Is retiree health care next to go?

The AP reports on a change in accounting rules that could cause companies to abandon subsidized health coverage for their retirees. This comes amid reports that traditional pensions are falling by the wayside, transfering much of the risk of retirement from employers to employees.

With health care, private employers face the possibility of the costs becoming a threat to shareholder value.

Accounting regulations for both pensions and retiree health-care costs are poised to change in the next five years, in what could be the largest shift in accounting rules in more than 30 years.

"We believe this project will have a significant impact on evaluations, income and balance sheets, and will become the major issue in financial accounting over the next five years," said Howard Silverblatt, equity market analyst at Standard & Poor's.

The Financial Accounting and Standards Board, the arbiter of the nation's accounting rules, has said it will require companies to add their net pension and retiree health-care costs to their balance sheets within the next year. Then, over the next three or more years, the accounting methods for pensions and retiree health-care costs will also change.

The first change, which will move pension and retiree health- care costs from financial footnotes to balance sheets, could be dramatic, increasing companies' leverage and changing computed returns, book value and shareholder equity ratios. These ratios are closely watched, since many loans and bonds deals cap a company's leverage ratio. And the changes could be eye-popping. The aggregate drop in shareholder equity, for instance, will be 10 percent, Silverblatt wrote in a December report.

In today's corporate environment, one imagines companies will not be inclined to accept such a potent threat to the bottom line and to the value of their stock. Forcing a company to choose between its retirees and its shareholders places retirees in grave danger.