New law on retiree health plans is reducing companies' earnings.

A new federal law that takes effect Dec. 31 will require major employers to set aside funds for retirees' health care plans in a way that is expected to reduce employers' future earnings.

The Financial Accounting Standards Board Statement No. 106, passed in late 1990, requires companies that employ more than 500 workers maintain sufficient funds, either in their own corporate accounts or in trusts, to pay future retiree claims against their self-funded health care plans.

Some analysts predict the new law will boost large companies' retiree-related medical costs five to 20 times than what such companies dole out for pay-as-you-go plans. As such, FASB 106 will require U.S. companies to remove a combined $1 trillion from their operating accounts to set aside as a guarantee against future retiree health care claims, according to a report by New York City-based investment banker Goldman Sachs & Co.

Before now, companies that employed hundreds or even thousands of workers found they could save money by insuring themselves. In other words, they could buy insurance to cover any claims filed by retirees that exceeded the per-employee deductible of the employer.

Typically, a company that self-insures workers pays up to an individual limit on claims out of its own account. It may pay, for example, claims up to $100,000 per employee. For claims exceeding that amount, a traditional insurer would take over the risk. This is called "top end" insurance and is relatively inexpensive. Consequently, employers who set up well-managed self-insurance plans can reduce their health insurance costs, said insurance experts.

Some large Los Angeles-based corporations have already adjusted their finances to comply with FASB 106, setting aside reserves against future claims on retiree health plans. Others doggedly cling to their traditional management of the reserves for "self-funded" retiree health care plans.

The new requirements will definitely hurt some big Los Angeles corporations, said William J. Flaherty, Los Angeles regional director for Grant Nelson Group, a Kansas City, Mo.-based financial consulting firm.

"If a company chooses not to set aside the reserves in trust, it is considered a future liability," Flaherty said.

Initially, companies that employ more than 500 workers must report their future retiree-related liability on their quarterly financial statements. If companies fail to set aside a sufficient amount of money, their liability for the federally mandated reserves could "kill their financial statements and hurt the market value of their stock," Flaherty said.

Beverly Hills-based Litton Industries, which employs 39,500 U.S. workers, may have to set aside up to $120 million this year to comply with FASB 106, said corporate spokesman Bob Knapp.

Litton isn't sure how much money it will set aside in trust for the retiree health care plan and how much it will fund out of its own account, Knapp added.

First Interstate Bancorp has already adjusted employee benefits to cope with FASB 106. Company spokesman Rich Wyler said First Interstate has put a ceiling on health care insurance costs. As of Jan. 1, 1992, First Interstate's new hires were not offered health care insurance that continues past retirement.

"Any (future) increased cost of coverage will be borne by the retiree, not the bank, after another three to four years," Wyler said. He added that any future increases in employee health care costs would be paid by the 30,000 First Interstate workers.

Calabasas-based Lockheed Corp., meanwhile, set aside funds for its self-funded retiree health care benefit plan some time ago, said corporate spokeswoman Bertha Gorman. Lockheed employs 72,000 workers, 5,000 of whom work in Los Angeles County. It has 42,000 retirees covered on the plan, she added.

Gorman wouldn't say how much money Lockheed has set aside for its retiree health care insurance trust. But she offered it hasn't caused Lockheed any financial hardship.

Terry Clawson, spokesman for Century City-based Northrop Corp., said his company took a hard look at FASB 106 when it passed in 1990 and decided to convert its self-funded retiree health care plan to a pension-style system, where the funds are set aside in trust and invested to provide funding for future claims. Contributions to the retiree health care insurance plan reduced Northrop's 1991 net income by $94 million, Clawson added.

After assessing the financial impact of creating a trust to conform with FASB 106, Northrop determined it would have $437 million in post-retirement health care obligations as of Jan. 1, 1991.

Northrop could have put off adopting the plan until 1993, but the aerospace company decided it could reduce its corporate taxes by funding the reserve accounts in 1991, Clawson added.