Agencies stuck with tab for federal contractor pensions, taxpayer group says

The federal government is on the hook for billions of dollars in federal contractor private pension costs that possibly could have been avoided, according to a taxpayer watchdog group.

Citizens Against Government Waste (CAGW) said on Feb. 10 it has begun investigating situations in which the federal government has assumed ongoing responsibility for the cost of contractor pension plans. These situations have occurred primarily because of terms approved under cost-plus federal contracts, in which the government contributes to ongoing costs of contractor retirement benefits, the group said in a news release.

For example, the Government Accountability Office reported in June 2011 that the Energy Department was obligated to pay pension costs to contractors totaling $37 billion over the coming years.

CAGW said the problem is likely much larger, since the federal government has roughly 200,000 contractors taking in about $700 billion a year.

“Many of these companies sponsor defined benefit pension plans for their employees (in which) company officials control not only the level of benefits offered, but also the strategies used for investing plan assets,” CAGW said in a Feb . 10 news release. “Since many cost-plus federal contracts include clauses that ensure these pension plans are fully funded even if the plans' investment benchmarks are not met, taxpayers ultimately bear the investment risks associated with pension fund investment decisions made by some of the most profitable corporations in the United States.”

The taxpayer group said the structure of those contracts has encouraged several major federal contractors to maintain more expensive defined-benefits plans, even as most of government and private industry have moved away from those types of plans.

Although contractors have control over the type of plan offered and the investment decisions, the government agency ultimately bears the risk if the investment choices are poor, CAGW said. “This is a great deal for the companies but a raw deal for taxpayers,” the group said in a previous news release on the topic.

The taxpayer group said it has sent Freedom of Information Act requests to 14 federal agencies to obtain a fuller accounting of the taxpayer liabilities for contractor pensions.

In addition, the chairman of the Senate Armed Services Committee, Sen. Carl Levin, D-Mich., as well as Ranking Member John McCain , R-Ariz., have asked the GAO to analyze those liabilities at the Defense Department.