DA 95·2407 Federal Communications Commission Record 11 FCC Red No. 3 
Before the 
Federal Communications Commission 
Washington, D.C. 20554 
CC Docket No. 94-139 
In the Matter of 
AT&T Communications 
Tariff F.C.C. No. 1 and 13 
Transmittal Nos. 7322 and 7848 
Bell Atlantic Telephone Companies 
Tariff F.C.C. No. 1 
Transmittal Nos. 704 and 747 
ORDER DESIGNATING ISSUES FOR INVESTIGATION 
Adopted: November 29, 1995; Released: November 30, 1995 
Direct Cases Due: January 2, 1996 
Comments On Direct Cases Due: January 17, 1996 
Rebuttals Due: January 29, 1996 
By the Chief, Common Carrier Bureau: 
I. INTRODUCTION 
1. In this Order, the Common Carrier Bureau (Bureau) 
designates issues in its investigation of claims for exogenous 
treatment under price cap regulation of amounts associated 
with implementation of Statement of Financial Accounting 
Standards 112 (SFAS-112). On November 28, 1994, the 
Bureau initiated this investigation upon suspending AT&T 
Communications (AT&T) Transmittal No. 7322, which 
1 AT&T Communications Tariff F.C.C. No. 1, Transmittal No. 
7322, CC Docket No. 94-139, Memorandum Opinion and Order 
Suspending Rates, 9 FCC Red 7228 (Com. Car. Bur. 1994). 
2 AT&T Communications Tariff F.C.C. Nos. 1 and 13, Trans­
mittal No. 7848, CC Docket No. 94-139, Memorandum Opinion 
and Order, 10 FCC Red 899 (Com. Car. Bur. 1994). 
3 Bell Atlantic Tariff F.C.C. No. 1, Transmittal No. 704, CC 
Docket No. 94-139, Memorandum Opinion and Order Suspend­
ing Rates, 10 FCC Red 2942 (Com. Car. Bur. 1995); Bell Atlan­
tic Telephone Companies F.C.C. Tariff No. 1, Transmittal No. 
747, CC Docket Nos. 94-139 and 94-157, Memorandum Opinion 
and Order Suspending Rates, 10 FCC Red 5025 (Com. Car. Bur. 
1995). 
4 The FASS is the authoritative standard-setting body for the 
accounting practices that are used in the American business 
community. 
5 These benefits are distinguished from postretirement benefits 
other than pensions (OPEBs), which are accounted for pursuant 
to FASB's Statement of Financial Accounting Standards No. 
106, "Employers' Accounting for Postretirement Benefits Other 
Than Pensions." OPEBs typically consist of postretirement 
health and dental care benefits and life insurance. 
6 SFAS-112 amended FASB Statement Nos. 5 and 43 to address 
the accounting of postemployment benefits. Prior to the adop­
tion of SFAS-112, FASB Statement No. 5, "Accounting for 
Contingencies," did not address accounting for employment­
related costs and FASB Statement No. 43, "Accounting for 
1206 
proposed to increase certain rates and AT&T's price cap 
indices (PCis) to account for SFAS-112 costs, which AT&T 
asserted should be treated as exogenous under the Commis­
sion's price cap rules. 1 On December 14, 1994, the Bu­
reau's Tariff Division suspended and included in this inves­
tigation AT&T's Transmittal No. 7848, which increased 
rates to the maximum amount permitted by the PCI "in­
creases created in Transmittal No. 7322.2 The Bell Atlantic 
Telephone Companies' (Bell Atlantic) Transmittal Nos. 704 
and 747 raised similar issues and were thus suspended and 
included in the pending investigation of SFAS 112 exoge­
nous costs.3 In each of these Orders, the tariffs were sus­
pended and accounting orders imposed in the event the 
carriers' proposed rates were later found to be unreason­
able. 
II. BACKGROUND 
A. SFAS-112 
2. In November 1992, the Financial Accounting Stan­
dards Board (FASB)4 adopted Statement of Financial Ac­
counting Standards No. 112 (SFAS-112), which is entitled 
"Employers' Accounting for Postemployment Benefits."5 
For those companies that follow generally accepted ac­
counting principles (GAAP), SFAS-112 established new fi­
nancial accounting and reporting requirements6 for fiscal 
years beginning after December 15, 1993, for any employer 
offering so-called "postemployment benefits" to its empl_oy­
ees. Since 1985, the Commission has followed a policy of 
conforming regulatory accounting for carriers to GAAP, 
including new standards ordered by the FASB, unless 
adoption of the principle or practice conflicts with the 
Commission's regulatory objectives.7 The Commission man­
dated implementation of SFAS-112 for Part 32 accountinf 
for postemployment benefits on or before January 1, 1994. 
3. For SFAS-112 accounting purposes, postemployment 
benefits are benefits provided to former or inactive employ­
ees, their beneficiaries, and covered dependents. Inactive 
Compensated Absences," only addressed accounting procedures 
for amounts paid to active employees while on a compensated 
absence, specifically omitting all other long-term fringe benefits 
and postemployment benefits from the statement's coverage. 
SFAS-112 amended FASS Statement No. 5 to include the ac­
counting for postemployment benefits as loss contingencies. Ac­
cordingly, FASS Statement No. 5 now directs employers to 
recognize the estimated cost of postemployment benefits not 
addressed by FASB Statement No. 43 or other FASS Statements 
when it is probable that an asset has been impaired or a liability 
has been incurred, and the loss can be reasonably estimated. In 
addition, SFAS-112 amended FASS Statement No. 43 to direct 
employers to accrue a liability for postemployment benefits to 
former or inactive employees prior to retirement if all of the 
following conditions are met: 1) the employer's obligation relat­
ing to employees' rights to receive compensation for future 
absences is attributable to employees' services already rendered; 
2) the obligation relates to rights that vest or accumulate; 3) 
payment of the compensation is probable; and 4) the amount 
can be reasonably estimated. 
7 See Section 32.16 of the Commission's rules, 47 C.F.R. § 
32.16. 
8 RAO Letter 22, 8 FCC Red 4111 (Com. Car. Bur. 1993)(RAO 
Letter 22). 
11 FCC Red No. 3 Federal Communications Commission Record DA 95-2407 
employees are those who are not currently rendering ser­
vice to the employer but have not been terminated. They 
include employees who have been laid off or are on dis­
ability leave, regardless of whether they are expected to 
return to active status. Benefits may be provided to former 
or inactive employees in cash or in kind and may be paid 
as a result of a disability, layoff, death, or other event. 
Postemployment benefits include, but are not limited to, 
salary continuation, supplemental unemployment benefits, 
severance benefits, disability-related benefits (including 
workers' compensation), job training and counseling, and 
continuation of benefits such as health care benefits and 
life insurance coverage. SFAS-112 does not apply to 
postemployment benefits provided through a pension or 
postretirement plan, individual deferred compensation ar­
rangements, special or contractual termination benefits, 
and stock compensation plans. 
4. Prior to the adoption of SFAS-112, employers' meth­
ods of accounting for the costs of postemployment benefits 
varied. Some employers accrued the estimated costs of 
those benefits over the related service periods of active 
employees. Other employers applied a terminal accrual 
approach and recognized the estimated cost of those bene­
fits on the date of the event giving rise to the payment of 
the benefits (e.g., the death, disability, or layoff of an 
employee). Still other employers recognized the costs of 
postemployment benefits when they were paid, i.e., on a 
cash basis. 
5. In SFAS-112, FASB concluded that postemployment 
benefits are associated with employee compensation and 
are provided in exchange for service and should therefore 
be recognized on an accrual basis as they are earned by the 
employee rather than on a cash or "pay as you go" basis, 
or in some other manner.9 SFAS-112 thus directs com­
panies that follow GAAP to implement accrual accounting 
for postemployment benefit expenses, treating such benefits 
as a form of deferred compensation earned by employees 
during their working years. The costs of postemployment 
benefits must be recognized during the years the benefits 
are earned, rather than at the time of the event giving rise 
to the payment of benefits or during the years when the 
amounts of the benefits are actually paid by the company. 
SFAS-112 accounts for the employer's forecasted liability 
for postemployment benefits applicable to the current work 
force. 
6. SFAS-112 also recognizes two types of 
postemployment benefits amounts: the "ongoing" amount 
and the "transition" amount. The ongoing amount repre­
sents the accrual accounting of postemployment benefits 
that are booked (i.e., recognized on the company's financial 
9 Statement of Financial Accounting Standards No. 112, "Em­
ployers' Accounting for Postemployment Benefits," November 
1992, para. 3. 
10 Letter, 8 FCC Red 2961 (Com. Car. Bur. 1993). 
11 Cf. Southwestern Bell Corporation, GTE Service Corpora­
tion, Notification of Intent to Adopt Statement of Financial 
Accounting Standards No. 106, Employers' Accounting for 
Postretirement Benefits Other Than Pensions. 6 FCC Red 7560 
(Com. Car. Bur. 199l)(rejecting the flash-cut approach for im­
plementation of SFAS-106 because the transitional benefit ob­
ligation amounts involved were so large that immediate 
recognition would seriously distort LECs' earnings during the 
affected period). 
12 See 47 C.F.R. §§ 61.44, 61.45; see also Policy and Rules 
Concerning Rates for Dominant Carriers, CC Docket No. 
1207 
records) when the employee earns the benefits. The transi­
tion amount refers to the unfunded accrued amount of 
postemployment benefits that a company would have ac­
crued on its books as of the effective date of the accounting 
change regarding these benefits if the company had been 
operating under the accrual method all along. In addition 
to the change from cash-basis to accrual accounting, SFAS-
112 requires companies to book the amount of their 
unfunded obligation for postemployment benefits to active 
and inactive or former employees existing as of the date of 
their adoption of SFAS-112. 
7. SFAS-112 requires companies to implement the 
change to accrual accounting with immediate recognition 
of the transition amount in their first financial statements 
subject to SFAS-112. The Commission also adopted this 
"flash-cut" approach (i.e., recognition of the transition 
amount as an immediate, one-time operating expense) for 
implementation of SFAS-112, rejecting an approach under 
which carriers would amortize the transition amount over 
a specified period of time.10 In rejecting delayed recogni­
tion of the transition amount for SFAS-112 implementa­
tion, both FASB and the Commission reasoned that 
immediate recognition of the transition amount would not 
seriously distort operating results.11 
8. Under price cap regulation, the rates a carrier may 
charge are limited by PCis and service band indices. The 
PCis are adjusted annually based on a formula that takes 
into account inflation, the productivity of the telecom­
munications industry as compared to that of the economy 
as a whole, and changes in exogenous costs.12 Exogenous 
costs are generally costs triggered by administrative, legisla­
tive, or judicial actions that are beyond the control of the 
carriers and are not already reflected in the price cap 
formula. 13 The Commission found that a decision not to 
recognize exogenous costs in the PCI would either unjustly 
punish or reward the carrier by treating these uncontrolla­
ble changes as changes in the carrier's level of efficiency.14 
9. In April 1995, the Commission decided to limit exoge­
nous cost treatment of local exchange carriers' (LECs') cost 
changes that result from changes in GAAP and Uniform 
System of Accounts requirements to costs that otherwise 
meet the existing standards for exogenous treatment and for 
which the carrier incurs actual economic costs (i.e., a 
change in cash flow). is Accordingly, the LECs were or-. 
dered to adjust their PCis to exclude prospectively any 
accounting cost changes for OPEBs currently reflected in 
their PCis for which carriers did not incur an economic 
87-313, 5 FCC Red 6786, 6792 (1990)(LEC Price Cap Order), 
recon., 6 FCC Red 2637 (1991), aff'd sub. nom., National Rural 
Telecom Assoc. v. FCC, 988 F.2d. 174 (D.C. Cir. 1993); Policy 
and Rules Concerning Rates for Dominant Carriers, CC Docket 
No. 87-313, Report and Order and Second Further Notice of 
Proposed Rulemaking, 4 FCC Red 2873, 3026 (1989) (AT&T 
Price Cap Order), modified on recon., 6 FCC Red 665 (1991). 
13 See LEC Price Cap Order, 5 FCC Red 6786, 6806-6809 
( 1990); AT & T Price Cap Order, 4 FCC Red 2873, 3002-3021 
p989). 
4 See LEC Price Cap Order, 5 FCC Red 6786, 6807 (1990), 
citing AT&T Price Cap Order, 4 FCC Red 2873, 3187 (1989). 
is Price Cap Performance Review for Local Exchange Carriers, 
CC Docket No. 94-1, First Report and Order, 10 FCC Red 8962, 
paras. 292-320 (1995) (1995 LEC Performance Review). 
DA 95-2407 Federal Communications Commission Record 11 FCC Red No. 3 
cost. 16 The Commission stated that Bell Atlantic's exoge­
nous cost claim for cost changes resulting from SFAS-112 
will also be governed by the previous rule. It further stated 
that any future requests by a price cap LEC for exogenous 
cost treatment based on SFAS-112, however, will be gov­
erned by the revised rule. 1·7 The Commission recently pro­
posed to apply to AT&T's exogenous costs a standard 
similar to the standard adopted for the LECs. 18 
10. On January 22, 1993, in response to requests by 
certain LECs for exogenous treatment of costs associated 
with a similar change to accrual accounting for OPEBs 
under Statement of Financial Accounting Standard 106 
(SFAS-106), 19 the Commission adopted an Order denying 
such treatment of these costs.20 LECs appealed the Com­
mission decision to the United States Court of Appeals for 
the District of Columbia Circuit.21 The court held that 
under our rules, GAAP changes, once mandated by the 
Commission, are treated the same as changes made by the 
Commission to the Uniform System of Accounts, and thus 
are entitled to automatic exogenous treatment.22 In light of 
this holding, we concluded that SFAS-112 costs may be 
eligible for exogenous treatment.23 Consistent with our ap­
proach to SFAS-106 costs on remand, in this Order, we 
designate issues to determine the proper amounts of SFAS-
112 costs eligible for exogenous treatment.24 
B. The Investigation 
11. In this investigation, the Bureau has suspended 
AT&T's and Bell Atlantic's tariff transmittals seeking PCI 
adjustments for SFAS-112 exogenous costs, or rate increases 
based on such PCI adjustments. These transmittals repre­
sent the first efforts by AT&T and a LEC to adjust their 
PCI levels for costs caused by implementation of SFAS-112. 
12. On August 1, 1994, AT&T filed Transmittal No. 7322 
to increase certain mileage rates for customer dialed calling 
card calls and to adjust its PCis for each basket of service 
16 Id. at para. 308. 
17 Id. at para. 310. 
18 Policy and Rules Concerning Rates for Dominant Carriers, 
CC Docket No. 87-313, Revisions to Price Cap Rules for AT&T, 
CC Docket No. 93-197, Further Notice of Proposed Rulemaking, 
10 FCC Red 7854, para. 70 (1995). 
19 See Bell Atlantic Telephone Companies Tariff F.C.C. No. 1, 
Transmittal No. 497 (filed Feb. 28, 1992); US West Communica­
tions, Inc. Tariff F.C.C. Nos. 1 and 4, Transmittal No. 246 (filed 
Apr. 3, 1992); and Pacific Bell Tariff F.C.C. No. 128, Transmittal 
No. 1579 (filed Apr. 16, 1992). The Bureau suspended these 
transmittals for five months and initiated an investigation to 
which all price cap regulated LECs were made subject. Treat­
ment of Local Exchange Carrier Tariffs Implementing State­
ment of Financial Accounting Standards, "Employers 
Accounting for Postretirement Benefits Other Than Pensions," 
CC Docket No. 92-101, Order of Investigation and Suspension, 7 
FCC Red 2724 (Com. Car. Bur. 1992). 
20 Treatment of Local Exchange Carrier Tariffs Implementing 
Statement of Financial Accounting Standards, "Employers Ac­
counting for Postretirement Benefits Other Than Pensions," CC 
Docket No. 92-101, Memorandum Opinion and Order, 8 FCC 
Red 1024 (1993)(0PEB Order). 
21 Southwestern Bell Telephone Company v. FCC, 28 F.3d 165 
~D.C. Cir. 1994). 
. 
2 Id. at 169-170. 
23 AT&T Communications, F.C.C. Tariff No. I, Transmittal 
No. 7322, CC Docket No. 94-139, Memorandum Opinion and 
Order Suspending Rates, 9 FCC Red 7228 (Com. Car. Bur. 
1994)(SFAS-112 Suspension Order); see also, Bell Atlantic, 
1208 
rates to account for exogenous increases in its costs. In this 
filing, AT&T claimed $228.207 million of SFAS-112 costs 
as exogenous but subsequently revised its SFAS-112 exoge­
nous cost claim downward to $201.2 million.25 This 
amount constitutes AT&T's transition amount; AT&T did 
not claim any ongoing SFAS-112 exogenous costs. The 
Bureau determined that the filing involved several 
unresolved issues and, therefore, suspended AT&T's Trans­
mittal No. 7322 for one day, instituted an accounting or­
der, and initiated this investigation.26 The Bureau directed 
AT&T to include a statement in all future transmittals that 
revise rates indicating whether the price change is predi­
cated upon the exogenous cost claim set forth in Transmit-. 
tal No. 7322. AT&T subsequently filed Transmittal No. 
7848 to increase its rates to the maximum permitted by the 
PCI adjustments made in Transmittal No. 7322, thus rais­
ing the same issues that had prompted suspension of Trans­
mittal No. 7322. On December 14; 1994, the Bureau 
suspended Transmittal No. 7848 for one day27 and included 
it in the investigation initiated by the Order suspending 
Transmittal No. 7322.28 
13. This investigation also includes two Bell Atlantic 
tariff transmittals. On October 13, 1994, Bell Atlantic filed 
Transmittal No. 704 to revise its PCis and rates to recover 
amounts associated with its implementation of SFAS-112. 
Bell Atlantic requested exogenous treatment for $50.7 mil­
lion, on an annualized basis, of its SFAS-112 costs, includ­
ing both the transition amount and ongoing SFAS-112 
costs. The Bureau suspended Transmittal No. 704 for one 
day, instituted an accounting order, and included it in the 
pending investigation of AT&T's SFAS-112 claims.29 Bell 
Atlantic subsequently filed Transmittal No. 747 to increase 
its interstate access rates to recover. over a shorter period of 
time the exogenous costs for SFAS-112 and SFAS-106 ex­
penses at issue in its earlier tariff filings. 30 Transmittal No. 
747 revised Bell Atlantic's rates to recover the same 
amount of exogenous costs that would have been recovered 
F.C.C. Tariff No. 1, Transmittal No. 704, CC Docket No. 94-139, 
Memorandum Opinion and Order Suspending Rates, 10 FCC 
Red 2942 (Com. Car. Bur. 1995): 
24 Issues regarding exogenous treatment of SFAS-106 OPEBs 
costs are designated for investigation in 1993 Annual Access 
Tariff Filings, et al., CC Docket No. 93-193, Phase I, DA 95-1485 
~Com. Car. Bur., released June 30, 1995). 
5 AT&T Letter dated November 18, 1994, from M. F. Del 
Casino, Administrator-Rates and Tariffs to William F. Caton, 
Acting Secretary, Federal Communications Commission. 
26 SFAS-IJ2 Suspension Order, 9 FCC Red 7228 (Com. Car. 
Bur. 1994). 
27 AT&T Communications Tariff F.C.C. Nos. 1 and 13, Trans­
mittal No. 7848, CC Docket No. 94-139, Memorandum Opinion 
and Order, 10 FCC Red 899 (Com. Car. Bur. 1994). 
28 Id. 
29 Bell Atlantic, F.C.C. Tariff No. l, Transmittal No. 704, CC 
Docket No. 94-139, Memorandum Opinion and Order Suspend­
ing Rates, 10 FCC Red 2942 (Com. Car. Bur. 1995). 
30 See Bell Atlantic, F.C.C. Tariff No. l, Transmittal No. 704, 
CC Docket No. 94-139, Memorandum Opinion and Order Sus­
pending Rates, 10 FCC Red 2942 (Com. Car. Bur. 1995) (revis­
ing its rates and PC!s to recover SFAS-112 exogenous costs); 
Bell Atlantic Telephone Companies, Tariff F.C.C. No. l, Trans­
mittal No. 690, CC Docket No. 94-157, Memorandum Opinion 
and Order, 10 FCC Red 15CJ4 (Com. Car. Bur. 1994)(revising its 
rates and PC!s to recover SFAS-106 exogenous costs). 
11 FCC Red No. 3 Federal Communications Commission Record DA 95-2407 
before the annual 1995 filing but for a delay in the effec­
tive date of the original filings. The Bureau, therefore, 
suspended Transmittal No. 747 and made it subject to the 
existing SFAS-112 investigation.31 In its 1995 annual acc_ess 
tariff filing, Bell Atlantic withdrew the SFAS-112 on-gomg 
and transition amounts from its PCI in accordance with 
the Commission's statement in the 1995 LEC Performance 
Review.32 
14. In this Order, the Bureau designates issues, names 
parties, and establishes a ,pleading cycle for the investiga­
tion of SFAS-112 exogenous cost claims. In the interest of 
fairness and efficiency, we believe that all claims for PCI 
adjustments based on SFAS-112 exogenous costs would best 
be considered in a single proceeding. At this time, how­
ever, only AT&T and Bell Atlantic have filed transmittals 
to adjust their rates and PCis in order to recover ex?genous 
costs caused by the transition to accrual accountmg. We 
therefore make AT&T and Bell Atlantic parties to this 
proceeding. Other LECs may participate in this proceeding 
as commenting parties, as may other interested persons. 
15. On October 23, 1995, the Commission reclassified 
AT&T as a nondominant carrier in the market for inter­
state, domestic, interexchange telecommunications 
services.33 As a result of this reclassification, AT&T's resi­
dential, operator, 800 directory assistance, and analog 
private-line services will be removed from price cap _regul~­
tion.34 The issues raised and the data requested m this 
Designation Order will enable the Bureau to determine 
whether AT&T and Bell Atlantic accurately calculated 
their exogenous amounts associated with the change from 
cash basis to accrual accounting for postemployment bene­
fits. We do not believe that AT &T's reclassification as a 
nondominant carrier raises any additional issues at this 
stage of the investigation. Should the Bureau determine 
that AT&T or Bell Atlantic claimed too great an amount 
for these exogenous costs, the Bureau intends to issue a 
Supplemental Designation Order discussing. the effect of 
the disallowance and appropriate remedial actions, if neces­
sary.35 
III. DISCUSSION AND DESIGNATION OF ISSUES FOR 
INVESTIGATION 
16. In general, this investigation seeks to determine 
whether AT&T and Bell Atlantic's assumptions in calculat­
ing the costs of postemployment bene~t~ ar~ just and re_a­
sonable, in accordance with the Comm1ss1on s rules, and m 
the public interest. We hereby designate and seek comment 
on the following issues for investigation and request that 
AT&T and Bell Atlantic comment on the designated issues 
and provide the following specific items of information: 
31 Bell Atlantic Telephone Companies, Tariff F.C.C. No. 1, 
Transmittal No. 747, CC Docket Nos. 94-139 and 94-157, Memo­
randum Opinion and Order Suspending Rates, 10 FCC Red 
5027 (Com. Car. Bur. 1995). . . 
32 Bell Atlantic Telephone Companies 1995 Annual Pnce Cap 
Filing, Transmittal No. 777, Description and Justification, p.1-4, 
filed on May 9, 1995. 
33 Motion of AT&T Corp. to be Reclassified as a Non-Domi­
nant Carrier, Order, FCC 95-427, released October 23, 1995. 
. A. Designated Issues and Specific Information Require­
ments 
1. General Information on Claimed SFAS-112 
Postemployment Benefits Costs 
Issue A: Have AT&T and Bell Atlantic correctly cal­
culated the gross amount of SF AS-112 costs that may be 
subject to exogenous treatment under price cap regulation? 
17. AT&T and Bell Atlantic are directed to describe each 
type of postemployment benefit covered by the SFAS-112 
accounting rules that the company provides to former and 
inactive employees, their beneficiaries, and any covered 
dependents. Such benefits include, but are not limited to, 
the following: salary continuation; supplemental unemploy­
ment benefits; severance benefits; disability-related benefits; 
job training and counseling; and coi:itinuation of benefi_ts, 
such as health care benefits and life msurance. The parties 
are directed to include the following for each of the 
postemployment benefits provided by the company: (1) a 
description of the specific benefits provided to employees 
under each type of benefit package (i.e., the combination of 
benefits offered to any employee); (2) a statement specify­
ing the types of persons eligible to receiv~ each ty~e _of 
postemployment benefit (i.e., employees, their benefic1anes 
or dependents); (3) a statement as to how long each bene?t 
would continue after separation from the company; (4) m 
the case of salary continuation, supplemental unemploy­
ment, and severance benefits, an_ explanation of how the 
company computes the amount received by the employee; 
(5) for disability-related benefits, a description of all bene­
fits provided by the company's disability plan and any 
workers' compensation plans; and (6) a statement of wheth­
er employees are required to contribute to the cost of the 
postemployment benefit, including the amount of the com­
pany's and the employees' contribution. 
18. We direct AT&T and Bell Atlantic to explain the 
derivation of the amount of incremental costs that is the 
basis of their exogenous claims including: (1) the date the 
company implemented SFAS-112; (2) the cost basis of the 
pay-as-you-go amounts that supported the r_ates in ef~ect on 
the initial date that the carrier became subject to pnce cap 
regulation; (3) the effect of the price cap formula on that 
amount up to the date of conversion to SFAS-112; (4) the 
·carrier's actual cash expenditures related to SFAS-112 for 
each year since the implementation of price caps, prior to 
and following the implementation of SFAS-112 accounting 
methods; (5) the presentation of the carrier's actual cash 
expenditures in reports to the Securities and E~change 
Commission (SEC) and to shareholders each year smce the 
implementation of price caps to the yresent, including 
specific citations to or excerpted matenals from, such re­
ports to indicate the amount of liability each p_art_y has 
projected for postemployment benefits; (6) a descnpt~on ~f 
the forms of postemployment benefit accrual accountmg, 1f 
1209 
34 Because the Commission deferred consideration of AT &T's 
market power in international markets, Bas_ket l international 
services will remain under price cap regulation. Id. at para. 12, 
n.44. AT&T's reclassification becomes effective on November 22, 
1995. 
35 We would expect to follow the same procedures in the 
pending SFAS-106 investigation. 
DA 95-2407 Federal Communications Commission Record 11 FCC Red No. 3 
any, that were utilized before the effective date of price cap 
regulation; and (7) a description of the type and the level 
of SFAS-112-type expenses reflected in rates before they 
were adjusted for any exogenous treatment related to 
SFAS-112. 
Issue B: Should exogenous claims be permitted for SF AS-
112 costs incurred prior to January 1, 1994, the Commis­
sion's date for mandatory compliance? 
19. On June 17, 1993, the Bureau's Accounting and 
Audits Division issued RAO· Letter 22 mandating imple­
mentation of SFAS-112 for carriers subject to the Commis­
sion's Uniform System of Accounts on or before January 1, 
1994.36 AT&T and Bell Atlantic have included, in their 
claims for exogenous treatment of SFAS-112, costs incurred 
from January 1, 1993, which is prior to January 1, 1994, 
the date that the Accounting and Audits Division autho­
rized adoption of SFAS-112 accounting methods. We seek 
comment on whether costs incurred prior to the Commis­
sion's date for mandatory compliance with SFAS-112 are 
eligible for exogenous treatment. 
2. Regulatory Separations and Allocations 
Issue C: Have AT&T and Bell Atlantic correctly allocated 
and separated amounts associated with implementation of 
SFAS-112 in accordance with the Commission's rules? 
20. The following information must also be provided in 
the direct cases: (1) amounts associated with implementa­
tion of SFAS-112 for the total company (including tele­
phone operations and non-telephone operations); (2) an 
explanation of how the carrier calculated the total com­
pany SFAS-112 amounts; (3) the amounts allocated to the 
telephone operating companies, the specific Part 32 Ac­
counts to which they are assigned, and the amounts al­
located to each of those accounts; (4) the met.hod (e.g., 
head counts, actuarial studies ) of allocating amounts to the 
telephone operating companies; (5) the amounts allocated 
between regulated and non-regulated activities of the tele­
phone company pursuant to Part 64 of the Commission's 
rules, 47 C.F.R. § 64.1 et seq., together with a description 
and justification of the methodology for the allocations; 
and (6) the allocation of costs to price cap baskets, by 
year.37 
3. VEDA Trust Information 
Issue D: How should Voluntary Employee Benefit Associ­
ation trusts or other mechanisms for funding expenses sub­
ject to SFAS-112 be treated: (1) if implemented before price 
caps; (2) if implemented after price caps, but before the 
change required by SFAS-112; and (3) if implemented after 
the change in accounting required by SFAS-112? 
36 RAO Letter 22, 8 FCC Red 411 l. 
37 Price cap baskets are broad groupings of services, each 
subject to its own price cap. See LEC Price Cap Order, 5 FCC 
Red 6786, 6788; see also, AT & T Price Cap Order, 4 FCC Red 
2873, 3037-3038. LECs subject to price cap regulation separate 
their services into four baskets: a basket for the common line 
interstate access elements; a basket for traffic sensitive switched 
interstate access elements; a basket for trunking services; and a 
basket for interexchange services. 47 C.F.R. § 6!.42(d). AT&T's 
services subject to price cap regulation are divided into three 
1210 
Issue E: Should exogenous treatment for SFAS-112 
amounts be limited to costs that are funded? 
21. The following information must be provided if the 
company established Voluntary Employee Benefit Associ­
ation (VEBA) trusts or other mechanisms for funding 
SFAS-112-type expenses prior to or after the adoption of 
SFAS-112, whether or not such trusts have since been 
terminated:38 (1) a description of any VEBA trust or other 
funding mechanisms for postemployment benefits estab­
lished prior to or after the adoption of SFAS-112; (2) a 
statement of the purpose of the VEBA funds and a descrip­
tion of SFAS-112 postemployment benefits covered by each 
VEBA fund, trust or other mechanism; (3) the amounts 
placed in these funds for each year since they were imple­
mented; (4) a description of the amounts placed in the 
trust for ongoing postemployment benefits and for the 
transition amount; (5) a description of the assumptions 
made when the funds were set up, including, but not 
limited to, the time value of money, expected long-term 
rate of return on plan assets, projected downsizings and 
layoffs, compensation levels for supplemental unemploy­
ment benefits and salary continuation, and age, health, and 
workplace safety factors affecting the amount and timing of 
disability-related benefits and continuation of health care 
and life insurance benefits;39 and (6) a description of the 
restrictions, if any, that prevent these VEBA funds from 
being used to fund benefits other than SFAS-112 
postemployment benefits. 
4. Vesting of SFAS-112 Postemployment Benefits 
Issue F: Should exogenous treatment be given only for 
amounts associated with employee interests that have vest­
ed? 
22. We direct AT&T and Bell Atlantic to provide docu­
mentation showing when the employees' interests vest in 
each type of postemployment benefit offered by the com­
pany. Also, such companies must explain how they deter­
mine when an employee's interest in postemployment 
benefits vests. 
5. Treatment of Deferred Tax Benefits 
Issue G: How should the deferred tax benefit applicable to 
SFAS-112 postemployment benefits be treated for purposes 
of exogenous adjustments? 
23. AT&T and Bell Atlantic are directed to describe on a 
year-by-year basis any exogenous adjustments made to re­
flect any deferred tax benefit associated with their 
postemployment benefits accrual amounts. The companies 
are also directed to provide an explanation if there are no 
such adjustments. 
baskets: a residential and small business services basket, an 800 
service basket, and a business services basket. 47 C.F.R. § 
61.42(a). 
38 VEBA Trusts are tax effective funding vehicles that gen­
erally forbid removal or transfer of funds except for the purpose 
for which they were established. See 26 U.S.C. § 50l(c)(a). If the 
company does not maintain such a trust, it should make a 
statement to that effect in its direct case. 
39 See paras. 26 and 27, infra. 
11 FCC Red No. 3 Federal Communications Commission Record DA 95-2407 
6. Supporting Studies and Models 
24. We require each company to include in its direct 
case all studies upon which the company seeks to rely in 
its demonstration that these accounting changes should be 
reflected by an exogenous cost adjustment. This includes 
studies demonstrating any correlation, or lack thereof, be­
tween the accounting changes and the following: the cur­
rent price cap formulas; inflation adjustments to price cap 
formulas; the carrier's productivity; previously allowed ex­
ogenous changes,40 such as changes in state tax rates. Fur­
ther, because the price indices used to measure inflation in 
the price cap formula41 presumably already reflect the cost 
of postemployment benefits, the companies should include 
information on what adjustment, if any, should be made in 
the exogenous adjustment to avoid double counting. If an 
adjustment has been made, parties and commenters shall 
document how the adjustment was computed. Finally, each 
company shall include in its direct case all studies upon 
which the company seeks to rely to demonstrate that the 
costs associated with implementation of SFAS-112 are not 
already reflected in the rates in effect on the initial date 
that the carrier became subject to price cap regulation. 
25. Parties and commenters relying on a macroeconomic 
model shall fully describe and document the model, in­
cluding the method of estimation, parameter estimates, and 
summary statistics. These same data should be submitted 
for any alternate functional forms that were modeled, in­
cluding the data used to estimate the model, the data used 
in making forecasts from the model, and the results of any 
sensitivity analyses performed to determine the effect of 
using different assumptions. Parties and commenters that 
rely on macroeconomic models must submit sufficient in­
formation, either with their direct cases or comments, to 
enable others to replicate the results. 
26. AT&T and Bell Atlantic shall provide a complete 
copy of all actuarial reports and studies used to determine 
SFAS-112 amounts for each type of postemployment bene­
fit provided by the company. Companies are also directed 
to provide descriptions and justifications of all actuarial 
assumptions, including the assumptions unique to 
postemployment benefits, made in computing the SFAS-
112 expenses. These assumptions should include, but are 
not limited to, the time value of money. expected rate of 
return on plan assets, participation rates, per capita claims 
cost by age, salary progression (for salary continuation and 
other severance benefits), probability of payment of each 
type of postemployment benefit, and assumptions regarding 
termination from active service due to layoffs (i.e., involun­
tary separations); downsizing affected through early retire­
ment and reduced hiring; retirement; disability; and death. 
Parties and commenters should also discuss what assump­
tions, if any, were made about other future events such as 
capping or elimination of benefits, or the possible advent 
of national health insurance. 
40 See 47 C.F.R. §§ 6U4(c), 6U5(d). 
41 The Gross Na1ional Product Price Index (GNP-Pl) and the 
Gross Domestic Price Index (GDP-Pl) are measures of inflation 
in the general economy. The Commission recently adopted the 
use of GDP-Pl for calculating LEC PCls. Price Cap Performance 
Review for Local Exchange Carriers. CC Docket No. 94- l, lO 
FCC Red 8962, paras. 347-351 (1995). AT&T continues to apply 
the GNP-PI when calculating its PCls. See Policy and Rules 
Concerning Rates for Dominant Carriers, CC Docket No. 
1211 
27. We also direct AT&T and Bell Atlantic to submit all 
options provided by actuaries from which information was 
selected to derive SFAS-112 amounts including, but not 
limited to: the ranges of data on the age and size of the 
workforce; the ages at which employees separate; and 
length of separation prior to finding new employment. The 
companies should explain and provide documentation of 
the extent they accounted for the possibility of future 
downsizing or layoffs in the workplace. They should pro­
vide information on what adjustments they have made to 
their SFAS-112 amounts for any layoffs or downsizing that 
have occurred since the adoption of SFAS-112. They 
should give full details of these adjustments. 
7. Miscellaneous Supporting Information 
28. Each company must provide information on its aver­
age total compensation per employee and the amount of 
this total compensation represented by postemployment 
benefits. We ask parties and commeriters to provide similar 
data for the economy as a whole for comparison. This 
comparison between the amount of total compensation 
represented by postemployment benefits for the carrier and 
the economy as a whole is consistent with the Commis­
sion's inclusion in the price cap formula of a productivity 
factor that accounts for the productivity of the carrier 
regulated under price caps as compared to the economy as 
a whole.42 
29. Because the accruals for postemployment benefits 
generally represent non-cash expenses that may never be 
paid, we direct the parties to describe the provisions they 
have made, if any, to return to ratepayers the over-accrual, 
if any, of the non-cash expenses if exogenous treatment is 
given for these amounts. The parties should describe any 
plans they have to return such monies to customers 
through voluntary PCI reductions or other means. They 
should also describe how they recognize these gains from 
such over-accruals on their books of account. 
30. The accrual calculations used by the companies to 
develop their claims for exogenous treatment for SFAS-112 
amounts are, in part, based on the postemployment bene­
fits provided pursuant to contracts between the companies 
and their employees. Many of these contracts are currently 
being renegotiated. Postemployment benefits reportedly 
have been a significant issue in these negotiations. Since 
any change in postemployment benefits affects future ac­
crued amounts, it is, therefore, necessary to compare new 
postemployment benefits contracts to prior calculated ac­
cruals to determine whether the prior calculations were 
reasonable. In particular, we are interested in determining 
whether any underlying actuarial assumptions have 
changed. During the course of this investigation, the parties 
shall document any and all changes made in 
postemployment benefits offerings to employees and shall 
87-313, Revisions to Price Cap Rules for AT&T, CC Docket No. 
93-197, Further Notice of Proposed Rulemaking, 10 FCC Red 
7854, at n.13 ( 1995). 
42 Historically, the telecommunications industry maintains a 
higher level of productivity than the economy as a whole. See 
para. 9, supra. 
DA 95-2407 Federal Communications Commission Record 11 FCC Red No. 3 
also submit any such new contracts with employees and 
their representative unions affecting postemployment bene­
fits. 
B. Investigation Procedures 
31. This investigation will be conducted as a notice and 
comment proceeding; pursuant to Section 1.411 of the 
Commissions Rules.43 CC Docket No. 94-139 will be used 
as the designation for this investigation. AT&T Commu­
nications and the Bell Atlantic Telephone Companies are 
designated as parties. These parties shall file their direct 
cases no later than 30 days after release of this Order. The 
direct cases must present the parties' positions with respect 
to the issues described in this Order. Pleadings responding 
to the direct cases may be filed no later than 15 days after 
the filing the direct cases, and must be captioned "Opposi­
tion to Direct Case" or "Comments on Direct Case." Par­
ties may each file a "Rebuttal" to oppositions or comments 
no later than 7 days after the filing of comments on or 
opposition to the direct cases. 
32. An original and seven copies of all pleadings must be 
filed with the Secretary of the Commission. In addition, 
one copy must be delivered to the Commission's commer­
cial copying firm, ITS, Room 246, 1919 M St., N.W., 
Washington, D.C. 20554. Members of the general public 
who wish to express their views in an informal manner 
regarding the issues in this investigation may do so by 
submitting one copy of their comments to the Secretary, 
Federal Communications Commission, 1919 M Street, 
N.W., Washington, D.C. 20554. Comments must specify the 
docket number of this investigation. 
33. All relevant and timely pleadings will be considered 
by the Commission. In reaching a decision, the Commis­
sion will take into account information and ideas not 
contained in pleadings, provided that such information or 
a writing containing the nature and source of such in­
formation is placed in the public file, and provided that 
the fact of reliance on such information is noted in the 
Order. 
34. Ex pane contacts (i.e., written or oral communica­
tions that address the procedural or substantive merits of 
the proceeding and that are directed to any member, of­
ficer, or employee of the Commission who may reasonably 
be expected to be involved in the decisional process in this 
proceeding) are permitted in this proceeding until a public 
notice of scheduled Commission consideration of a final 
Order is released and after the final Order itself is issued. 
Written ex parte contacts must be filed on the day of the 
contact a_nd must be submitted with the Secretary and 
Commission employees receiving each presentation. For 
other requirements, see Renerally Section 1.1200 et seq. of 
the Commission's rules.44 
35. The investigation established in this Order is exempt 
from the requirements of the Paperwork Reduction Act of 
1995.45 
43 
.lJ C.F.R. § 1.411. 
44 See 47 C.F.R. § 1.1200 el seq. 
45 See 44 U.S.C. § 3518(c)(l)(B)(ii)). 
1212 
VII. ORDERING CLAUSE 
36. Accordingly, IT IS ORDERED that, pursuant to 
Sections 4(i), 40), and 204(a) of the Communications Act 
of 1934, 47 U.S.C. §§ 154(i), 1540), 204(a), AT&T Com­
munications and the Bell Atlantic Telephone Companies 
SHALL RESPOND to the issues designated in this Order 
Designating Issues for Investigation, no later than 30 days 
after release of this Order. Interested parties may file plead­
ings responding to the direct cases no later than 15 days 
after the filing of the direct cases, and AT&T Communica­
tions and the Bell Atlantic Telephone Companies may file 
rebuttals no later than 7 days after the filing of the re­
sponses to the direct cases. 
FEDERAL COMMUNICATIONS COMMISSION 
Regina M. Keeney 
Chief, Common Carrier Bureau