WASHINGTON — Many companies that pay health benefits to retired employees are going to be in for a shock when planned regulations require them to account for such costs in reporting profits, according to a study released today.
The stock market could be in for a shock too, said Dallas Salisbury, president of the Employee Benefit Research Institute which released the study.
The regulations could push stock prices down, lower corporate earnings, limit borrowing abilities, affect multibillion-dollar acquisition decisions and cause some companies to cease operations, it said.
The independent research group's study covers the impact of requirements expected early next year from the Financial Accounting Standards Board, a regulatory body which sets standards for the financial reporting of U.S. corporations.
Salisbury outlined at a news briefing consequences of the regulations, which are expected to require companies to report new liabilities averaging $2,000 or more per employee.
This would reduce the net reported income of companies at the top of the Fortune 500 list by an average of about 14% and wipe out net profits of some companies at the lower end of the list, the study said.
"It's a bit of a bombshell sitting there that could have a very significant impact on corporate values," Salisbury said.
"Very, very few companies that promise these benefits have really looked beyond the tips of their noses on liabilities inherent in the promise," he said.
The institute said that estimates of the potential liability for all companies that provide retiree health benefits range from $100 billion to $2 trillion but that few companies realize the extent of their future expenses.
Early next year, the regulatory board is expected to require companies to project the health benefits they will have to pay to retired employees.