October 29, 2008
United States Court of Federal Claims Judge Nancy Firestone grants summary judgment in favor of Willkie client General Electric Company on the earnings assumptions used for charging pension costs to the government.
In a ruling that affects every government contractor with a pension plan, United States Court of Federal Claims Judge Nancy Firestone granted summary judgment in favor of Willkie client General Electric Company on the earnings assumptions used for charging pension costs to the government. Government contracts charge pension costs to the government based on assumptions about how much assets in the contractor’s pension plan will earn in the future. The higher the earnings assumption, the lower the pension costs. Historically, a company’s earnings assumptions for government contracts were generally 100 to 150 basis points lower than the earnings assumptions in the company’s financial statements. The government argued that because both types of earnings assumptions are labeled "best estimates," contractors that did not use their financial statement earnings assumptions when charging pension costs to the government had been in breach of both their government contracts and federal regulations for two decades.
In General Electric Company v. The United States, Judge Firestone rejected the government’s arguments and granted summary judgment for GE. The Court ruled that both the criteria and purposes for the two earnings assumptions were different, and therefore GE was justified in using different earnings assumptions. GE was represented by partner Richard Bernstein, assisted by associates Montgomery Engel and Malvika Malhotra.