Union set to assume $51 billion responsibility
DETROIT -- The United Auto Workers may soon find itself in the thorny, yet powerful, position of supervising billions of dollars in healthcare funds if its members ratify a contract settlement with General Motors reached Wednesday.
The UAW tentatively agreed to allow GM to set up a separate healthcare fund — called a Voluntary Employee Beneficiary Association, or VEBA — to pay for retiree healthcare. GM has $51 billion in retiree healthcare obligations on its books, and much of that will move off its balance sheet into the fund, which will likely be controlled by a board of directors named by GM and the UAW.
The VEBA could give the union a louder political voice in Washington, where it has long lobbied for universal healthcare to no avail.
"There is no question about it ... that gives them a lot more clout," says David Cole, chairman for the Center for Automotive Research. "They'll just continue pushing" for a nationalized healthcare system.
VEBAs could become standard requests at older companies supporting a lot of retirees. GM, for instance, has between two and three retirees for every active worker.
"The VEBA technique has been used by the steelworkers, and I'm working on one with the teamsters," says Bob Christenson, partner at Fisher & Phillips, a national labor and employment law firm. "It could be something whose time has come."
The deal mirrors one struck at Goodyear Tire and Rubber this year. Under that plan, Goodyear agreed to invest $1 billion into a fund controlled by the United Steelworkers to pay retiree healthcare expenses. Goodyear pushed that liability off its balance sheet while the steelworkers' union gained a fund that's protected should Goodyear ever file for bankruptcy.
But the Goodyear deal looks like small potatoes compared to what GM and the UAW have hashed out. Although specific financial data wasn't available on the deal, the UAW VEBA will likely have upwards of $30 billion in its coffers.
If similar deals are struck at Ford Motor and Chrysler, the UAW could have $60 billion to $70 billion in separate or combined VEBAs.
But with the money may come some tough decisions. The UAW eventually may find itself facing questions such as what level of coverage should be provided to workers, and which doctors and prescription plans should be offered.
"It means they are going to be facing the reality of hosting a benefits plan," says Paul Fronstin, director of the health research and education program for the Employee Benefits Research Institute. "It's every decision under the radar regarding running a benefits plan."
It's "an inherent conflict of interest," says Gregg Shotwell., a dissident UAW member who is opposed to the trust.
But are few options left for unions that want to protect retiree benefits, says Van Conway, automotive consultant with Conway, Mackenzie and Dunleavy. "Defined pension plans and healthcare for life are not realistic anymore for employers to carry the entire burden. So everybody ultimately is going to have something different than we've had in the past."
Contributing: Chris Woodyard, James R. Healey