Voluntary employee benefit associations, or VEBAs, have been around since the late 1920s, but the size of General Motors' contribution to the healthcare trusts for the United Auto Workers, or UAW, is historic.
"This is a record large trust," said Sean McAlinden, vice president of research and chief economist for the Center for Automotive Research.
As part of its recent contract agreement, General Motors, or GM, will initially contribute $29.9 billion to the VEBA, which will be administered by the UAW.
With catch-up funding amounting to $165 million over 25 years, GM will be funding 70 percent of the trust.
While some experts say it's not enough to support the growing retiree population, especially with GM's buy-out program, which pushed more workers into retirement, others say it's a win-win for both GM and UAW.
Currently, GM's healthcare liability is $55 billion. McAlinden pointed out that for the last six years GM has underestimated its healthcare liability.
Its internal VEBA, in which it had contributed $18 billion over 20 years, was simply not enough, according to McAlinden. "GM wouldn't be able to compete going forward," he said, without this deal.
Mark Oline, managing director of Fitch Corp, a global ratings agency, added that the UAW-administered VEBA gets GM out from paying liabilities, but more importantly, it transfers healthcare costs to the union.
VEBA detractors point to Caterpillar Corp.'s healthcare trust, which collapsed within six years of its creation despite a $33 million investment by the equipment manufacturer, leaving retirees without employer-sponsored healthcare benefits.
Carl Horowitz, director of the Organized Labor Accountability Project of the conservative National Legal and Policy Center, warned of potential corruption. "The union has to build a network of healthcare providers and payers, and there's a lot of potential for fraud," he said.
The UAW learned from Caterpillar, McAlinden said. Using consultant firm Lazard, the UAW has built in safeguards, such as the catch-up funding and calculated what it believes is an accurate forecast of healthcare inflation and the right amount of investment and co-pay contributions.
"This is the most solvent VEBA in the private sector," he said.
"The whole purpose for the UAW was to divorce the funding of healthcare from the fate of the company," Oline added.
The UAW now has incentives to change its members' behavior and manage the growth and cost of healthcare without reducing delivery of care.
Will the contributions be enough? Oline said that in addition to managing VEBA's assets for greatest return, UAW's president, Ron Gettelfinger, is pushing for a single payer solution so the U.S. government will pay a share of healthcare cost.
Under a memorandum of understanding, Chrysler agreed earlier this week to create a healthcare trust that will assume its $18 billion healthcare benefits for current and retired employees and their dependents.
The UAW expects a similar outcome with its upcoming round of talks with Ford Motor Co.