More fuel for the fire ... aka costs to companies and taxpayers/retirees/consumers, etc. I wonder if GM, Chrysler, AIG, Fannie Mae, and Freddie Mac are complying with SEC regs? If so, why aren't these heavily government subsidized/owned entities reporting these increased costs per the SECs guidelines? Maybe because that's a part of the financial equation of new costs the fed wants them to keep quiet about? Hmmmmm??


"Top Dems Call Companies 'Irresponsible' for Taking Write-Downs on Retiree Drug Benefits -- Even Though Federal Rules Require It
Friday, April 02, 2010
By Christopher Neefus


“I am from the Government, and I am here to HELP!”

The scariest words in America

(CNSNews.com) – Democrats are going on the offensive against major companies who have announced they will take a financial hit from the passage of health-care reform, saying it’s a ploy to make President Obama look bad.

Commerce Secretary Gary Locke has condemned the moves as "irresponsible" and Rep. Henry Waxman (D-Calif.) has launched an investgation, summoning the CEOs of the companies to Capitol Hill on April 21.

However, the companies say they warned the Obama administration and Congress about the issue last year, before Congress voted on the bill, and a prominent economist tells CNSNews.com that the companies are simply acting in accordance with federal Securities and Exchange Commission (SEC) rules.

Explaining the problem

In the last week, corporations like AT&T, Caterpillar, Deere & Co., and 3M have said they will collectively take write-downs into the billions of dollars because of a change in a federal subsidy that had helped the companies provide drug coverage for their retirees, keeping those seniors from joining the Medicare Part D benefit in droves.

(A “write-down” occurs when a company reports a reduction in the value of its assets compared with the value it trades for on the stock market.)

The 28 percent subsidy previously was tax-free, but President Obama’s new health-care reform law treats it as taxable income. As a result, the businesses are revising their earnings estimates downward to reflect the new costs, and some seniors may find themselves on Part D if the companies eventually decide they can’t absorb the loss.

AT&T has said the change will cost it $1 billion, Deere expects to lose $150 million, Caterpillar predicts a cost of $100 million, and 3M is projecting a $90 million loss.

Secretary Locke took to the White House blog on March 25 to counter the “couple of companies” that he said had begun to “imply that reform will raise costs for them.”

“This change is part of an overall reform package that will provide substantial benefits to employers and their employees,” he said, listing new benefits like reinsurance for early retirees and removing the “hidden tax” of emergency care for the uninsured.

Locke took a more combative tone later in the week on CNBC, saying that announcing the write-downs was “irresponsible.”

“A lot of the regulations on how this will affect big business haven’t even been published yet, so for them to come out, I think is premature and irresponsible,” he said on March 27.

But Diana Furchtgott-Roth, a senior fellow and economist at the nonpartisan Hudson Institute, said Locke is really criticizing the SEC, because the companies are merely following federal regulations that have long been in place.

“It’s not ‘irresponsible,’ because if they don’t report it, the SEC is going to come down on these companies like a ton of bricks,” she told CNSNews.com. “They’re required to file by SEC regulation when something in their earnings path changes.”

The administration position is untenable, according to Furchtgott-Roth..

“You can’t have the Secretary of Commerce saying that the SEC rules don’t make sense. You can’t have one department contradicting another.”

Meanwhile, Rep. Waxman, the chairman of the powerful House Energy and Commerce Committee, unhappy with the companies’ actions, summoned their CEOs to an April 21 hearing, calling their claims “a matter of concern” in a letter.

“The new (health care) law is designed to expand coverage and bring down costs, so your assertions are a matter of concern,” Waxman wrote to them last Friday. “They also appear to conflict with independent (cost) analyses.”

But Waxman did more than request the presence of the CEOs at the hearing – he made a wide-ranging demand for company documents and records, asking for all communications among the senior staff of the corporations regarding the write-downs, along with “an explanation of the accounting methods used by (each company) since 2003 to estimate the financial impact of the 28 percent subsidy for retiree drug coverage and its deductibility or nondeductibility, including the accounting methods used in preparing the cost impact released by (each company) this week.”

Rep. Joe Barton (R-Tex.), the ranking Republican on the Energy and Commerce Committee and Waxman’s Republican counterpart, says Waxman is “vilifying” corporations for the bill’s unintended costs.

“It shouldn’t come as a shock that a bill that reengineers the health care system in America would cost private companies money,” Barton said. “I don’t think there is an overwhelming reason to call those companies before the committee and I certainly don’t think there is a reason to launch an investigation. I will not be a part of any witch hunt to vilify corporate America.”

Furchtgott-Roth, who served on President George H.W. Bush’s domestic policy council, said that the write-downs shouldn’t really be a surprise to Waxman, unless the powerful chairman failed to take into account the fact that the Congressional Budget Office (CBO) assessment of the bill’s impact only focused on its impact on the federal government’s bottom line.

“CBO is asked to score the cost of the bill,” she explained to CNSNews.com. “So what it does to a company’s earnings is not reflected in the CBO score and I’m very surprised that Mr. Waxman doesn’t know this.”

Meanwhile, Congressional Democrats only appear to have been blind-sided by the projected losses. In fact, the chief financial officers of 10 major corporations, including Caterpillar and Deere -- along with Verizon, Xerox and Met Life -- wrote to the Democratic congressional leadership before the bill passed the Senate on Christmas Eve, and warned that just such an issue would emerge.

In their Dec. 11 letter, addressed to House Speaker Nancy Pelosi (D-Calif.) and Senate Majority Leader Harry Reid (D-Nev.), the CFOs explained that the bill would “negatively impact both retirees and companies.”

“Taxing the subsidy means that more companies will eliminate or reduce the coverage, and more retirees will shift to Medicare Part D, which will create more cost for both the government and the retirees,” the CFOs wrote.

“Further, this change would result in large earnings statement reductions due to…income tax accounting rules, which would require employers to immediately account for the present value of this tax increase.

“The impact of the proposed Medicare Part D changes would be felt throughout the overall U.S. economy as corporate entities and investors would be forced to react. We urge our leaders in Washington to carefully consider the far-reaching effects of the health care reform effort and avoid unintended, negative consequences for all stakeholders.”

White House Health Care Nancy Ann DeParle was also copied on the correspondence.

House Republican Leader John Boehner (R-Ohio) said Tuesday in a statement that the response from Democrats thus far amounted to “scare tactics.”

“The White House blog has been used to question the credibility of these statements. A Cabinet secretary called these public disclosures ‘irresponsible.’ House Energy and Commerce Committee Chairman Henry Waxman wants to hold hearings and issue subpoenas,” he said.

“These scare tactics are not surprising," Boehner said. “America’s workers have a right to know how this new law will affect them. As do the millions of retirees who may lose their drug benefits. As do the customers who may have to pay higher prices to cover these losses. As do the small businesses who rely on these companies for telecommunications (AT&T), office supplies (3M), gasoline (Valero), and equipment (Caterpillar, John Deere).” "

Just some more food for thought as the real costs of this new legislation continue to see the light of day, and this is only the beginning