbursed on account of Contract employees during the plan year, including return of accumulated employee contributions;

 

(v)               Administrative expenses paid from the trust shall be allocated to the Laboratories in the same proportion that the market value of assets assigned to the Laboratory segment bears to the market value of the total asset fund as of the beginning of the plan year.  However, there may be situations agreed to by the DOE where specific expenses would directly be charged to each Laboratory in addition to the proportionate share of expenses; and

 

(vi)             Market value of assets at the end of the plan year = [subparagraphs (b)(5)(i) + (ii) + (iii) - (iv) - (v)].  The annual accounting shall include the market value of such assets as of June 30, 1991, and as of the end of each plan year thereafter.

 

(6)               "Contract service assets" means the accrual basis market value given by the accounting which is referred to in subparagraph (b)(5).

 

(7)               All plan provisions of the UCRP are applicable to all eligible employees of the Contractor, including those employed at a DOE Laboratory and, as such, a single contribution rate, expressed as a percentage of covered compensation, is calculated for the Plan.  This single rate is to be applied to all members of the Plan in order to determine the contribution, if any.  For purposes of assessing the liabilities of the DOE segment of the Plan as described in paragraphs (e), (f), and (g), the DOE will have no liabilities to the Plan beyond that associated with Laboratory employees who are members of the Plan.

 

(8)               The DOE will be given prospective notice of any changes in the scope of the administration of the DOE-reimbursed pension plans that require a change in administration cost of five percent or more.  Changes in administration cost resulting directly from normal inflation in administration costs or per specific DOE requests do not require notice.

 

(9)               If and when the funded status (measured by dividing the actuarial value of assets by the entry age liability of UCRP), reaches 150 percent, the President of the University will initiate a review of the surplus situation and provide to DOE a copy of the ContractorÕs recommendations to bring the fund into conformity with the long-term needs of the Plan.  Any recommendation by the Contractor for the disposition of the Plan assets in connection with a Plan termination or spin-off will be consistent with the then applicable federal and state laws relating to qualified pension plans and ensure equitable distribution of excess Plan assets to DOE and the University-reimbursed Plan segments as provided in this clause.

 

(10)           The DOE will pay costs for any special retirement and/or actuarial analysis that it requests during the period of the contract.

 

(11)           DOE has the right to take any action it deems appropriate and consistent with applicable law with reference to the pension plan.

 

(c)               Funding requirements.

 

(1)               Contributions to the Plan will be based on the actuarial valuation for the Plan and will be approved by the ContractorÕs Plan Trustees (The Regents of the University of California).

 

(2)               DOE agrees to continue to fund for the Contract term(s), as extended, the employer cost of UCRP for Contract employees at the contribution rates established from time to time by Contractor, subject to the following restriction:  The DOE funded contribution shall not exceed the full funding limit as defined in the Internal Revenue Code, Section 412.

 

(3)               The DOE funding policy is intended to be congruent with the basic objectives of the cost accounting standards (CAS) and will generally result in funding consistent with the CAS.  If this policy causes a temporary, technical inconsistency with the CAS, the Contractor shall immediately notify the cognizant Contracting Officer and Chief Financial Officer.  Contractors have recourse to the cost principles found at FAR 31.203, 31.205-6 and 31.205-10 and shall avoid penalties on that basis.

 

(4)               If more than five percent of the members of each Laboratory transfer from the ContractorÕs private operations to the DOE Laboratories annually, or vice versa, appropriate adjustments shall be made to the pension fund or segmentsÕ assets and liabilities.

 

(d)               Reporting requirements for designated contracts.  The following reports shall be submitted by the last day of the plan year to DOE for each Laboratory.

 

(1)               The annual actuarial valuation report includes information in the annual separate actuarial valuations for each Laboratory which DOE may reasonably request.  DOE shall pay the cost of all separate valuations.  At a minimum, these reports shall include:  an itemized cashflow; the aggregate covered compensation; a distribution of active members by age, service, and salary; separate distributions of retirees and terminated vested members by age and benefit amount; a brief description of each amortization base, if any, and its date, original amount, and annual payment; an itemization of the changes in the numbers of actives, retirees and terminated vested members during the plan year; the rate of interest currently credited to employee contributions; a statement of the Financial Accounting Standards (FAS) 35 liabilities; a statement of the current liability under Internal Revenue Code Section 412; a development of the total actuarial gain or loss; a statement of actuarial assumptions and methods; calculation of the assets of each Laboratory; calculation of the actuarial asset value; calculation of contribution requirements; and a statement of the changes, if any, in benefits, assumptions or methods since the last report.

 

(2)               A copy of the Financial Accounting Standards Board Statement 87 report prepared each year to satisfy the expense-reporting requirement of the Office of Management and Budget.

 

(3)               In order to report the funded status (surplus or deficit) of each LaboratoryÕs portion of UCRP to the DOE, the Contractor will measure the liabilities using the Entry Age Normal actuarial method and the Actuarial Value of Assets as defined in the valuation report indicated in subparagraph (d)(1) above.

 

(e)               Terminating operations.  When operations at a DOE Laboratory are terminated and no further work is to occur under this contract, the following rules shall apply:

 

(1)               No further benefits for service shall accrue after the Contract termination date, or such earlier date as agreed to by the DOE and the Contractor.

 

(2)               The Contractor shall take steps to return to the DOE a portion of the UCRP assets attributable to the Contract employees through a spin-off-reversion transaction.  Such a transaction shall be accomplished by the ContractorÕs (i) establishing a Spin-off Plan for certain Contract employees and transferring the assets to the Spin-off Plan as set forth below, (ii) terminating the Spin-off Plan and receiving back any assets in excess of those needed to provide benefits to the members in the Spin-off Plan, and (iii) transferring the reverted assets (less any tax or other liabilities imposed upon the Contractor because of the receipt of the assets) to the DOE.  The ContractorÕs participation in the transactions described in the preceding sentence is conditioned upon its receiving satisfactory rulings from the Internal Revenue Service and any other appropriate Government  agencies that the transactions contemplated by the sentence will have no adverse effect on the Contractor, the UCRP, or the members of the UCRP.

 

(3)               Procedures with respect to the spin-off and reversion.

 

(i)                 The liabilities as of the effective date of the Spin-off Plan for members to be covered by the Spin-off Plan shall be calculated by using the UCRP Plan provisions, actuarial assumptions, and actuarial cost methods as then in effect.  The only members to be covered by the Spin-off Plan (the "Spin-off Members") are members of the UCRP as of the Spin-off date who are terminated active and inactive Laboratory members, excluding pensioners, survivors, and members receiving disability income under the UCRP.

 

(ii)               Assets to be transferred to the Spin-off Plan shall be determined by a formula to be negotiated between the Parties, subject to an IRS ruling and in compliance with the laws of the State of California as to permitted agreements that may be contained in the aforementioned formula.  If permitted, assets for the Spin-off Plan shall be determined generally in accordance with the following formula.

 

                                                                                                                                                              A Š B, where

 

A = Market value of assets assigned to the DOE Laboratories as determined from paragraph (b)(5) as of the last business day of the calendar quarter which ends coincident with, or next preceding, the effective date of the spin-off.  From the effective date of spin-off to the date of transfer of the assets, interest will be credited at the rate established for a one year Treasury bill as published by the Federal Reserve.

 

B = Liabilities associated with pensioners, survivors, members receiving disability income (including projected benefit increases), and active members (contract employees) who are retained by the Contractor determined as of the last business day of the calendar quarter which ends coincident with, or next preceding, the effective date of the spin-off.  In determining these liabilities, the present value of future ad hoc benefit improvements shall be included based on past practices.

 

If, for technical, administrative, or regulatory reasons, the preceding formula proves inapplicable, the Contractor and DOE shall bargain in good faith to produce a result which would be as equitable to both parties as the preceding formula and in compliance with applicable law.

 

(iii)             The Parties agree that any disposition of Contract service assets or transfer of liabilities upon a spin-off shall be consistent with the then applicable federal and state laws relating to qualified defined benefit pension plans and shall be subject to obtaining such rulings and/or approvals from cognizant federal and state agencies as may be required by law or deemed prudent by the Contractor or DOE.

 

(A)             When a Spin-off Plan has been established, UCRP shall retain the liabilities associated with pensioners, members receiving UCRP disability income, and survivors and Contract employees who are retained by the Contractor.

 

(B)             Under a Spin-off Plan acceptable to the DOE and which fulfills all of the ContractorÕs fiduciary responsibilities under UCRP, and which further assumes UCRP liabilities for transferred Contract employees, the Contractor agrees to transfer to the trustees of the Spin-off Plan an amount equal to the Contract service assets to be transferred as determined above.  Such amount shall be transferred as investment holdings of the UCRP, plus any necessary United States Currency, or, by mutual agreement of the Parties, the total amount may be transferred as United States Currency.  Agreement by the DOE and Contractor will not be unreasonably withheld.

 

1.                  If the asset transfer to the Spin-off Plan is made in the form of investment holdings, such holdings shall include cash, equity, securities, and fixed income securities, but shall exclude any investment holding (and earnings thereon) acquired from the effective date of the spin-off.  Such assets shall be allocated on a pro-rated basis, with proration for fixed income assets based on rating and classification.  The pro-rata allocation shall be the ratio of (A) and (B) where, (A) is the Contract service assets referred to in subparagraph (e)(3)(ii) above; and (B) is the total assets of the Retirement Fund of UCRP at market value as of the effective date of the spin-off.  Such assets shall be transferred within 36 months of the creation of the Spin-off Plan and shall include actual investment earnings (gains or losses) of such assets less expenses and benefit disbursements from the effective date of the spin-off to the date of transfer.

 

2.                  The Contractor will transfer assets at a rate at least sufficient to meet the cashflow requirement of transferred employees who go into benefit status under the Spin-off Plan.

 

3.                  If the transfer is made as United States Currency, the transfer shall be increased to include interest credited at the rate established for a one year Treasury bill as published by the Federal Reserve.  This rate will be in effect from the first day following the effective date of spin-off through the day of payment.

 

(iv)             Subsequent to the spin-off, UCRP shall, subject to obtaining all necessary IRS and other appropriate governmental approvals, terminate the Spin-off Plan, purchase annuities for the Spin-off Members with the assets of the Spin-off Plan, receive the remaining assets of the Spin-off Plan as a reversion and transfer the remaining assets (less any tax or other liabilities imposed upon the Contractor because of the receipt of such assets) to the DOE.

 

(f)                Contract termination and selection of a successor contractor.  Should another contractor replace the Contractor, the following become requirements:

 

(1)               Liabilities for present and future benefits of Contract employees in the event there is a successor plan.  The liabilities as of the effective date of disaffiliation for members to be covered by a successor pension plan shall be calculated by using the UCRP Plan provisions, actuarial assumptions, and actuarial cost methods as then in effect.  Active members not retained by the Contractor are the only members to be covered by a successor pension plan.

 

(2)               (i)                 Contract service assets in the event there is a successor pension plan.  Contract service assets shall be determined by a formula to be negotiated between the Parties, subject to an IRS ruling and in compliance with the laws of the State of California as to permitted agreements that may be contained in the aforementioned formula.  If permitted, contract service assets for a successor contractor shall be determined generally in accordance with the following formula:

 

                                                                                                                                                                        A - B, where

 

A = Market value of assets assigned to the DOE Laboratories as determined from subparagraph (b)(5), as of the last business day of the calendar quarter which ends coincident with, or next preceding, the effective date of disaffiliation.  From the effective date of spin-off to the date of transfer of the assets, interest will be credited at the rate established for a one year Treasury bill as published by the Federal Reserve.

 

B = Liabilities associated with pensioners, survivors, terminated vested and nonvested inactive members, members receiving disability income under the UCRP and active members (contract employees) who are retained by the Contractor as determined pursuant to subparagraph (f)(1) above.

 

If, for technical, administrative, or regulatory reasons, the preceding formula proves inapplicable, the Contractor and DOE shall bargain in good faith to produce a result which would be as equitable to both parties as the preceding formula and in compliance with applicable law.

 

(ii)               In no event, however, shall the UCRP retain an amount less than the liabilities for benefits of members whose liabilities are retained by the UCRP.  Notwithstanding the provisions of this paragraph (f), the Parties further agree to consider the desirability of covering pensioners, survivors, UCRP disability recipients, and terminated vested and nonvested members under a successor plan.

 

(3)               Disposition of contract service assets and liabilities.  The Parties agree that any disposition of contract service assets or transfer of liabilities upon Contract termination shall be consistent with the then applicable federal and state laws relating to qualified defined benefit pension plans and shall be subject to obtaining such rulings and/or approvals from cognizant Federal and State agencies as may be required by law or deemed prudent by the Contractor or DOE.

 

(i)                 Retention of assets and liabilities.  When a successor pension plan has been established by a successor contractor, UCRP shall retain the liabilities associated with pensioners, survivors, UCRP disability recipients, and terminated vested and nonvested members and active members who are retained by the Contractor as determined in subparagraph (f)(1) above.  In the event that there is no successor plan, UCRP shall retain the liabilities associated with all members (contract employees).

 

(ii)               Transfer of assets and liabilities to successor pension plan.  Under a successor pension plan acceptable to the DOE and which fulfills all of the ContractorÕs fiduciary responsibilities under UCRP, and which further assumes UCRP liabilities for transferred Contract employees, the Contractor agrees to transfer to the trustees of such successor plan an amount equal to the contract service assets as determined in subparagraph (f)(2) above.  Such amount shall be transferred as investment holdings of the UCRP, plus any necessary United States Currency, or, by mutual agreement of the Parties, the total amount may be transferred as United States Currency.  Agreement by the DOE and Contractor will not be unreasonably withheld.

 

(A)             If the asset transfer to the successor contractorÕs trust is made in the form of investment holdings, such holdings shall include cash, equity securities and fixed income securities, but shall exclude investment holdings (and earnings thereon) acquired after the effective date of disaffiliation.  Such assets shall be allocated on a pro-rated basis, with proration for fixed income assets based on rating and classification.  The pro-rata allocation shall be the ratio of (A) and (B) where, (A) is the contract service assets referred to in subparagraph (f)(2) above and (B) is the total assets of the Retirement Fund of UCRP at market value as of the effective date of disaffiliation.  Such assets shall be transferred within 36 months of the effective date of disaffiliation, and shall include actual investment earnings(gains or losses) of such assets less expenses and benefit disbursements from the effective date of disaffiliation to the date of transfer.

 

(B)             The Contractor will transfer assets at a rate at least sufficient to meet the cashflow requirement of transferred employees who go into benefit status under the successor plan.

 

(C)             If the transfer is made as United States Currency, the transfer shall be increased to include interest on the amount at the rate established for a one year Treasury bill as published by the Federal Reserve, from the first day following the effective date of disaffiliation through the day of payment.

 

(4)               DOE agrees to require that, in the event of termination of work under the contract, a successor contractor shall permanently maintain the benefit accrual terms and conditions of UCRP for the Contractor employees transferred to the successor contractor insofar as UCRP is consistent with the provisions of applicable law.

 

(5)               In the event that there is no successor plan, a reconciliation of funding obligations shall be done.  A separate accounting of assets and liabilities for contract employees shall be maintained by the Contractor.  The Contractor shall assure that accrued obligations to contract employees are met and that the fund is being prudently managed.  If, pursuant to approval by the Regents of the University of California, all UCRP obligations to contract employees are fulfilled through a plan spin-off and termination under the process outlined in subparagraphs (e)(3) above and (g)(2) below, as applicable, the Contractor shall return any net excess assets attributable to contract employees to DOE, if approved by the Internal Revenue Service.  If a funding shortfall arises as a result of economic conditions beyond the ContractorÕs direct control, the DOE agrees to contribute funds necessary to fully fund liabilities to cover obligations to contract employees, not including active employees who continue to be permanently employed by the Contractor.

 

(g)               UCRP plan termination.

 

(1)               In the unlikely event of plan termination, the Contractor shall not terminate any pension plan (commingled or site-specific) without notifying the Department at least 60 days prior to the scheduled date of plan termination, or if earlier, 60 days before plan members are notified of the plan termination.

 

(2)               The Contractor may satisfy plan liabilities to plan members by the purchase of annuities through competitive bidding on the open annuity market or through the payment of lump sums.  Any competitive annuity bid process must include at least five bidders, if possible, who satisfy the criteria listed in United States Department of Labor Interpretive Bulletin 95-1.  The final selection of insurance company(ies) shall be based upon the bids of the qualifying companies, in conjunction with the assessed quality of the annuity provider(s).  Lump sums shall be calculated using the same mortality table and actuarial assumptions which the UCRP uses for purposes of defining actuarially equivalent.  Otherwise, the Parties to the contract shall negotiate the assumptions and methods for determining DOEÕs liability pursuant to paragraph (h) below.

 

(3)               DOE-reimbursed assets which are in excess of the DOE liability shall revert to DOE with interest.  Interest shall accrue from the date of the event (defined in paragraph (h) below as the date of pension plan termination) at the rate established for a one-year Treasury bill as published by the Federal Reserve.

 

(h)               Financial requirement.

 

(1)               Funds to be paid or transferred to any party as a result of settlements relating to pension plan termination under paragraph (g) above shall accrue interest from the effective date of termination until the date of payment or transfer.

 

(2)               Terminating Operations.  The Contractor shall calculate pension liabilities attributable to DOE contract work.  For this purpose, DOE and the Contractor shall use the same mortality table as used for funding purposes, and an applicable 30-year Treasury rate of interest as the basis for the frozen liability calculation.

 

(i)                 Special programs.  The Contractor shall advise DOE in advance of each early-out program, window benefit, disability program, plan-loan feature, employee contribution refund, asset reversion, or incidental benefit.  Any UCRP retirement system programs proposal that is Laboratory specific which would increase the cost of the Contract beyond that approved by Contractor for Contractor employees shall be approved in advance by the Contracting Officer and the Contractor.