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GM May Speed Trend By Shedding Retiree Benefits

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By JESSE J. HOLLAND, The Associated Press

Published: October 16, 2007

WASHINGTON - Its years as the nation's largest employer a distant memory, General Motors may still be setting the trend for corporate-worker relations in shedding its obligation for the health care of 340,000 retirees.

GM says its historic deal with the United Auto Workers as part of a new four-year labor contract will transfer $46.7 billion in retiree health care liability to a trust fund that will be administered by the union.

Other corporations are watching with interest, said Glenn Feldman, director of the Center for Labor Education and Research at the University of Alabama at Birmingham.

They may soon be pushing unions to let them put their pension or other benefits into similar trust funds, called voluntary employees beneficiary associations, or VEBAs.

'I think people will be watching what happens with GM and UAW and the retirees very closely, and if it looks like a viable plan, it could likely spread,' Feldman said.

GM said Monday that it will contribute $32 billion into the trust, including the transfer of $16 billion from another health care trust, an upfront cash payment of $2.5 billion and a note worth $4.4 billion and convertible to GM stock.

Both GM and the UAW say that it's a good deal: Retirees' benefits are safe from creditors if GM goes bankrupt, and the automaker sheds billions of dollars in unfunded retiree health care costs to the delight of Wall Street.
UAW President Ron Gettelfinger said the union's projections show the VEBA will secure retirees for 80 years.

Chrysler, in its recent negotiations with the UAW, agreed to put $10.3 billion into a union-run trust that will pick up Chrysler's $19 billion in future retiree health care expenses, according to highlights of the contract obtained Monday.

Ford is expected to ask for something similar from the UAW when it begins its negotiation with the union.

But getting other unions in other industries to agree to letting companies clear their books of their biggest liability by transferring billion-dollar health care programs to them may be a tough sell, analysts say.

'It flies in the face of what unions do. They don't administer employee benefits, except in rare instances,' said Gary Chaison, a labor specialist at Clark University in Worcester, Mass.

'What unions do is negotiate employee benefits. Plus, it doesn't reduce the cost of retiree health care. It just transfers the problem to the union. Essentially, GM is telling the UAW, 'You figure that one out. You figure out how to reduce costs. It's your baby now.''

At heart tax-exempt trust funds, VEBAs exist only to ensure that health care, pension, unemployment, or other benefits are paid to the people they cover. But they also shift the risk of health care and retirement costs from the employer to the employees.

Retirees at heavy equipment-maker Caterpillar Inc. already know the downside: The trust established to pay for health insurance costs for retirees went bankrupt six years after it was set up.

Retirees are fighting in a class-action federal lawsuit to hold Caterpillar responsible for increased co-pays, premiums and deductibles.

There are thousands of smaller VEBAs in existence but only about one-third of the larger companies and corporations have them.

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