Retirement Heist: how companies plunder and profit from the nest eggs of American workers

Fast-forward to 2010: Because it would no longer be able to deduct the subsidy after 2013, AT&T had to reverse the value of the deduction it had recorded as a deferred tax asset. Although AT&T could continue to deduct the subsidy until 2013, accounting rules required it to recognize the change right away.

Under the alchemy that is retiree benefit accounting, AT&T, which in 2003 had estimated that the total value of the subsidy would be $1.6 billion, was now saying that losing the ability to deduct the subsidy—which it would still receive, tax-free—would erase $1 billion in deferred tax assets. Other companies reported surprisingly high charges but wouldn’t say how they calculated the amounts.

Towers Watson released a “study” concluding that the loss of the deduction would cost corporate America $14 billion in profits, though it, too, was thin on details about how it summoned up that figure. The irony was that if anyone had an incentive to inflate the figure, it was the administration, since a bigger figure would make it look like it was raising more revenue to pay for healthcare reform. Its estimate: $4.5 billion.

Henry Waxman, chairman of the House Energy and Commerce Committee, was suspicious of the figures, and called for a hearing of the Subcommittee on Oversight and Investigations. He invited the CEOs of Caterpillar, Verizon, Deere, and AT&T to disclose the assumptions they used to generate their giant accounting charges.

This provided fresh fodder to critics of health care reform. “Waxman Convenes the First Death Panel” was the eye-catching headline of an online editorial on the Wall Street Journal Web site. “Dems Threaten Companies for Revealing Obamacare Costs” was a flash line on Fox Nation. “Are they going to pressure these big companies into not really telling the truth about the economic effects of health care on their organizations?” asked Gretchen Carlson, co-host of Fox & Friends. The more animated online critics regressed to fifth-grade, calling Waxman a variety of names, including Nazi, Czar, and hobbit.

Though Representative Waxman’s doubts had to do with the size of the charges, not the timing, the companies, in an effective public relations move, accused the White House of playing political games with the accounting. A Wall Street Journal editorial pointed out (correctly) that “accounting rules require that corporations immediately restate their earnings to reflect the present value of their long-term health liabilities, including a higher tax burden.” Then it pointed out (incorrectly) that the administration was trying to force companies to commit accounting fraud. “Should these companies have played chicken with the Securities and Exchange Commission to avoid this politically inconvenient reality? Democrats don’t like what their bill is doing in the real world, so they now want to intimidate CEOs into keeping quiet.”

Meanwhile, Wall Street Journal reporters, who some believe were put on earth so that they and the Wall Street Journal editorial writers would cancel each other out, explained—take a deep breath—that the companies were merely taking noncash charges to reflect the loss of a deduction for the projected amount of tax-free money the companies expected to receive in the future, to pay drug benefits that retirees were paying for anyway.

That less-than-snappy message was what Commerce Secretary Gary Locke tried futilely to explain to reporters seeking a sound bite. In the wake of the backlash, Waxman postponed his hearing indefinitely. But the American Benefits Council, which represents three hundred large employers and has for years diligently worked to help eviscerate retiree health benefits, hosted a media briefing “to set the record straight” and urged the White House and Congress to repeal the change. The “new tax,” it said, would discourage companies from hiring new workers and lead to hardship for retirees. “The fact of the matter is, oneand-a-half to two million retirees will not be able to keep the coverage they like,” concluded James Klein, the spokesman.

AT&T, which had again slashed retiree health coverage in 2009 and 2010, said it was considering dumping its prescription drug coverage altogether. That prospect cheered shareholders; following the announcement, AT&T shares closed nine cents higher.

TROUBLEMAKERS

The false alarm about the impact of health reform on retiree health benefits is just one of the latest ways employers have used the opaque retiree accounting rules to dupe a gullible public. When it comes to retiree benefits, stirring people into a frenzy about supposed problems has always been an effective way to distract them from real problems and disguise the purpose of the proposed solutions.