Firms Warn of Cuts to Benefits

by Neil King, Jr
The Wall Street Journal
December 24, 2009

Some of the biggest employers in the U.S. are warning that a provision in the Senate’s proposed health-care overhaul could lead to cuts in retiree benefits and a sharp reduction in reported earnings next year.

Companies including Boeing Co., Deere & Co., MetLife Inc. and Xerox Corp. plan to lobby Democratic leaders to drop the provision, which would change the tax status of payments for retiree health benefits.

Democrats identified the change as a way to help pay for the health-care overhaul. It would raise about $5.4 billion over 10 years — a relatively small slice of the bill’s overall cost — according to estimates.

The AFL-CIO has joined the corporate giants in an unusual alliance to warn the provision would encourage companies to drop drug benefits for million of retirees.

One industry group estimated that as many as one-third of the companies providing the benefits could drop them to avoid the hit to earnings. Many of the companies that would be hardest hit are unionized and offer better retiree benefits than are available under Medicare.

Under the 2003 law that created a prescription-drug benefit known as Medicare Part D, companies that continued to provide such benefits on their own qualified for a 28% tax-free subsidy — worth about $600 a year per retiree. Hundreds of major companies took advantage of the provision and were able to list the subsidy on their balance sheets as a reduction to their retiree health liability.

But the Senate bill would tax the subsidy, dramatically increasing companies’ tax liability for years. Under U.S. accounting rules, companies would be required to register the change as a loss in earnings — all at once.

The article continues at WSJ.

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