Some firms respond by cutting benefits

TAKING RETIREES INTO ACCOUNT

January 17, 1993|By Kim Clark | Kim Clark,Staff Writer

An article in Sunday's Sun incorrectly implied that all retirees at Baltimore Gas and Electric Co. might have to pay more for their retirement benefits. Only those who retired after July 1, 1992, will face the possibility of paying more for retirement benefits.

* The Sun regrets the error.

Bel Air--After 30 years at American Can Co., M. Donald Williams took an early retirement offer because he thought his pension and benefits would provide a secure retirement for him and his wife. Besides, the engineer says, "the bean counters had taken over" and had shifted the company's emphasis from tin cans to music albums and financial deals.

Now, though, he says accountants are undercutting his retirement plans -- and those of millions of other Americans.

Spurred by a new rule that requires large companies to account up-front for retirees' health insurance costs, American Can's corporate parent last month stopped paying for health insurance for American Can's salaried retirees.

FOR THE RECORD - CORRECTION

The move saved New York-based Primerica Corp. at least $1.3 million a year. But it increased Mr. Williams' monthly health insurance premiums from $100 to $288.

"They are just getting chintzy," Mr. Williams says of Primerica. "It is those bean counters again."

Mr. Williams' anger is being echoed across Maryland and the nation as large employers brace for a March 31 deadline to adopt the new accounting rule, Financial Accounting Standards Board rule No. 106.

Only about 3 percent of U.S. companies have gone as far as Primerica, eliminating health benefits for retirees to avoid listing the liability on their books. But nearly two-thirds of the affected employers have significantly cut, or expect to cut, retiree health benefits to limit their liability, according to one recent survey.

That is already happening around Maryland. Workers and retirees from some of the area's biggest and best-known companies -- ranging from Westinghouse Electric Corp. to Baltimore Gas and Electric Co. to McCormick & Co. -- are receiving letters telling them to brace for higher premiums, higher drug payments and less coverage.

And this is only the beginning.

Smaller private employers whose books are done according to FASB standards will have to follow the rule by the end of 1994.

As a result, nearly every private sector worker who is counting on retiring with health insurance benefits will have to rethink their plans, those familiar with the rule predict.

"Somewhere down the line, this is going to affect you," warns Ed Emerman, a spokesman for Foster Higgins, the New York-based consulting firm that surveyed companies' plans for their retirees' health insurance.

Foster Higgins' survey outlined what employees and retirees can expect:

Nearly half of the companies will require retirees to pay more for their health insurance. More than a third will increase the deductible retirees pay. One out of four will make it tougher for employees to qualify for health care benefits in retirement.

The wildfire of benefit cuts already is causing financial pain to retired Marylanders, says Edna Butcher, the state director of the American Association of Retired Persons.

Health care is the No. 1 topic of conversation at the group's meetings, she said. "People are very concerned, not only for themselves, but for their children and grandchildren," who may see their retirement benefits cut even further.

The new accounting rule has hit the Baltimore area's oldest and most generous companies the hardest.

Young companies with few retirees, and the 53 percent of local companies that do not offer medical benefits to retirees, are not touched by it. Government employees also are not affected by the rule.

Managers of local companies that provide retiree medical insurance had been moving to limit rapidly rising benefits costs in recent years. The average retiree's medical claims rose from $1,733 in 1988 to $2,496 in 1991 -- an increase of nearly 50 percent, Foster Higgins says.

But the managers accelerated the cutbacks when they realized the impact of the FASB ruling. Their companies not only would have to pay, and account for, the expenses of their retirees' health claims as they came in, but also would have to acknowledge the full future cost of the promise to pay for their retirees' medical bills.

Because companies do not have to spend any more money because of the rule change, many retirees charge that companies are using the rule as an excuse to evade their responsibilities to retirees.

"We like the idea of declaring the liability," said Cathy Ventrell-Monsees, manager of worker equity for the AARP.

"But companies . . . have known about the rule for two years," she said. "These companies made money off these people for years and now they are gouging them. And there is nothing the retirees can do about it."

Local employers deny they are taking advantage of the rule.

They say it has made them declare a large liability that they will either have to pass on to their customers or subtract from their profits.

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