AT&T's $1 Billion Charge Connected to Health Reform Is Just the Start
Under old laws, companies got a federal subsidy worth $1,330 for each retired worker on these programs. As a form of double dipping, corporations with the retiree benefit programs also got to deduct the subsidy. Thus, AT&T's problem. The tax benefit has gone away.
AT&T is not the first large American company to face the problem, and it will not be the last. Caterpillar (CAT) said it will take a $100 million charge. Deere (DE) will take a hit of $150 million. 3M (MMM) reported its charge will be $85 million to $90 million. AK Steel (AKS) will take a $31 million charge this quarter, the company said.
Most of the companies that will take the huge charges have not yet released their figures. Certainly, AT&T rival Verizon (VZ) will have a charge similar to Ma Bell's. Other large industrial companies with legacy retirement costs will take write-downs in the hundreds of millions of dollars. These companies could include GE (GE) and Boeing (BA).
Most firms losing the tax credit will have to disclose a number when they release first quarter 2010 earnings, if not before. Based on the figures to date, the aggregate cost of the health-care reform bill to major U.S. corporations will be in tens of billions of dollars. And, that's just for starters.