The day of reckoning for post-retirement medical benefits is near, and the timing could hardly be worse for banks.

Their balance sheets, already strained by too many bad loans in a slack economy, are in for another shock.

A Financial Accounting Standards Board rule effective in 1993 will require that balance sheets reflect the probable cost of the retirement benefits for all past and current employees.

For medical benefits alone, the new accounting treatment will increase banks' balance-sheet liabilities by $1,500 to $2,000 a year per covered employee, one expert estimated.

The lower figure suggests that banks would accrue a $2.25 billion liability annually.

About 30% of that total is the catch-up cost - the amount earned by employees but not yet paid out. Most banks are expected to amortize that cost - roughly $13.5 billion - over 20 years, though they have the option of taking the entire hit at once.

A Special Blow to Banks

Although companies need not start putting money aside yet, the change could cast a pall over banks and other employers that fought to keep these liabilities off the balance sheet. But unlike other employers, banks face stiff capital requirements that take away their cushion against the blow.

Nevertheless, banks that would survive otherwise are not going to collapse. The accounting changes do not affect cash flow, and banks can amortize liabilities over 20 years.

For weaker banks, the consequences may be worse. Investors will not look fondly on a faltering bank with dismal earnings and huge unfunded liabilities.

Effect on Citicorp

With 90,000 employees, Citicorp might eventually have to add $810 million to liabilities - nearly as much as it lost in a devastating third quarter - to cover future benefits already accrued.

The toll will be higher if the annual cost exceeds $1,500 per employee.

A spokeswoman said Citicorp had not estimated post-retirement medical benefits but has begun altering its benefits plan to reflect the accounting change. Citicorp has also decided to amortize ortize the liability over 20 years, she said.

Banks face smaller liabilities than industrial companies on post-retirement medical benefits, according to Richard Ostuw, vice president and practice leader for retiree medical programs at TPF&C, a Cleveland-based unit of Towers Perrin.

Industrial companies typically face liabilities of $2,500 per employee per year, he said.

Such companies - especially car manufacturers - tend to offer benefits packages more generous than those of banks, benefits consultants said. The relatively high turnover in bank personnel and the high percentage covered under a spouse's plans also tend to limit banks' exposure.

Still, banks should not be complacent, these consultants warned. Clients are invariably surprised by how great the liabilities are.

One-Time Hits

Employers have the option of taking the hit for benefits already accrued all at once. That explains the huge accounting charges announced by some major industrial firms.

International Business Machines Corp. announced that it would take a $2.3 billion hit to adjust for the rule; it was already in partial compliance. General Electric Co. took a one-time charge against earnings of $1.8 billion to adjust for the rule.

Taking a hit in advance costs less in the long run than amortizing the liability over 20 years.

Last month, General Motors Co. left the others in the dust, disclosing that it would take a noncash charge of $16 billion to $24 billion in recognizing the new rule.

These charges represent the impact of the liability minus the amount of tax benefit the companies will claim when the benefits are paid out, noted Robert Willens, a tax specialist for Shearson Lehman Brothers.

A Crimp on Early Retirement

For banks, the accounting issue could discourage the use of early-retirement plans as a way to achieve downsizing goals. Early retirement can leave the employer liable for more health insurance costs until government benefits kick in at age 65, said William V. Custer, director of research at the Washington-based Employee Benefit Research Institute.

And banks, like other companies, are beginning to switch to new types of plans that limit their exposure to a set contribution or a capped benefit amount, in hopes of taking the guesswork out of the change.

One midwestern bank is about to switch from an openended plan to one under which it will contribute $400 a year to a health account for each employee, Mr. Ostuw said.

The consultants said such plans not only limit the employers' exposure but also are popular with employees, who are reassured by the tangible nature of the set payout.

"It communicates well," said William J. Danish, principal in Kwasha Lipton, a benefits consultant in Fort Lee, N.J.

To Amortize or Not to Amortize

So far, it seems that most banks will choose to amortize the accounting adjustment, Mr. Danish said. But "if you have an extraordinary gain or an extraordinary loss" you might want to take a one-time charge, he added.

Manufacturers National Corp. and Comerica, both in Detroit, will consider booking the change as part the restructuring charge in their merger, a spokesman for Manufacturers said. He added that a decision would be made after completion of the merger, which is expected in the second quarter.

Mr. Danish noted that nonpublic companies with fewer than 500 employees, a category of employer that includes some banks, will have an extra two years to prepare for the accounting change.

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