VEBA in Spotlight of Health Care Reform

The fallout from the UAW-GM agreement shifting retiree health care benefits into a VEBA (Voluntary Employee Beneficiary Association) keeps coming.

In a quick, penetrating article, BusinessWeek reporters David Welch and Nanette Byrnes enlighten readers about how many VEBAs are already around (about 12,000 nationwide), who's using them (employers with large, unionized workforces), and how well they are holding up:

In 1998, the equipment giant [Caterpillar ] set up a similar type of health-care trust to defray increases in retiree medical costs. By October, 2004, it ran dry, and retirees saw as much as $281 extra taken from their monthly pension checks. Now the retirees, union, and company are in litigation.

The article quickly explains the benefits of VEBAs to both business and labor:

For employers with aging workers and lots of retirees, a VEBA may be the only way, short of an elusive national health-care plan, to strip crushing liabilities from their books... For unions, a trust can provide an opportunity to safeguard members from losing benefits in the event of a corporate bankruptcy.

Meanwhile, New York Post reporter Paul Tharp is taking a more jaundiced, historical look at VEBAs:

General Motors is saving its financial neck and ending a surprise strike by using a century-old shelter device originally invented to quell the labor riots of the 1920s... VEBAs were created as tax shelters for giant coal and steel companies at the turn of the century to help pay for worker injuries and widows' benefits.

One thing is certain, you'll be hearing a lot more about VEBAs on this blog and in the U.S. Presidential Election campaign in the months ahead.

SOURCE: "Is GM's Health Plan Contagious?" by David Welch and Nanette Byrnes, BusinessWeek, September 27, 2007.
SOURCE: "GM's $nazzy New Model: VEBA," by Paul Tharp, New York Post, September 27, 2007.
photo courtesy of Abandoned In Place at Flickr

Landmark Health Care Trust in UAW/GM Deal

The United Auto Works has called off its strike and 73,000 workers will return to work at General Motors Corporation as the two sides announced a tentative 4-year labor agreement this morning -- subject to approval by the union's membership.

A central piece of the compact between GM and the UAW is a "voluntary employees' beneficiary association" -- or VEBA -- a trust established for retiree health care benefits. The trust will be managed by the UAW, not GM, and could grow as large as $50 billion.

Speaking just hours after the tentative agreement was signed this morning, UAW President Ron Gettelfinger said retirees are

going to be secure in their retiree benefits... [and] will be especially pleased with this agreement because there's other things in the package for them.

The contract is considered a landmark in labor negotiations. In a statement today, GM said the Securities and Exchange Commission (SEC) would conduct a review of its accounting treatment for the VEBA fund.

Wall Street analysts have said establishing a VEBA could cut GM's annual costs by $3 billion in exchange for a one-off payment expected to top $30 billion.

The fact that health care has taken center stage over job security in this round of bargaining is a sign of the times, as employers struggle to remain globally competitive. For an astute analysis of the UAW-GM deal and what it implies for proposed health care reform legislation in California and elsewhere, check out Robert Laszewski's piece on the Health Care Policy and Marketplace Review Blog.


SOURCE: "UPDATE: UAW Chief: GM Health-Care Trust To 'Secure' Benefits," Dow Jones Newswire, September 26, 2007
SOURCE: "UAW, GM Settle Strike with New Health Care Deal," Reuters, September 26, 2007
photo courtesy of jm3's photostream on Flickr remixed under this Creative Commons license.