GM Retirees Wary of
Health Care Trust Funds
By Barbara
Wieland,
Lansing
State
Journal
July 23, 2007
For General Motors Corp. retirees, union contract talks
that start today may give them a sense of deja vu.
Two years ago, the automaker and the United Auto
Workers union agreed to revamp retiree health care benefits. Retirees were
told to pay more for them, and a trust fund was established to pay for
retiree health care through 2011.
Domestic automakers want to make those kinds of
arrangements permanent, industry analysts say. Shifting the burden of
retiree health care costs from a company to a trust fund gets billions of
dollars in liabilities off the corporate books. That could help put the
automakers on stronger financial footing.
But many retirees are wary of such a plan, which would
be administered by the UAW. Among their concerns: What happens if health
care costs grow faster than the trust fund?
If the money bleeds out of the fund, these retirees
fear, their health care coverage will vanish.
"When the money is out, it's gone for good,"
said Jim Ramey, 76, who retired from the now-demolished Lansing Car
Assembly plant in 1995.
$3.3B cost annually
Industry analysts say creating such a trust fund, known
as a Voluntary Employee Beneficiary Association, could mean the difference
between profitable carmakers and companies landing in bankruptcy.
GM alone has 357,000 retired autoworkers and surviving
spouses drawing pensions and other benefits. Retiree health care benefits
for salaried and hourly workers cost GM about $3.3 billion annually.
Together, the Detroit-area automakers - GM, Ford Motor
Co. and Chrysler Group - have about $100 billion in health care promises,
said David Cole, chairman of Ann Arbor-based Center for Automotive
Research.
Currently, those expenses are counted against GM as
liabilities on the company's balance sheet. Shifting the health care
expenses into a Voluntary Employee Beneficiary Association, or VEBA, would
get that off GM's books. That, in turn, could lead to better credit
ratings and present a stronger financial picture for the automaker.
GM and UAW leaders have declined to discuss details of
matters that are under negotiation. But VEBAs have been created in the
past.
In fact, GM already has one. In 2005, GM and the UAW
agreed to set up a VEBA fund for retiree health care, but it was designed
to last through 2011.
Tire manufacturer Goodyear Tire & Rubber Co. and
auto parts supplier Dana Corp. also have set up VEBA funds.
Andy Kramer, a
Michigan
State
University
graduate who went on to earn a law degree at
Northwestern
University
, helped set up the Dana and Goodyear plans. He's currently a partner at
Jones Day law firm in
Washington
,
D.C.
Kramer said such funds protect retirees as they improve
corporate finances.
"Retirees fear that if their company goes
bankrupt, they will lose all their benefits. If there is a VEBA, that
won't happen," he said.
The funds are managed by a board of trustees, typically
composed of union, company and outside members.
However, some industry analysts say organized labor
actually has more control because it administers the program.
"They shift the responsibility for health care to
the unions," Cole said. "If they invest the funds well, they
will grow."
Cash on hand
Cole said VEBA arrangements are more likely to be made
now because the domestic automakers have cash on hand to fund them.
Setting up a VEBA fund takes a lot of money. For
example, the current GM VEBA was set up to be funded with three $1 billion
contributions and deferred pay raises from hourly workers.
"Right now, the ability to fund something like
that is there," Cole said. "I don't think the unions have any
choice but to take them up on an offer like this."
If they don't, Cole said, a bankruptcy filing becomes
more likely. Ford has been mentioned as particularly vulnerable to such a
scenario.
A VEBA would "improve the balance sheet and the
credit rating and decrease the cost of doing business," Cole said.
But not everyone is so sanguine about VEBA funds.
Haslett resident Leroy McKnight, a GM retiree, has been
fighting the original VEBA in court. His appeal of the agreement is being
considered by the
U.S.
6th Circuit Court of Appeals in
Cincinnati
.
McKnight believes the VEBA was set up to be underfunded
and doubts GM has any intention of paying more into the fund.
The $3 billion GM put into the fund "seems to be
quite a shortfall," McKnight said. "That's part of the reason I
got involved with the lawsuit."
Concerns about future
Other retirees are equally wary of VEBAs.
Ramey said the 2005 VEBA is partially funded through
pay increase deferrals from active workers. But as GM's work force
continues to decline - it dropped 60.7 percent to 116,378 workers between
1994 and 2006 - the growth of VEBA funds could become more tenuous.
"There's not as many active workers to
contribute," he said. "It worries me about what's going to
happen when the fund runs dry."
Nor can retirees afford to contribute much more to
health care in the form of higher co-pays and premiums, said Henry
Hoisington, 89, who retired from GM in 1977.
The 2005 agreement also increased the amount retirees
pay for health care out-of-pocket, he said. And that takes a bite out of
retirees who live on fixed incomes, he said.
"What we want out of these talks
is to hang on to what we've already got," he said. "What we want
is for them to not take away some more."
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