New accounting rules endanger pension, health benefits

New federal accounting rules could cause employers to further restrict or eliminate pension and health benefits for their workers.

The new rules require balance sheets to reflect the cost of current and projected benefits and the effect they have on the bottom line.

The changes — likely to begin by year's end — come as a growing number of companies freeze pensions and cut retiree health benefits, shifting risks and costs to workers. In recent weeks, IBM and Verizon Communications have joined the list of those announcing they will freeze their pension plans.

But some experts say regulations requiring companies to more accurately calculate and show the cost of their retirement promises could speed up the move by employers away from guaranteed pensions and other benefits.

"Changing accounting rules can cause companies to change their behavior," said David Zion, an accounting analyst with Credit Suisse First Boston.

Rules now in place give companies cover. Many have made expensive retirement promises without putting aside all the money needed to meet them. But they don't have to fully disclose the shortfalls in their earnings statements or on their balance sheets.

Instead, firms can post very positive numbers based on assumptions about investment returns, when the actual returns would hurt their results. And while companies are required to disclose pension figures in footnotes to financial statements, even those can be difficult to decipher.

"If you change those rules, you take that protection away, and our thinking is companies may have to go out and protect themselves," Zion said.

"Protecting themselves" could mean scaling back benefits in a climate that is already trending away from the secure pensions that generations of workers came to take for granted. Future generations of American workers may find themselves bearing the majority, if not all, of the risk for their medical and retirement security.