S&P; Hits Planned Rule Change on Medical Benefits Accounting

Standard & Poor’s Corp., a major credit-rating agency, said Tuesday that a proposed accounting rule for retirees’ medical benefits would be prone to large errors and would distort companies’ balance sheets.

The proposed rule would make companies face up to reality by listing the future cost of retirees’ medical benefits as a liability on their books.

Rough estimates of the new liabilities range from $400 billion to $2 trillion for all U.S. companies.

“It’s not the concept that’s the problem so much as the implementation,” Solomon Samson, a Standard & Poor’s managing director, said in an interview. “You may be doing yourself more of a disservice, even though the objective is very noble.”

Samson said Standard & Poor’s would stick to its own method of estimating how retirees’ medical expenses would affect credit-worthiness.

Companies that promised generous medical benefits to employees upon retirement are seeking changes in the accounting proposal, which would force firms to slash their reported profits by billions of dollars.

Standard & Poor’s criticism, which first surfaced in a Wall Street Journal story Tuesday, was the severest yet in the ongoing debate.

Officials at Ford Motor Co. and American Telephone & Telegraph Co. said Tuesday in phone interviews that they support the change in principle but believe that it is too stringent as proposed.

Listing future medical benefits as a liability will sting all companies but especially ones that gave their employees better retirement medical benefits because it seemed cheaper in the short run than paying higher wages and salaries.

Hardest hit will be smokestack industries such as auto makers and steelmakers that have generous benefits packages and growing ranks of retirees, combined with slow growth or no growth in revenue.