A brief breakdown of allowable costs for retirees, leases, and rents

A brief breakdown of allowable costs for retirees, leases, and rents

When using federal program grants to cover retirement benefits, leases, and rents, keep in mind there are well defined parameters and that particular care must be exercised when doing so.

Outlined in a federal manual released last year for program auditors–Executive Office of the President & Office of Management & Budget, 2 CFR Part 200, Appendix XI: Compliance Supplement–are the rules pertaining to “allowability” (bureau-speak for what is permissible and what is not).

To a large extent, the guide takes care to address common or egregious errors to which “auditors should be alert.” Previous ESEA Insiders have addressed costs associated with separation, severance, and “pay-as-you-go” retirement.

So today we examine benefits with an actuarial retirement, leases, and rents.

Health benefits under actuarial retirement: Retirement based on an actuary is one calculated for contributions to maintain a certain periodical allowance, frequently referred to as “a defined benefit,” after a person leaves service. It is the most common system employed in public education, and you can find more in-depth information at Actuarial Consulting Group, Inc.’s “Frequently Asked Questions.”

Title 2 of the Code of Federal Regulation [§200.431(h)(2) Compensation—fringe benefits] notes that post-retirement benefit costs are allowable under federal rules provided they are tracked using Generally Accepted Accounting Principles and “they are funded for that year within six months after the end of that year.” Your business division should be well acquainted with GAAP. The half-year interval can be extended under certain conditions and we advise you work with your auditor and/or the granting agency if you desire to make such arrangements.

As detailed in past Insiders, any pension expenditures with federal dollars must meet the test of reasonableness and must be non-discriminatory (i.e., consistent for all employees).

Leases and Rents: Reasonability also applies to payments for temporary use of equipment and property. The necessity to avoid any appearance of impropriety or conflict of interest when making such arrangements is equally important, as the compliance supplement refers to possible neglect of this standard as a “less-than-arms-length-relationship,” stressing that the fair market value frequently charged by a vendor is often more than “costs of ownership.”

Consequently, care must be taken to justify the price.

Keep in mind that ensuring a contract remains at “arms-length” involves avoiding situations wherein “one party…is able to control or substantially influence the actions of the other” (Title 2 CFR §200.465(c)  Rental costs of real property and equipment).

To guarantee the type of distance subscribed in the code, scrupulously follow the procedures outlined in the aforementioned federal manual.