DETROIT – By all accounts, General Motors’ agreement to contribute $29.9 million to the United Auto Workers’ healthcare trust constitutes the largest upfront funding in the history of voluntary employee benefit associations, or VEBAs.
While significant VEBA contributions may be a trend in the auto industry, don’t expect to see it happening across the board, said Mark Oline, managing director of Fitch Ratings, a global ratings agency.
“You will continue to see this in the auto industry and other industries such as steel that have unions with collective bargaining power,” he said.
The dramatic reduction of the auto industry’s workforce, leaving a smaller employee base to support a bigger retiree base, has combined with the American auto manufacturers’ shrinking market share to create a unique situation – which led to GM’s agreement to contribute start-up and catch-up funding amounting to $165 million over 25 years to the UAW’s VEBA.
“This is a unique situation because of the absolute size of GM’s liabilities,” Oline said. GM’s healthcare liability is $55 billion.
Salaried workforces in white-collar industries won’t see this kind of action because these industries have more discretion to change healthcare coverage, said Oline.
While any employer can set up a VEBA, the regulatory and legal requirements are daunting, said Dallas Salisbury, president of the Employee Benefit Research Institute.
In the UAW’s case, he said, the union is betting that it’s better to have money in the bank now – a bird in the hand – in case the company goes bankrupt.
In its recently negotiated agreement with the UAW, Chrysler will contribute $11 billion to the UAW’s VEBA. Chrysler’s liability for healthcare benefits for current and retired workers and their families is $18 billion.
With more than $40 billion in a healthcare trust – and potentially another $20 billion from the Ford Motor Co. if upcoming contract negotiations follow a similar bargaining pattern – the UAW could have more than $60 billion on deposit.
“With that kind of money, you have a lot of leverage with health plans,” said Sean McAlinden, vice president of research and chief economist for the Center for Automotive Research. That leverage may entice other unions to hook up with the UAW to create even greater bargaining power.