Cost Accounting Standards Board Proposes New ESOP Rule

The Cost Accounting Standards Board has proposed new regulations on reimbursement for companies sponsoring ESOPs with federal contracts. The issue of what constitutes a reimbursable cost has been tossed back and forth between government regulators for about two decades. The new standards should move towards a final resolution. Under the proposal, "ESOP" would be defined to include any defined contribution plan designed to invest primarily in employer stock. The reimbursement would be for the market value of the shares at the time a contribution is made. The cost would be assignable to a cost accounting period only to the extent an allocation is made to participant accounts by the tax return filing date, including any permissible extensions. For leveraged ESOPs, the allowability of the costs would follow Federal Acquisition Regulation Part 31, which allows companies to charge the costs of principal and interest on an ESOP loan provided the stock is acquired at fair market value. Dividends are allowed as a cost. The regulation does not distinguish in this regard between S and C corporations. Companies operating under an existing approved reimbursement procedure can retain that method or renegotiate under the new rules.