GENERAL ELECTRIC CO v. USA

Filing 473

PUBLISHED OPINION denying Plaintiff's motion for partial summary judgment on the PRB issue; granting 397 Defendant's Cross Motion for partial summary judgment on the PRB issue; granting 446 Motion to Strike. Signed by Judge Nancy B. Firestone. (sf)

GENERAL ELECTRIC CO v. USA

Do c. 473

In the United States Court of Federal Claims
No. 99-172C (Filed: April 29, 2010) ******************* GENERAL ELECTRIC C OM PA NY , Plaintiff, v. THE UNITED STATES, Defendant. ******************* * * * * * * * * * * * * * *

Partial Summary Judgment; PostRetirement Benefits; Segment Closing Adjustment; Cost Accounting Standards; CAS 403, 4 C.F.R. § 403; CAS 406, 4 C.F.R. § 406.40; CAS 412; 4 C.F.R. § 412; CAS 413, 4 C.F.R. § 413; FAR 205-6(o), 48 C.F.R. § 31.2056(o)(1)

R ich a rd D. Bernstein, Washington, DC, for plaintiff. Howard Stanislawski, W a sh in g to n , DC and Alan C. Brown, McLean, VA, of counsel. C . Coleman Bird, U.S. Department of Justice, Washington, DC, with whom were A s s is ta n t Attorney General Tony West, and Director Jeanne E. Davidson, for defendant. Stephen R. Dooley, Defense Contract Management Agency, Boston, MA, of counsel. K a r e n L. Manos, Washington, DC, for amicus curiae Raytheon Company. Christyne K . Brennan, Washington, DC, of counsel. OPINION P en d in g before the court are the parties' cross-motions for partial summary ju d g m e n t regarding the treatment of Pay-As-You-Go ("PAYG") 1 post-retirement benefit
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PAYG accounting is defined in the original version of Cost Accounting Standard ("CAS") 412.30(a)(12) as "[a] method of recognizing pension cost only when benefits are paid to -1-

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(" P R B " )2 costs following the 1993 closing of two business segments formerly held by the p lain tiff , General Electric Company ("GE"): GE Aerospace ("GEA"), and GE Machinery A p p a ra tu s Operation ("MAO"). This is the fifth decision in this case.3 At this stage, the

retired employees or their beneficiaries." See 40 Fed. Reg. 43,873, 43,878 (Sept. 24, 1975). PAYG accounting is an alternative to accrual accounting, in which costs are recognized as they are earned by the employee and are allocated to government contracts at that time. CAS 412.30(a)(1) defines the "accrued benefit cost method" as "[a]n actuarial cost method under which units of benefit are assigned to each cost accounting period and are valued as they accrue ­ that is, based on the services performed by each employee in the period involved." See id. PRBs are not defined in the CAS. However, the term "post-retirement benefit" is defined in the Federal Acquisition Regulations ("FAR") as follows: PRB covers all benefits, other than cash benefits and life insurance benefits paid by pension plans, provided to employees, their beneficiaries, and covered dependents during the period following the employees' retirement. Benefits encompassed include, but are not limited to, post[-]retirement health care; life insurance provided outside a pension plan; and other welfare benefits such as tuition assistance, day care, legal services, and housing subsidies provided after retirement. FAR 31.205-6(o)(1), 48 C.F.R. § 31.205-6(o)(1) (2010). On August 9, 2001, in the first decision, the court granted-in-part and denied-in-part the parties' cross-motions for partial summary judgment, incorporating the reasoning set forth in Teledyne, Inc. v. United States, 50 Fed. Cl. 155 (2001), aff'd sub nom. Allegheny Teledyne, Inc. v. United States, 316 F.3d 1366 (Fed. Cir. 2003), cert. denied sub nom. Gen. Motors Corp. v. United States, 540 U.S. 1068 (2003). Order Granting-In-Part and Denying-In-Part the Parties' Cross-Motions for Partial Summary Judgment, Gen. Elec. Co. v. United States, No. 99-172C (Fed. Cl. Aug. 9, 2001). On May 27, 2004, in the second decision, the court granted the government's motion for partial summary judgment and denied GE's motion for partial summary judgment on the parties' interpretations of their obligations under the GE Advance Agreement. Gen. Elec. Co. v. United States ("GE I"), 60 Fed. Cl. 782 (2004). On September 29, 2008, in the third decision, the court granted-in-part and denied-in-part the parties' cross-motions for summary judgment on the issue of whether the plaintiff's transfer of a net pension surplus satisfied its segment closing obligations under CAS 413. Gen. Elec. Co. v. United States ("GE II"), 84 Fed. Cl. 129 (2008). Finally, on October 24, 2008, in its fourth decision, the court ruled on the interest rate to be used in a segment closing adjustment. Gen. Elec. Co. v. United States ("GE III"), 84 Fed. Cl. 566 (2008). -23 2

c o u rt addresses whether GE's PAYG PRB costs are to be included as part of the segment c lo s in g adjustments for pension costs required for each of the two segments under Cost A c c o u n tin g Standard ("CAS") 413.50(c)(12) ("CAS 413"), 4 C.F.R. § 413-50(c)(12) (19 8 6 ).4 ,5 For the reasons that follow, the court finds that GE's PAYG PRB costs are not c o v e re d by CAS 413 and cannot be included in the GEA and MAO segment closing a d j u s tm e n t s . 6 ,7

CAS 413 was substantially revised in 1995. All of the contracts at issue in this case predate these changes. As such, the segment closings in this case are governed by the original CAS 413, which was promulgated in 1977 and became effective in 1978. 42 Fed. Reg. 37,191, 37,196 (Jul. 20, 1977). References herein to "CAS 413" are to the original CAS 413 unless otherwise noted. Similarly, references to other CAS provisions are to those in effect during the relevant time period unless otherwise noted. In Allegheny Teledyne, the Federal Circuit explained the basic concepts for determining pension costs and for conducting segment closing calculations as follows: CAS 412 governs how a contractor determines its pension costs for each period ­ by the contractor's best actuarial estimate of the plan's anticipated earnings and benefit payments, taking into account the plan's past experience and reasonable expectations. . . . [CAS 413] provides for two related types of adjustments to a contractor's pension costs: (1) adjustments to account for the pension plan's actuarial gains and losses and (2) adjustments to account for a closed segment's pension surplus or deficit. Under normal circumstances, the actuarial gains or losses (differences between the estimates and actual experience) are amortized in equal annual installments over a fifteen-year period. This is not the case, however, when a "segment closing" occurs. . . . In the event a contractor closes a segment, . . . CAS 413 provides that a contractor . . . shall determine the difference between the actuarial liability for the segment and the market value of the assets allocated to the segment . . . . The difference between the market value of the assets and the actuarial liability for the segment represents an adjustment of previously-determined pension costs. Allegheny Teledyne, 316 F.3d at 1371 (citations and internal quotation marks omitted). GE also has PAYG pension plans, which are not directly at issue in this motion. Nonetheless, as discussed infra, the court's ruling regarding GE's PAYG PRB plans with noncompellable benefits will also necessarily apply to GE's PAYG pension plans with non-36 5

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S T A T E M E N T OF FACTS A s stated above, this case involves the closing of two GE segments, the GEA and M A O segments. The basic facts regarding the closing of these segments are discussed in d e ta il in the court's prior decisions and will not be repeated here. The following a d d itio n a l facts are not disputed. A s was the case with its pension plans, GE's PRB plans were offered to eligible G E A and MAO employees. In contrast to most of GE's pension plans, however, GE re se rv e d the right to modify or terminate its PRB plans at its own option. GE employees c a n n o t compel the payment of PRBs should GE elect to modify or terminate the benefits. Also in contrast to most of its pension plans, GE did not account for PRB costs using a c cru a l accounting. Rather, GE accounted for PRB costs on a PAYG basis. Under P A Y G accounting, costs are recognized on the company's books for purposes of billing th e government when the company pay the benefit to the employee. Under "accrual

compellable benefits. In an opinion issued today in Raytheon v. United States, the court holds that the costs associated with non-vested and terminable at will PRB costs are not "pension costs" subject to adjustment under CAS 413.50(c)(12). See Raytheon v. United States, No. 05-448 (Fed. Cl. Apr. 29, 2010) In that case, Raytheon argued that it should have been able to include its pre-funded PRB costs in a segment closing adjustment on the grounds that its PRB costs met the definition of "pension plan" under CAS 412 and 413. The court determined that pension plans include only the costs associated with pension benefits that cannot be terminated at will by the employer and can be compelled by employees. Raytheon, No. 05-448, slip op. at 30-31, 36. That decision does not dispose of the issues in this case because GE does not contend that its PRB plans are "pension plans" within the meaning of CAS 412 or 413. Rather, GE argues that its PRB costs are subject to a segment closing adjustment because of the separate requirements established in CAS 402, 403 and 406. -47

a c co u n tin g ," however, the costs are recognized in the same accounting period in which an e m p lo ye e performs the work for which he or she earns the benefits, not at the time the c o m p a n y pays out the benefits to that employee or his or her beneficiary after retirement. Theoretically, PAYG and accrual accounting are designed to yield the same total amount o f PRB costs over the lifetime of a PRB plan. A lth o u g h GE used PAYG accounting for its PRB costs for cost accounting p u rp o s e s, it was nonetheless obligated to use accrual accounting for financial accounting p u rp o s e s after the Financial Accounting Standards Board ("FASB") issued Statement No. 1 0 6 ("FAS 106") in 1990. See FASB, FAS 106, Employers' Accounting for P o stre tirem e n t Benefits Other Than Pensions (Dec. 1990). FAS 106 was intended to p ro v id e investors with a truer picture of a public company's potential PRB liability. To th is end, it required public companies to use accrual accounting for PRBs for financial re p o rtin g purposes (i.e., when appraising investors of their financial situation) even if they u se d the PAYG method when billing the government for PRB costs.8 In addition to s e ttin g standards for accounting for these liabilities going forward, FAS 106 also required c o m p a n ie s to recognize PRB liabilities incurred before FAS 106 went into effect, an o b lig a tio n called the "transition obligation." FAS 106 at 8. FAS 106 provided two o p tio n s for recognizing this obligation: A n employer can choose to immediately recognize the transition obligation as The purposes and application of FAS 106 are discussed in detail in Raytheon, also issued today. See Raytheon, No. 05-448, slip op. at 16-18. -58

th e effect of an accounting change, subject to certain limitations. Alternatively, a n employer can choose to recognize the transition obligation in the statement o f financial position and statement of income on a delayed basis over the plan p a rtic ip a n ts ' future service periods, with disclosure of the unrecognized a m o u n t. However, that delayed recognition cannot result in less rapid r e co g n itio n than accounting for the transition obligation on a pay-as-you-go b a s is . Id . at 9. GE chose the first option and immediately recognized a $2.71 billion unfunded tra n s itio n obligation on January 1, 1991. From that date onward, in accordance with FAS 1 0 6 , GE has accounted for newly incurred PRB liabilities on an accrual basis for financial re p o rtin g purposes. FAS 106 also provided guidance for companies dealing with a "plan curtailment." 9 In this situation, any incurred but unrecognized PRB transition obligation must be fully re c o g n iz e d on the companies' financial reports when the curtailment occurs. It is not d is p u te d that "[c]urtailments include . . . discontinuing a segment of a business." FAS 106 P a ra . 96. F o llo w in g promulgation of FAS 106, the government amended the Federal A c q u is itio n Regulations ("FAR") to address the allowability and payment of PRBs under g o v e rn m en t contracts. See FAR 31.205-6, 48 C.F.R. § 31.205-6(o) (1991).1 0 FAR

FAS 106 defines a plan curtailment as "an event that significantly reduces the expected years of future service of active plan participants or eliminates the accrual of defined benefits for some or all of the future services of a significant number of active plan participants." FAS 106 Para. 96. The CAS Board did not amend the CAS to expressly include PRBs. As discussed in Raytheon, the CAS Board after much debate determined in 2001 that it would not promulgate a PRB cost accounting standard, stating, "`Because contractors need the flexibility to modify, -610

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3 1 .2 0 5 -6 (o ) provides that "to be allowable in the current year, PRB costs must be paid" to a n insurer, provider, other recipient or fund." FAR 31.205-6(o)(2), 48 C.F.R. § 31.2056 (o )(2 ) (1991). In GE's case, PRB costs, which are allocated to contracts using PAYG, a re allowable and thus payable when the benefits are actually paid to the recipient of the b e n e f it. GE's PRB costs prior to the segment sales were paid by the government in p ro p o rtio n to the ratio of government contracts to private contracts. GE's PRB costs after th e segment sales continue to be paid by the government in proportion to the ratio of g o v e rn m e n t contracting and private contracting. W h e n GE sold the GEA and MAO segments to Martin Marietta Corporation and W e stin g h o u s e Electric Corporation, respectively, GE retained the PRB obligations owed to GEA and MAO employees who had retired before the sale. GE refers to these in d iv id u a ls as the "inactives." GE continues to pay the PRB costs for the GEA and MAO in a c tiv e s. GE is also reimbursed for a portion of those PRB costs by the government in p ro p o rtio n to the ratio of government contracts to private contracts. Because these costs a re folded into GE's general overhead costs and distributed proportionally across all of

reduce, or even eliminate post-retirement benefits in the future in response to the pressures of medical inflation, an aging population, and global competition, the [CASB] finds that the liability for post-retirement benefits cannot be made sufficiently firm to be recognized for government cost accounting purposes without undue financial risk to both the contractor and the government. Therefore, the [CASB] has decided to discontinue further development of the rule proposed in the ANPRM.'" Raytheon, 05-448, slip op. 21-22 (quoting 68 Fed. Reg. 53,312, 53,314 (Sept. 10, 2003)). -7-

G E 's contracts, however, the government now pays less of these costs. This is because the ra tio of government to private contract work has changed. The fact that the government is not paying as great of a percentage of the " in a c tiv e s" PRBs costs following the sale of the GEA and MAO segments was recognized in an October 1995 memorandum written by the Defense Contract Management Command (" D C M C " ) which stated, "Because GE kept the [PRB] liability, the government saves m o n e y." DCMC Prenegotiation Memorandum on MMC-GEA "Pension Issue" at 6 (Oct. 1 9 , 1995). Similarly, in 1995, the DCMC Contract Management Board of Review found th a t the PRB cost reductions at GEA were a "substantial benefit to the Government due to th e purchase." DCMC Bd. of Review Meeting Summary at 1. F o l lo w in g the sale of the GEA and MAO segments, the government, over GE's objections, determined that a segment closing adjustment under CAS 413 was required. In G E I, this court held that GE had to perform a segment closing adjustment on the pension c o s ts attributable to both the active and inactive employees from the GEA and MAO s e g m e n ts . GE I, 60 Fed. Cl. at 796 (segment closing calculation must include both the a c tiv e s and the inactives). In its present motion, GE claims that its PAYG PRB costs must also be included in th e CAS 413 segment closing adjustment. Because GE has not pre-funded its PRBs and p a ys for them on a PAYG basis as these costs come due, GE argues that the present value o f the future PRBs GE will be required to pay to GEA and MAO inactives in the future

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m u s t be included in the CAS 413 segment closing calculation. In the alternative, GE claims it is entitled to an offset or credit to account for the " b e n ef it" the government has obtained because it is now paying a smaller percentage of in a c t iv e PRB costs than it would have paid had GE not sold the segments at issue because G E now has fewer government contracts against which it can charge PRBs. GE argues it m a y offset this "savings" from the pension surplus GE owes to the government as part of th e CAS 413 segment closing adjustments for pension costs. H E A R I N G OF EXPERTS In support of their summary judgment motions, GE and the government offered the a f f id a v its and testimony of William Keevan 1 1 and Anita C. Homburg,1 2 respectively. Their a f fid a v its and testimony were offered to explain the government accounting issues s u rro u n d in g the measurement and payment of PRBs.1 3 The testimony was not offered as o p in io n evidence as to the specific meaning of the CAS regulations, but did include

Mr. Keevan is an auditor of government contractor financial statements and consultant with over thirty-five years' experience. Ms. Homburg has been a certified public accountant since 1990, with nearly twenty years' experience in government contracting with the Defense Contract Audit Agency. Due to the complexity of the interrelationship of the various CAS and FAR provisions to the measurement, allocation and payment of PRB costs, the court found it beneficial to hold a hearing of experts to explain how these provisions are applied in practice. The court has held such hearings at earlier stages of this litigation and in another CAS case. See GE II, 84 Fed. Cl. at 151 n.33; GE III, 84 Fed. Cl. at 569-71; Gen. Motors Corp. v. United States, 78 Fed. Cl. 336, 338 (2007) (utilizing the same type of hearing). Importantly, the court does not rely on the expert testimony in interpreting the language of CAS 413. As the Federal Circuit stated in Rumsfeld v. United Technologies Corp., 315 F.3d 1361, 1369 (Fed. Cir. 2003), expert testimony is irrelevant to the court's interpretation of the CAS, which is a question of law. -913 12

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e x p la n a tio n s as to how various CAS and FAR provisions are applied by accountants. There were no objections to the qualifications of the experts offered. Although Mr. Keevan does not believe that the plain language of CAS 413 e x p lic itly requires that PAYG PRB costs be included in a segment closing adjustment, he e x p lain e d that there are several other CAS provisions that require GE to treat its PRB costs in the same manner as pension costs when conducting a segment closing adjustment p u rs u a n t to CAS 413. In particular, Mr. Keevan testified that CAS 402.40, 4 C.F.R. § 4 0 2 .4 0 (1992), CAS 403.40 ("CAS 403"), see 37 Fed. Reg. 26,680, 26, 684 (Dec. 14, 1 9 7 2 ), and CAS 406.40(b) ("CAS 406"), 4 C.F.R. § 406.40(b) (1992), dictate that PAYG P R B costs be treated the same as PAYG pension costs under CAS 413. Essentially, Mr. K e e v an 's interpretation of the CAS and its application to GE's PRB costs involves a threes te p analysis. First, Mr. Keevan notes that pension costs for which GE uses the actuarial a c cru a l approach are included in a segment closing adjustment. Next, because, according to Mr. Keevan, the CAS requires PAYG pension costs to be accounted for using accrual a c c o u n tin g , PAYG pension costs also should be included in a segment closing adjustment. For the final step, Mr. Keevan explains that PAYG PRB costs and PAYG pension costs a re alike, and so PAYG PRB costs should be included in a segment closing adjustment, to o . Ms. Homburg, on behalf of the government, disputed Mr. Keevan's conclusions w ith regard to the interpretation of each of these CAS provisions. She testified that PAYG

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p e n s io n costs that cannot be compelled are not treated the same under CAS 412 and CAS 4 1 3 as actuarial accrued pension costs because they were accounted for using different a c co u n tin g methods. Ms. Homburg testified that the CAS 413 segment closing adjustment a p p lie s only to pension costs accounted for and allocated to government contracts based on a c c ru a l accounting. According to Ms. Homburg, because GE's non-compellable PAYG p e n sio n costs are allocated to government contracts differently from GE's other pension c o s ts under CAS 412,1 4 the other CAS provisions authorize the government to treat these c o sts differently. More specifically, because GE's non-compellable PAYG pension costs a re allocated to government contracts based on PAYG accounting, not accrual accounting, the costs are not included in a CAS 413 segment closing adjustment. Therefore, GE's P A Y G PRB costs are not included in a CAS 413 segment closing adjustment through the o p e r a tio n of other CAS provisions. T h e court will discuss the testimony regarding each CAS provision in turn.

Ms. Homburg testified that different treatment is required by the terms of CAS 412.40(c), which provides in pertinent part: Except for pay-as-you -go plans, the cost assignable to a period is allocable to cost objectives of that period to the extent that liquidation of the liability for such cost can be compelled . . . . For pay-as-you-go plans, the entire cost assignable to a period is allocable to cost objectives of that period only if the payment of benefits earned by plan participants can be compelled. If such payment is optional with the company, the amount of assignable costs allocable to cost objectives of that period is limited to the amount of benefits actually paid to retirees or beneficiaries in that period. 40 Fed. Reg. 43,873, 43,878. -11-

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A.

C A S 402

C A S 402.40 states, in pertinent part, All costs incurred for the same purpose, in like circumstances, are either direct c o sts only or indirect costs only with respect to final cost objectives. No final c o st objective shall have allocated to it as an indirect cost any cost, if other c o sts incurred for the same purpose, in like circumstances, have been included a s a direct cost of that or any other final cost objective. Further, no final cost o b jec tiv e shall have allocated to it as a direct cost any cost, if other costs in c u rre d for the same purpose, in like circumstances, have been included in any in d ire c t cost pool to be allocated to that or any other final cost objective. 4 C.F.R. § 402.40 (1992). 1. M r. Keevan's Testimony

A c c o rd in g to Mr. Keevan, CAS 402 requires consistency in the allocation of all d ire c t and indirect costs under all covered contracts. Mr. Keevan testified that under CAS 4 0 2 , if GE's PRB costs are incurred for the same purpose and in like circumstances as G E 's pension costs, GE's PRB costs must be treated in the same fashion as those pension c o s ts for purposes of the CAS, including for purposes of CAS 413 (meaning that all these c o sts would be included in the CAS 413 segment closing adjustment). In this connection, M r. Keevan explained that under CAS 412, all pension costs must be accounted for using ac cru al accounting for government contracting purposes regardless of whether they are u ltim ate ly allocated to government contracts using accrual or PAYG accounting. See CAS 4 1 2 .5 0 (b )(4 ), 40 Fed. Reg. 43,873, 43,879 ("The cost of benefits under a [PAYG] pension p la n shall be measured in the same manner as are the costs of defined benefit plans."). Defined benefit plans, in turn, are accounted for using accrual accounting. See CAS -12-

4 1 2 .4 0 (b )(1 ). Thus, testified Mr. Keevan, by the operation of CAS 412.50(b)(4), PAYG p e n sio n costs must also be accounted for using accrual accounting. M r. Keevan stated that in his view, GE's PRB costs were incurred for the same p u rp o s e and in like circumstances as GE's PAYG pension costs and therefore GE's PRB c o sts must be treated the same as PAYG pension costs under CAS 413. Mr. Keevan ac k n o w ledg ed that GE's PAYG pension benefits cannot be compelled and therefore c a n n o t be allocated to government contracts based on accrual accounting under CAS 412. See CAS 412.40(c) (mandating that if payment of PRBs cannot be compelled, the amount o f assignable costs allocable to that period is limited to the amount of benefits actually p a id . . . in that period."). However, Mr. Keevan testified that it did not matter how costs h a v e been allocated or "charged" to government contracts. He explained that regardless of h o w PAYG costs are allocated to government contracts, they are still "incurred" for p u rp o s e s of CAS 402 when the employee performs the service that makes him or her e lig ib le for the benefit. Hr'g Tr. 52:17-22, June 30, 2009 ("Keevan Tr."). Mr. Keevan tes tifie d that the term "incurred" is not defined in CAS 402, but that under generally a c ce p te d accounting practices ("GAAP"), "incurred" means an economic activity that p rod u ce s a future "obligation." Keevan Tr. 48:11-19. Mr. Keevan testified that PRBs are " in c u rre d " when employees render the services necessary to earn the benefit, regardless of w h ethe r the costs are allocated to contracts on an accrual or PAYG basis. Keevan Tr. 5 2 :1 6 -2 2 . Mr. Keevan testified that PAYG PRBs were incurred in like circumstances to

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th e pension costs subject to CAS 413 because both PRBs and pension benefits were earned b y the same employees, at the same time, and for the same services. For all of these re a so n s , testified Mr. Keevan, the government and GE must treat PAYG PRB costs the s a m e as pension costs under CAS 413 by operation of CAS 402. 2. M s . Homburg's Testimony

M s . Homburg took issue with virtually all of Mr. Keevan's opinions regarding the m e a n in g and application of CAS 402 to the facts of this case. She explained that CAS 402 is concerned with the allocation of costs to individual government contracts and that it is d e sig n e d to protect against double billing on government contracts, which is not at issue in th is case. See Hr'g Tr. 257:16-20, July 1, 2009 ("Homburg Tr.") ("[W]hat [CAS] 402 is tr yin g to guard against is a situation where a contract gets one hundred percent of its cost d i re c t, and then it gets a portion of all the other contract costs of the same type indirect, so it's double counting."). Ms. Homburg explained for the reasons set forth below that to the e x te n t CAS 402 has any application to this case it does not mandate that pension costs and P R B costs be treated the same under CAS 413. To begin, Ms. Homburg explained that government accounting for pension costs is g o v e rn e d by CAS 412. Contrary to Mr. Keevan's contentions, Ms. Homburg testified that C A S 412 distinguishes between pensions that are accounted for using "accrual" a c co u n tin g and pensions using PAYG accounting. Ms. Homburg explained that under C A S 412, pension costs that are accounted for using accrual accounting may be allocated

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to the government when the cost is "incurred" (i.e., when the working employee earns the b e n e fit). However, in Ms. Homburg's view, for pension plans using PAYG accounting, th e contractor may not necessarily allocate the cost at the time that he working employee e a rn s the benefit. Rather, under CAS 412.40, the contractor may only allocate pension c o sts to government contracts when the benefits are earned by the employee if the pension b e n e f it is "compellable" by the employee. Homburg Tr. 236:1 to 240:21 (discussing CAS 4 1 2 .4 0 ; see fn. 14 supra). In other words, explained Ms. Homburg, PAYG pension plans w ith benefits that employees cannot compel cannot be allocated to government contracts o n an accrual basis (i.e., when they are "incurred" or earned by the employee). Rather, the c o n tra c to r can only allocate the cost to the government contract when the benefit is a c tu a l ly paid as a benefit to the employee. Thus, the non-compellable, PAYG pension cost is not "incurred" in the same manner as the compellable pension cost. In other words, Ms. H o m b u rg testified that CAS 412 specifically provides that the entire cost assignable to a p e rio d is allocable to cost objectives of that period only if the payment of benefits earned b y plan participants can be compelled. If such payment is optional with the company, the a m o u n t of assignable costs allocable to cost objectives of that period is limited to the a m o u n t of benefits actually paid. Thus under 412.40, PAYG pensions that are terminable a t will by the employer are not allocated to government contracts based on accrual a c co u n tin g and therefore no actuarial gains and losses have been allocated to government c o n tra c ts for these pensions.

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M s Homburg further explained that to the extent GE's pension costs are c o m p e lla b le by employees, the costs were allocated to government contracts based on the u s e of accrual accounting, not PAYG accounting (the method by which GE's PAYG PRB c o sts were allocated). The pension costs compellable by employees also gave rise to a c tu a ria l gains and losses associated with accrual accounting and these gains and losses w ere allocated to its government contracts. In Ms. Homburg's view, how costs are a c co u n te d for and allocated to government contracts is the critical factor in deciding w h ethe r costs are incurred for the same purpose or in like circumstances. Because GE's n o n -c o m p e lla b le pension or PRB costs were not allocated to government contracts based o n the use of accrual accounting, but were allocated to government contracts based on the a m o u n ts actually paid to beneficiaries (i.e., on a PAYG basis), Ms. Homburg testified that G E 's compellable pension costs and non-compellable PAYG PRB costs were not incurred " f o r the same purpose" or "in like circumstances" and therefore non-compellable PAYG P R B costs do not have to be treated the same as compellable pension costs for purposes of C A S 402 or CAS 413. B. C A S 403

C A S 403.40 states, in pertinent part, (a)(1) Home office expenses shall be allocated on the basis of the beneficial or c a u sa l relationship between supporting and receiving activities. Such expenses s h a ll be allocated directly to segments to the maximum extent practical. . . . (a )(2 ) No segment shall have allocated to it as an indirect cost. . . any cost, if o th e r costs incurred for the same purpose have been allocated directly to that -16-

o r any other segment. . . . (c ) Residual Expenses (1) All home office expenses which are not allocable in a c co rd a n c e with paragraph (a) of this section and subparagraphs (1) to (5) of p a ra g ra p h (b) of this section 1 5 and b shall be deemed residual expenses. . . . R e s id u a l expenses shall be allocated to all segments[.] S e e 37 Fed. Reg. 26,680, 26,684. 1. M r. Keevan's Testimony

Mr. Keevan testified that because GE "incurred" PAYG PRB costs for "the same p u rp o s e " as pension costs (i.e., to benefit retirees), GE is required under CAS 403.40(a)(2) to allocate pension costs for the GEA and MAO inactives to the GEA and MAO segments f o r purposes of the CAS 413 segment closing. According to Mr. Keevan, CAS 403 req u ires GE to match up all of its PRB costs to the segments that generated the costs. Mr. K e e v a n testified that because this court has ruled that GE must combine the pension assets it retained for its inactives from the GEA and MAO segments with the pension assets it late r transferred for the GEA and MAO actives to perform a segment closing adjustment, G E must also include the unfunded PRB costs necessary to pay the GEA and MAO in a c tiv e s in order to comply with CAS 403. Mr. Keevan explained that under CAS 403, c o s ts incurred for the same purpose must be treated the same for CAS purposes. Therefore, explained Mr. Keevan, GE's pension costs and PRB costs must be treated the s a m e for purposes of CAS 413, and because the pension costs are to be included in the

The parties do not contend that any part of paragraph (b) has any application in the instant case. -17-

15

s e g m e n t closing adjustment, the PRB costs must also be included. 2. M s . Homburg's Testimony

M s . Homburg testified that Mr. Keevan's reading of CAS 403 is incorrect. In Ms. H o m b u rg 's view, CAS 403(a)(2) does not compel the same treatment of GE's PRB costs a n d pension costs because, as with CAS 402, the difference in accounting treatment m a n d a tes different treatment. That is, the costs are not alike and thus CAS 403(a)(2) is in a p p lic a b le . Ms. Homburg explained that while pension costs accounted for using a c cru a l accounting give rise to actuarial gains and losses that are subject to a "settling up" u n d e r CAS 413, non-compellable PAYG PRB costs could not, by their nature, give rise to a c tu a r ia l gains and losses that need to be settled up under CAS 413. Therefore, Ms. H o m b u rg continued, GE's PAYG PRB costs have to be treated differently from the a c c ru e d pension costs when a segment closes. In particular, because the GEA and MAO se g m e n ts no longer exist, GE is allowed to allocate the non-compellable PRB costs a ttr ib u ta b l e to the GEA and MAO inactives to GE's other segments (including those p e rf o rm in g federal government contract segments) as "residual costs" under CAS 4 0 3 .4 0 ( c ), which it cannot do with accrued pension costs. C. C A S 406

CAS 406.40(b) states, "A contractor shall follow consistent practices in his s e le c tio n of the cost accounting period or periods in which any types of expense and any typ e s of adjustments to expense (including prior-period adjustments) are accumulated and

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allo ca ted." 4 C.F.R. § 406.40(b) (1992). 1. M r. Keevan's Testimony

M r. Keevan testified that because PRB costs and pension costs are the same "types o f expense" within the meaning of CAS 406, they must be treated the same under CAS 4 0 6 . Therefore, according to Mr. Keevan, PRB costs must be included in the same CAS 4 1 3 segment closing adjustment as the GEA and MAO pension costs. Mr. Keevan te stif ie d that pension costs and PRB costs involve the same types of expense, and just as there is a need to settle up with the government with regard to basic pension costs where th e r e are no future periods for payment, the same is true for PRB costs. 2. M s . Homburg's Testimony

M s. Homburg challenged Mr. Keevan's assertion that PRB costs and pension costs a re the same "types of expenses" under CAS 406.40(b). Ms. Homburg again focused her te s tim o n y on the fact that GE's pension costs and PRB costs did not involve the same typ e s of expense because these two categories of expenses were accounted for differently a n d allocated differently to government contracts under the CAS. Ms. Homburg agreed w ith Mr. Keevan that expenses of the same type are accounted for in the same way, but s h e disagreed with Mr. Keevan that GE's pension and PRB costs at issue were, indeed, the sa m e type of expense. She testified that because GE used accrual accounting for its c o m p e lla b le pension plans, the costs associated with those plans should be subject to a s e g m e n t closing adjustment under CAS 413. However, in Ms. Homburg's view, the PRB

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c o sts are a different type of expense because those costs were allocated to the government c o n tra c ts based on PAYG accounting. Ms. Homburg concluded that costs given different a c co u n tin g treatment are not of the "same" and do not have to be treated "consistently" for p u rp o s e s of CAS 406. D. C A S 413

C A S 413.50(c)(12) states, in pertinent part, If a segment is closed, the contractor shall determine the difference between the a c tu a ria l liability for the segment and the market value of the assets allocated to the segment, irrespective of whether or not the pension plan is terminated. T h e determination of the actuarial liability shall give consideration to any req u irem en ts imposed by agencies of the United States Government. In c o m p u tin g the market value of assets for the segment, if the contractor has not a l r e a d y allocated assets to the segment, such an allocation shall be made in a c co rd a n c e with the requirements of paragraph (c)(5)(i) and (ii) of this section. T h e market value of the assets allocated to the segment shall be the segment's p ro p o rtio n a te share of the total market value of the assets of the pension fund. T h e calculation of the difference between the market value of the assets and the a c tu a ria l liability shall be made as of the date of the event (e.g., contract te rm in a tio n ) that caused the closing of the segment. If such a date cannot be re a d ily determined, or if its use can result in an inequitable calculation, the c o n tra c tin g parties shall agree on an appropriate date. The difference between th e market value of the assets and the actuarial liability for the segment r e p re s e n ts an adjustment of previously-determined pension costs. 4 2 Fed. Reg. 37,191, 37,198 (Jul. 20, 1977). 1. M s . Homburg's Testimony

M s . Homburg testified at length regarding her view that a segment closing a d ju s tm e n t for non-compellable PAYG pensions or PRB costs is precluded by the terms of CAS 413 because CAS 413 applies only to pension plans that are accounted and allocated

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to government contracts based on accrual accounting. Ms. Homburg explained that the p u rp o s e of CAS 413 is to provide for measuring and assigning actuarial gains and losses. Such gains and losses, Ms. Homburg explained, arise only when contractors allocate costs to government contracts based on accrual accounting, not when they utilize PAYG a c co u n tin g methods. This is because the actuarial assumptions used for accrual ac co u n tin g may differ from actual experience. Under the terms of CAS 413.50(a)(2), co n trac tors are required to amortize or spread those actuarial gains and losses over a f if tee n -ye a r period. See 42 Fed. Reg. 37,191, 37,197. However, when a segment is c lo s e d , there are no future periods available in which to adjust those gains and losses and s o a segment closing calculation is performed. As stated above, GE's PAYG PRB plans, in contrast were not allocated to g o v e rn m e n t contracts based on accrual accounting. Accordingly, explained Ms. Homburg, th e re were no actuarial gains or losses allocated to the GEA and MAO segments' contracts to be adjusted. Put another way, because GE's PRB costs were allocated to government c o n tra c ts based on the contractor's actual payments to the beneficiaries and did not include a c tu a ria l gains or losses, there is nothing to "correct or adjust" for purposes of CAS 4 1 3 .5 0 (c )( 1 2 ). 2. M r. Keevan's Testimony

In response to Ms. Homburg's testimony regarding the application of CAS 413, Mr. K e e v an testified that the CAS 413 segment closing adjustment is not limited to situations

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in v o lv in g actuarial gains or losses. Mr. Keevan testified that CAS 413.50(c)(12), by its p la in terms, is focused on "actuarial liabilities." According to Mr. Keevan, GE has an " a c tu a ria l liability" in connection with its non-compellable PAYG PRB costs for the GEA a n d MAO segments and therefore there is nothing in CAS 413.50(c)(12) that precludes GE f ro m including PRBs in a segment closing adjustment. DISCUSSION I. Standard of Review A. S u m m a ry Judgment

S u m m a ry judgment is appropriate when "the pleadings, the discovery and d is c lo s u re materials on file, and any affidavits show that there is no genuine issue as to any m a te ria l fact and that the movant is entitled to judgment as a matter of law." RCFC 5 6 (c )(1 ); see also Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 247-48 (1986); Casitas M u n . Water Dist. v. United States, 543 F.3d 1276, 1283 (Fed. Cir. 2008); Telemac C e llu la r Corp. v. Topp Telecom, Inc., 247 F.3d 1316, 1323 (Fed. Cir. 2001) (citation o m itte d ). In considering a motion for summary judgment, the court's role is not to "weigh th e evidence and determine the truth of the matter but to determine whether there is a g e n u in e issue for trial." Liberty Lobby, 477 U.S. at 249. "The evidence of the nonmovant is to be believed, and all justifiable inferences are to be drawn in his favor." Id. at 255; see also Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587-88 (1986); L a th a n Co., Inc. v. United States, 20 Cl. Ct. 122, 125 (1990); Casitas Mun. Water Dist.,

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5 4 3 F.3d at 1283. Cases involving only questions of law are particularly appropriate for su m m ary judgment. Dana Corp. v. United States, 174 F.3d 1344, 1347 (Fed. Cir. 1999). B. In te rp re ta tio n of the CAS

T h e standard of review for a motion for summary judgment premised on the proper in te rp re ta tio n of a statute or regulation is well-settled. Here, the primary dispute concerns th e proper interpretation of the original CAS 413.50(c)(12) and it relationship to other C A S provisions, which involve questions of law. See Rumsfeld v. United Techs. Corp., 3 1 5 F.3d 1361, 1369 (Fed. Cir. 2003) ("[T]he interpretation of CAS [] is an issue of law, n o t an issue of fact, as we have made clear in our prior decisions."); Billings v. United S ta te s, 322 F.3d 1328, 1332 (Fed. Cir. 2003) ("The underlying issue, one of statutory and r e g u la to r y construction, is a question of law . . . ."). Where, as here, all of the parties' f a c tu a l assertions are taken as true, summary judgment on the legal issue is appropriate. See, e.g., Santa Fe Pac. R. Co. v. United States, 294 F.3d 1336, 1340 (Fed. Cir. 2002) (" Is s u e s of statutory interpretation and other matters of law may be decided on motion for su m m ary judgment."); Costain Coal, Inc. v. United States, 126 F.3d 1437, 1440 (Fed. Cir. 1 9 9 7 ). In evaluating the meaning of the original CAS 413.50(c)(12), the Federal Circuit h a s held that the court must be guided by the CASB's intent in promulgating the standard. Perry v. Martin Marietta Corp., 47 F.3d 1134, 1137 (Fed. Cir. 1995) ("our task in interpre tin g the meaning of these . . . provisions is ultimately to ascertain the CASB's

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in te n d e d meaning when it promulgated the CAS" (citing Riverside Research Inst. v. U n ited States, 860 F.2d 420, 422 (Fed. Cir. 1988))). The Federal Circuit explained in A lle g h e n y Teledyne: W h e n interpreting provisions of the CAS our task is "to ascertain the [CASB's] in te n d e d meaning when it promulgated the CAS." We accomplish this first by lo o k in g at the text of the relevant provisions and "any guidance that the [ C A S B ] has published to aid in interpretation." We examine the issues . . . th r o u g h this interpretive lens. 3 1 6 F.3d at 1373 (quoting Perry, 47 F.3d at 1137) (internal citations omitted). Thus, the c o u rt must "first look to the authority of the CASB, the regulatory framework within w h ic h CAS 413 operates, its plain language, and its regulatory history to determine the p ro p e r meaning of the original and amended CAS 413.50(c)(12)." Teledyne, 50 Fed. Cl. a t 161-62. II. T h e Cost Accounting Standards Do Not Authorize or Permit a Segment C lo sin g Adjustment of Non-Compellable PRB Costs Accounted for and A llo c a t e d to Government Contracts on a PAYG Basis. A. T h e Positions of the Parties

A t the core of GE's argument is its contention that pension plans accounted for u s in g PAYG accounting must be treated the same as pension plans accounted for using a c cru a l accounting and therefore PRB plans using PAYG accounting must be treated the s a m e as pension plans using accrual accounting for purposes of CAS 413, meaning that th e costs associated with PAYG PRB plans must be included in the segment closing a d ju stm e n t. GE supports this claim by relying on the language of CAS 412 with regard to

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P A Y G pension plans and then applies the conclusions it draws from that provision to other C A S provisions. GE argues that although PAYG PRB plans are not directly covered by a C A S 413 segment closing adjustment, they must nevertheless be included because of the operation of other CAS provisions must be included in the segment closing adjustment. In p a rtic u la r, GE claims that provisions found in CAS 402, CAS 403, CAS 406, and CAS 4 1 2 , when read together, mandate that costs incurred for the same purpose or involving the s a m e types of expenses must be treated the same for purposes of CAS 413. GE's argument begins with CAS 412.50(b)(4), which provides that PAYG pension p la n s are to be "measured in the same manner as are the costs of defined-benefit plans w h o s e benefits are provided through a funding agency." 4 C.F.R. 412.50(b)(4). Defined b e n e f it plans are measured under CAS 412 using "accrual accounting." CAS 4 1 2 .4 0 (b )(1 ). Therefore, PAYG pension plans must be measured using accrual accounting a s well, regardless of the fact that the costs are ultimately billed on a PAYG basis. For this re a so n , GE argues, because its PAYG pension plans are measured using accrual a c co u n tin g , its PAYG PRB plans must also be accounted for using accrual accounting for C A S purposes. Continuing this reasoning, GE next argues that because PAYG pension p la n s are accounted for using "accrual accounting," they must be included within a s e g m e n t closing adjustment under CAS 413. Thus, argues GE, PAYG PRB plans must a ls o be included. G E rejects the government's contention that only pension plan costs that are

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m e a su re d and allocated to government contracts using accrual accounting are to be in c lu d e d in a CAS 413 segment closing adjustment. GE recognizes that under CAS 412, P A Y G pension plans that do not have compellable benefits cannot be allocated to g o v ern m en t contracts based on accrual accounting, but GE argues that how costs are a llo c a te d to government contracts is irrelevant. According to GE, it does not matter w h e th e r the contractor has allocated actuarial gains and losses to the government for p u rp o s e s of the segment closing provision. GE argues that the segment closing provision, C A S 413.50(c)(12) applies regardless of whether the pension costs were allocated to g o v e rn m en t contracts based on accrual accounting with actuarial gains and losses. GE a rg u e s that CAS 413.50(c)(12) refers only to "actuarial liability," not "actuarial gains and lo ss e s," and that because it has an "actuarial liability" with regard to its non-compellable P A Y G PRB plans, it must include its unfunded, non-compellable PRB liabilities in the se g m e n t closing adjustment. GE concludes that CAS 402, 403 and 406 require it to in c lu d e the actuarial liability associated with the PRBs it has retained for the GEA and M A O inactives in the CAS 413 segment closing adjustment for pension costs. The government argues in response that GE's argument is based on a fundamentally f law e d premise ­ namely, that a CAS 413 segment closing adjustment can include pension c o sts that were not allocated to government contracts on the basis of accrual accounting. The government argues that CAS 413, when read in its entirety, makes plain that its focus is on the assignment, measurement and allocation of pension costs that are accounted for

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u s in g accrual accounting. The government contends that GE's analysis of CAS 412 and 4 1 3 impermissibly ignores the distinction drawn by the CAS Board between PAYG p e n sio n plans with benefits that can be compelled and PAYG plans with benefits that c a n n o t be compelled. The government contends that only those PAYG pension plans that h a v e compellable benefits may be allocated to government contracts on an accrual basis a n d therefore only pension plans with compellable benefits have had costs allocated to the g o v e rn m e n t that include the actuarial gains and losses subject to a CAS 413 segment c lo s in g adjustment. The costs associated with PAYG pension plans that do not have c o m p e lla b le benefits are not been allocated to government contracts on an accrual basis. Therefore, the contractor has not allocated actuarial gains and losses to the government th a t must be adjusted when the segments are closed. Put another way, without actuarial g a in s and losses that were being amortized in accordance with CAS 413.40, there are no " p re v io u s ly-d e te rm in e d pension costs" to be adjusted in a segment closing adjustment. The government disagrees with GE that the segment closing adjustment was in te n d e d to provide a one-time settling up for all pension costs in cases where payment w a s "deferred" either through accrual or PAYG accounting. The government argues that G E 's reliance on the phrase "actuarial liabilities" in CAS 413.50(c)(12) is misplaced. The g o v e rn m e n t contends that "actuarial liabilities" cannot be read out of context and that in th e context of CAS 413, including the illustrations provided for in the regulation and the re g u latio n 's preamble, the CAS Board clearly intended to include only those previously

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d e te rm in e d pension costs that included actuarial gains and losses in a CAS 413 segment c lo s in g adjustment. Finally, the government argues that there is nothing in CAS 402, CAS 403 or CAS 4 0 6 that compels a different result. According to the government, the differences between th e accounting requirements for compellable pension costs and non-compellable pension c o sts established in CAS 412 compel a different treatment for non-compellable pension a n d PRB costs under CAS 402, CAS 403, CAS 406 and CAS 413. For the reasons that f o llo w , the court agrees with the government. 1. T h e CAS 413 segment closing provision applies only to accrued p e n sio n plans that were required to account for actuarial gains and lo s s e s .

The court agrees with the government that GE's argument is based on a f u n d a m e n ta l misunderstanding of CAS 413 and the purpose of the segment closing a d ju s tm e n t. CAS 413 was first promulgated in 1977 to "provide guidance for adjusting p e n sio n cost by measuring actuarial gains and losses and assigning such gains and losses to cost accounting periods." CAS 413.20, 4 C.F.R. § 413.20 (1977). CAS 413.30(a)(3), 4 C .F .R . § 413.30(a)(3) (1977), defines actuarial gains and losses as "[t]he effect on pension c o st resulting from differences between actuarial assumptions and actual experience." CAS 413.50(a)(1), 4 C.F.R. § 413.50(a)(1) (1977), requires that "in accordance with the p ro v is io n s of [CAS 412], actuarial gains and losses . . . be identified separately from u n fu n d ed actuarial liabilities being amortized." Under CAS 413.50(a)(2), contractors are

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re q u ire d to amortize their actuarial gains and losses over a fifteen-year period. CAS 4 1 3 .5 0 (a)(2 ), 4 C.F.R. § 413.50(a)(2) (1977). T h e purpose of the CAS 413 segment closing adjustment was explained by the F ed era l Circuit in Allegheny Teledyne, 316 F.3d at 1374. In affirming this court's d e c isio n , the Circuit stated, "[T]he Board intended the segment closing provision to apply in situations where `there are no future periods in which to adjust' the appropriate costs. Thus, it applies to situations where, for whatever reason, the segment's contracts have b e c o m e separated or closed off from the pension costs." Allegheny Teledyne, 316 F.3d at 1 3 7 4 (quoting 4 C.F.R. § 413, pmbl. A (citation omitted) (emphasis added)). T h u s, the reason that CAS 413.50(c)(12) does not extend to GE's PAYG PRB costs is that CAS 413 provides a means to sort out actuarial gains and losses and does not e x ten d to situations where no such actuarial gains and losses were ever allocated to g o v e rn m e n t contracts. Actuarial gains and losses only arise in the context of accrual a c c o u n tin g .1 6 Accrual accounting is based on the use of actuarial assumptions. See CAS 4 1 2 .3 0 (a )(3 ) (defining "actuarial cost method" as "[a] technique which uses actuarial a s s u m p t io n s to measure the present value of future pension benefits). When those a ss u m p tio n s prove to be incorrect when tested by real experience there are actuarial gains a n d losses. See CAS 412.30(a)(4) (defining "actuarial gain and loss" as "[t]he effect on p e n sio n cost resulting from differences between actuarial assumptions and actual See Dan M. McGill et al., Fundamentals of Private Pensions 599-602 (9th ed. 2010), for a discussion of accrual accounting and the need to account for actuarial gains and losses. -2916

e x p e r i e n c e ." ) . P e n sio n plans funded using PAYG accounting that do not have compellable b e n e f its have not been allocated to contracts based on actuarial determinations. Accordingly, these non-compellable PAYG costs have not been allocated to government c o n tra c ts based on actuarial assumptions, assumptions that, while meant to be as accurate a s possible, inevitably result in over or under payments. Because non-compellable PAYG c o sts have been allocated to government contracts based only on the actual payments made to retirees, no assumptions were used and no costs based on actuarial gains or losses were a llo c a ted to government contracts. In such circumstances, there are no "previously d e ter m in e d costs" that need to be adjusted in a CAS 413 segment closing adjustment. G E 's contention that CAS 413.50(c)(12) includes non-compellable PAYG pension c o sts because it speaks only of "actuarial liabilities" regardless of how costs have been a llo c a te d to government contracts is not supported. GE argues that it can calculate an a c tu a ria l liability for its segments. However, GE's ability to calculate an "actuarial lia b ility" is not enough to include its non-compellable costs in a segment closing a d ju s tm e n t. The segment closing provision in CAS 413 was promulgated to address the trea tm en t of actuarial gains and losses allocated to government contracts when future p e rio d s for sorting out those actuarial gains and losses are terminated by a segment clos ing . GE's suggestion that the segment closing provision was intended to provide for a s e ttlin g -u p in any situation where pension costs have been simply "deferred" either

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thro u g h accrual accounting or PAYG accounting renders the distinctions the CAS Board d re w between the allocation of costs under accrual and PAYG accounting in CAS 412 a n d 413 meaningless. The court cannot construe a regulation to render the provision meaningless. See U n ited States v. Castrillion-Gonzalez, 77 F.3d 403, 406 (11th Cir. 1996) (noting the "welle sta b lis h e d axiom of statutory construction that a statute is to be interpreted so that no w o rd s shall be discarded as being meaningless, redundant, or mere surplusage. (internal q u o ta tio n marks omitted)). Nor can it construe a regulation without regard to its context. Teledyne, 50 Fed. Cl. at 161-62; Griffin v. Sec'y of Veterans' Affairs, 288 F.3d 1309, 1 3 3 1 (Fed. Cir. 2002) ("Challenged terms must be read in context of the regulation as a w h o le " ). Thus, CAS 413.50(c)(12) must be read together with the other provisions of the re g u la tio n . It is clear from the context of CAS 413 as a whole that it deals with the a c tu a ria l gains and losses associated with pension costs that have been accounted for and a llo c a ted to government contracts based on accrual accounting. The only situation in w h ich accrual accounting (and therefore, actuarial assumptions) is used to determine costs in connection with PAYG pensions is when the beneficiaries can compel benefits. See C A S 412.30.1 7 Where the PAYG pension benefits are not compellable, accrual accounting

GE argues that just as this court has held in a different context that the constraints in CAS 412 should not apply where they conflict with CAS 413, the court should not allow the allocation rules in CAS 412 to bar GE's right to a segment closing adjustment for noncompellable PRB costs in this case. The court rejects GE's invitation to read out of CAS 413 the allocation rules in CAS 412. In General Motors v. United States, 66 Fed. Cl. 153 (2005), and Viacom, Inc. v. United States, -31-

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c a n n o t be used to determine pension costs. Id. In such circumstances, there are no p rev iou sly-d e term in ed costs to be adjusted. The fundamental premise supporting GE's a rg u m e n t must be rejected. In short, the CAS 413 segment closing adjustment provision s im p ly does not apply to non-compellable PRB costs that are accounted for and allocated to government contracts and segments using PAYG accounting.1 8 2. N o th in g in CAS 402, 403 or 406 Requires or Permits a Segment C lo s in g Adjustment for GE's Non-Compellable PRB costs. a. C A S 402

CAS 402(c), as noted above, requires that "all costs incurred for the same purpose, in like circumstances, are either direct costs only or indirect costs only with respect to final c o st objectives." GE argues that under CAS 402, PRB costs must be included in the s e g m e n t closing adjustment of basic pension costs on the grounds that pension costs and P R B costs are "incurred for the same purpose and in like circumstances" and therefore m u s t be allocated to cost objectives in the same manner. 70 Fed. Cl. 649 (2006) the court determined that the pre-funding requirement for allocating pension costs could not apply to the CAS 413 segment closing adjustment because this would mean that there could never be a "settling up" of pension costs where there was a pension deficit. See Gen. Motors, 66 Fed. Cl. at 159; Viacom, 70 Fed. Cl. at 656. The court explained that in order to give both CAS 412 and CAS 413 meaning, the CAS Board could not have intended to have the pre-funding requirement apply to a segment closing adjustment. Here, however, there is no conflict between CAS 412 and CAS 413. To the contrary, CAS 412 defines what costs will be covered by CAS 413. 42 Fed. Reg. 37,191, 37,195 Pt. 412, pmbl. A. Accordingly, the court has no reason to ignore the CAS 412 allocation rules for noncompellable pension costs. Whether a CAS 413 segment closing adjustment would be required for PAYG pension benefits that can be compelled is not at issue in this case and this opinion does not address that question. -3218

G E relies on the GAAP definition of "incurred" to support its contention that re g a rd le ss of when its PRBs are paid to beneficiaries, the costs were "incurred" before the o b lig atio n to pay arose. Quoting from FAS 106, GE states that for PRBs, "Employers h a v e generally recognized the obligation and related costs from the exchange as the o b lig a tio n was satisfied rather than when it was incurred." FAS 106 para. 142. Relying o n this provision, GE argues that the obligation to pay PRBs is separate from satisfying th a t obligation. GE also relies on the FAR provision on PRBs, which also draws a d is tin c tio n between when PRBs are "incurred" and when they are "paid." See FAR 3 1 .2 0 5 -6(o )(2 ), 48 C.F.R. § 31.205-6(o)(2). G E argues that PRBs and pension costs are incurred for the same purpose in that b o th are designed to provide retirement benefits. See FAS 106 para. 147 ("Postretirement b e n e f its are a form of pension benefits in kind. Unlike traditional cash pension benefits, th e employer promises to provide defined benefits or services as the need for those b e n e f its or services arises or on the occurrence of a specified event. Typically, those p o s tre tire m e n t benefits supplement cash benefits paid after retirement. Regardless of the fo rm of the benefit -- in cash or in kind -- the underlying promise is the same. In e x c h an g e for service over a specified period, the employer will provide the employee and an y covered dependents or beneficiaries with the defined postretirement benefits."). T h e government argues that GE's reliance on CAS 402 is misplaced because it does n o t address the allocation of costs to segments and thus it is not relevant to determining

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w h e th e r GE must include its PRB costs in the segment closing adjustment. In the a lte rn a tiv e , the government argues that CAS 402 does not mandate the inclusion of PRB c o sts in a segment closing adjustment because GE's PRB costs were not "incurred for the s a m e purpose" or "in like circumstances" as GE's basic pension costs. The government a rg u e s that for CAS purposes, costs are only considered to be "incurred" when they can be c o m p e lle d by the plan participant or when the benefit is actually paid. Thus, GE's nonc o m p e lla b le PRB costs were not "incurred" at the same time that its compellable pension co sts were incurred. According to the government, GE's non-compellable PRB costs were o n ly "incurred" for CAS purposes when GE paid the benefit. To be "incurred" for the s a m e purpose and in like circumstances for government accounting purposes under the C A S , the government argues, means that the costs were accounted for in the same way. T h e court agrees with the government that CAS 402 is wholly irrelevant to the issue a t hand. This case concerns the allocation of costs to segments, not to individual cost o b je c tiv e s within segments. Therefore, CAS 402 has no application to this case. However, even if CAS 402 were relevant to the question of whether non-compellable PRB c o sts should be included in a segment closing adjustment, GE's reliance on CAS 402 w o u ld still be misplaced because GE's basic pension costs and its PAYG non-compellable P R B costs involve very different types of "costs" and thus the costs need not be treated the s a m e for CAS 402 purposes. As discussed below in connection with CAS 403, because G E 's PRB costs and basic pension costs were not "incurred" for the same purpose, GE's

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P R B costs and basic pension costs may be treated differently without violating CAS 402. b. C A S 403

G E argues that CAS 403 requires that PRB costs for the GEA and MAO inactives m u s t be allocated to the GEA and MAO segments along with the pension costs at the time o f the segment closing because CAS 403 does not allow a contractor to allocate an e x p e n se as a "residual expense" if the cost was incurred for the same purpose as another c o st that had to be allocated to a specific segment. See CAS 403(c), 37 Fed. Reg. 26,680, 2 6 ,6 8 5 . GE also argues that under CAS 403, expenses must be allocated on the basis of th e "beneficial or causal relationship" giving rise to the expense, and that PRB costs for th e GEA and MAO inactives must be therefore allocated to the GEA and MAO segments a n d included in the segment closing adjustments under CAS 413.1 9 Pl.'s Post-Hr'g Br. on A f f irm a tiv e Cl. PAYG PRBs and Offset PAYG and Pension Liabilities ("Pl.'s Nov. 2009 B r." ) 17. Based on the same arguments it made in connection with CAS 402, GE contends w ith regard to CAS 403 that regardless of when PRB benefits are paid, the costs are " in c u rre d " for CAS purposes when they are earned by the employee. Id. at 18. T h e government disputes GE's contention that GE's pension and PRB costs were " in c u rre d for the same purpose" and argues that for this reason, pension costs and PRB c o sts are properly treated differently without violating CAS 403. The government further a r g u e s that GE can properly allocate the PRB costs to all segments as a "residual" expense

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Raytheon makes this same argument. See Raytheon, No. 05-448, slip op. at 42-43. -35-

u n d e r CAS 403.2 0 According to the government, nothing in CAS 403.40(a)(1) governs the a llo c a tio n of costs based on the "beneficial or causal relationship between supporting and re c eiv in g activities" so as to require that expenses that have not yet been paid be allocated to segments in advance in order to undertake a segment closing. Def.'s Post-Hr'g Reply B r. Addressing Remaining PRB Issues ("Def.'s Jan. 2010 Br.") 6-7. According to the g o v e r n m e n t , liability for non-compellable PRB costs must be established before the cost c a n be allocated to a segment. It is for this reason that GE is authorized to allocate its PRB c o s ts to all segments as a residual expense after a segment closes. T h e court agrees with the government's reading of CAS 403. First, the court finds th a t GE's reading of the phrase "incurred for the same purpose" in CAS 403 is incorrect. In explaining the reasons behind the promulgation of CAS 412, the CAS Board made clear in CAS 412 that "certain of these criteria [referring to financial accounting criteria in place a t the time] are not appropriate for Government contract costing purposes." 40 Fed. Reg. 4 3 ,8 7 3 , 43,874 Pt. 412, pmbl. A. This language serves to highlight that the CAS Board d id not intend for these costs to be treated the same in every situation as they were un