B-305402, National Aeronautics and Space Administration--Retention of Demutualization Compensation, January 3, 2006

B-305402 Jan 03, 2006 Jump To VIEW DECISION DOWNLOADS RELATED PAGES GAO CONTACTS Highlights The National Aeronautics and Space Administration may not retain proceeds from the sale of demutualization compensation received from its contractor, California Institute of Technology (Caltech). Caltech had received demutualization compensation in the form of stock from Prudential Life Insurance Company on policies held for the benefit of employees who operated a NASA laboratory pursuant to a long-standing contract between NASA and Caltech. The proceeds do not qualify as a repayment to NASA, and NASA has no authority to retain and credit to its appropriation proceeds from the sale of the compensation. Accordingly, NASA must deposit them into the Treasury as miscellaneous receipts under 31 U.S.C. sect. 3302(b). After NASA determined that proceeds from the sale of demutualization compensation were public moneys, NASA should have ensured that such proceeds were deposited in the United States Treasury the day following receipt of those proceeds. Directing Caltech officials to deposit proceeds in an interest-bearing money market account violated 31 U.S.C. sect. 3302(c)(1) and Treasury Regulation, 31 C.F.R. sect. 206.5(a)(1). View Decision B-305402, National Aeronautics and Space Administration--Retention of Demutualization Compensation, January 3, 2006 Decision Matter of: National Aeronautics and Space Administration—Retention of Demutualization Compensation File: B-305402 Date: January 3, 2006 DIGEST 1. The National Aeronautics and Space Administration may not retain proceeds from the sale of demutualization compensation received from its contractor, California Institute of Technology (Caltech). Caltech had received demutualization compensation in the form of stock from Prudential Life Insurance Company on policies held for the benefit of employees who operated a NASA laboratory pursuant to a long-standing contract between NASA and Caltech. The proceeds do not qualify as a repayment to NASA, and NASA has no authority to retain and credit to its appropriation proceeds from the sale of the compensation. Accordingly, NASA must deposit them into the Treasury as miscellaneous receipts under 31 U.S.C. sect. 3302(b). 2. After NASA determined that proceeds from the sale of demutualization compensation were public moneys, NASA should have ensured that such proceeds were deposited in the United States Treasury the day following receipt of those proceeds. Directing Caltech officials to deposit proceeds in an interest-bearing money market account violated 31 U.S.C. sect. 3302(c)(1) and Treasury Regulation, 31 C.F.R. sect. 206.5(a)(1). DECISION This responds to a request for a legal decision regarding the appropriate treatment of demutualization compensation that National Aeronautics and Space Administration (NASA) received from its contractor, California Institute of Technology (Caltech). Caltech had received the demutualization compensation in the form of stock as a policyholder of Prudential Life Insurance Company (Prudential) policies that Caltech held for its employees operating the Jet Propulsion Laboratory (JPL) for NASA. NASA and Caltech agree that, under NASA's contract with Caltech, the demutualization compensation belongs to the U.S. government. NASA asked whether the proceeds from this demutualization compensation, approximately $17,300,000, must be deposited in the Treasury as miscellaneous receipts, pursuant to 31 U.S.C. sect. 3302(b), or may be retained by NASA and credited to its appropriation. For the reasons stated below, we conclude that NASA must deposit the proceeds from the demutualization compensation in the Treasury as miscellaneous receipts. BACKGROUND NASA has a longstanding contract with Caltech for operation of JPL in Pasadena, California. Letter to David M. Walker, Comptroller General, from John G. Mannix, Deputy General Counsel, NASA, April 27, 2005 (April Letter). Until 1993, Caltech provided JPL employees with a defined benefit plan funded by a group annuity policy with Prudential. Under the contract between NASA and Caltech, NASA reimbursed Caltech for the costs associated with JPL employees' retirement plans. Caltech terminated the defined benefit plan in 1993. Under the termination plan, some beneficiaries elected to received accrued benefits through annuitized payments. To ensure that payments were made, Caltech continued to hold policies with Prudential. In December 2000, Prudential reorganized from a mutual life insurance company to a stock life insurance company owned by shareholders. Under this reorganization, the Prudential policyholders, including Caltech, received demutualization compensation in the form of stock in exchange for their ownership interests in Prudential. Prudential issued 453,520 shares of stock to Caltech.