Taxpayers contributed more than $3.3 billion to the pension programs of 18 of the biggest federal contractors in 2010, according to estimates by the Citizens Against Government Waste (CAGW) watchdog group.
The government reimburses contractors for payments they make into their employee pension plans, regardless of whether the company's pension investment decisions earn or lose money, the group said in a report released Friday.
The CAGW estimates the government reimbursed Lockheed Martin Corp., the largest federal contractor, $988 million in 2010 for its pension payments. The figure for Raytheon was $667 million, and for Northrop Grumman Corp., $529 million.
"This can lead to moral hazard and higher federal spending, making it a challenge for all government agencies to meet their core mission and responsibilities, while at the same time using taxpayer money to subsidize investment decisions made by some of the most profitable corporations in the United States," the group said in the report.
CAGW said the government can save money by changing its policies for funding contractor pension programs. Specifically, it urged the government to:
• Require that its reimbursements to contractors' pension plans be based on actuarial assumptions required under federal law, not the contractors' own assumptions.
• Require that market losses in invested pension funds be recouped from the contracting companies that make the investment decisions, instead of taxpayers.
• Stop reimbursing contractors for defined-benefit pension plans for new employees and instead reimburse them only for defined contribution plans, such as a 401(k) plan.
The Energy Department paid $3.6 billion to contractors as reimbursement for pension fund payments, according to a report last year by the Government Accountability Office. The Energy Department came under scrutiny because it relies on a large number of contractors to operate its facilities.
The Energy Department issued a policy in 2006 saying it would only pay only for contractors' defined contribution plans. However, the department suspended that policy a year later because of complaints from contractors and members of Congress, CAGW said in its report.
If the Energy Department had kept that policy in place for the last 10 years, and assuming that new contract employees would have contributed the maximum 10 percent of their salaries to their pensions, taxpayers would have saved $69 million, CAGW estimates.
The group has requested information on contractor pension plans and reimbursement payments from 14 federal agencies. The leaders of the Senate Armed Services Committee also are looking into the issue of contractor pension liabilities at the Defense Department.