UAW will fund the Health Care of its Retirees?

The negotiations on the contract extension between GM and the UAW are still on-going. However, it is not the only issue on the table now. The Health care of the retirees is another major issue both parties are aiming to solve. The UAW is discussing the health care trust with GM, and seeing how the talks are going, it seems like the burden of the retiree health payments will be transferred from the company to the worker’s union.

Eventually GM will be obliged to create a trust because the company has an unfunded health care obligation of $51 billion to UAW retirees. Like what happened to Caterpillar Inc, some fears that the trust can lead to the retirees to face high health care contributions, less insurance and worse, no insurance at all if the trust failed to finance the plan.

“Given rising health care costs, will the union be left holding the bag in terms of responsibilities for health care funding in the future?” said John Russo, labor professor at the Williamson College of Business Administration at Youngstown State University.

For Paul Secunda, lecturer and assistant professor at the University of Mississippi, also the co-editor of the workplaceprofblog, the union will have no choice but to agree to the trust.

The trusts are named VEBAs, it stands for “voluntary employees’ beneficiary association”. Under this trust, the company transfers the fund to the union which will be the one to finance the health care costs of the retirees.

According to Mark Oline, a managing director at Fitch Ratings, he is following the auto industry, If GM put $30- to $35 billion in a trust, “that would leave them with an uncomfortable level of liquidity given their restructuring program and the uncertainties of auto sales in the near term,”.

If the Detroit Three agree to the trusts, they could create a fund as large as $60 billion, a size equivalent to the 20th-largest pension fund in the United States, according to corporate governance expert Stephen Davis, of Davis Global Advisors Inc. in Madison, Conn.

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