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NPR National Public Radio

GM, UAW Look for Solution to $50 Billion Health Bill

 All Things Considered, September 25, 2007. Negotiations between General Motors and the United Auto Workers may include the creation of a Voluntary Employees Beneficiary Association, or VEBA. The move could allow GM to clear its books of some $50 billion in unfunded retiree heath care liabilities, says consultant Lance Wallach.

Wallach tells NPR's Robert Siegel the benefit to the union would be its control of the trust, which would amount to less than $50 billion, but would be solely dedicated to covering retiree benefits.

NBC25 Online 

By Jacqueline Fell
Posted:

at 9:45 a.m.

The call hasn’t come telling union workers at General Motors to walk off the job. But there still isn't a new contract between the United Auto Workers and General Motors. Some say the fact that no one is talking, could be a good sign.

 General Motors and the United Auto Workers restarted negotiations Saturday morning around 11. The night before, the parties were at the table until

 Reports say there's still a lot of progress to be made. Local analysts at the

Union members were on stand-by Thursday night putting picket signs together and waiting to see if a possible strike would come when the contract expired at

Someone close to the negotiations say a deal is not expected to be reached Saturday. At the core of the talks between GM and the UAW is high health care costs.

That’s where VEBA comes in. It's an innovative way to pay for healthcare. It's a trust that would be funded by the auto company but used by union workers. But members NBC 25 News spoke to this past week, say they know nothing about it. NBC 25 talked to an expert on a voluntary employee’s beneficiary association - or VEBA.

Lance Wallach, specializes in these plans, and says this type of fund could save General Motors and bring stability to the UAW.

GM is the strongest of the Big Three U.S. Automakers… but it also has one of the highest expenses - healthcare costs for retired and active employees. Last year GM spent $4.8 billon on healthcare. It's a liability, some analysts say, could shut GM down for good.

"You don't want General Motors to go out of business...this probably is the only solution," says Lance Wallach.

Wallach says a voluntary employee beneficiary association could be the saving grace for the automaker. But is it the best for the UAW?

"The plusses for the UAW are that they know the money will be available whether General Motors stays in business of goes out of business," says Wallach. "Through this VEBA they're going to get a lot less than they would normally get from the obligation General Motors currently has to the workers.”"

In Wallach's opinion, if the two don't come to an agreement on a VEBA plan, both could lose out.

"If they don't take this they're putting General Motors out of business."

Lance Wallach is a frequent speaker on VEBAs, pensions, and tax-oriented strategies at accounting, legal and medical conventions throughout the

AT&T, Verizon May Follow GM, Let Unions Take on Retiree Costs

By Jeff Green and John Lippert

Oct. 15, 2007

(Bloomberg) – AT&T Inc., the biggest

phone company, and No. 2 Verizon Communications Inc. may follow General Motors Corp. in trying to shift retiree health-care liabilities to a union-run fund, a move that has helped boost GM’s shares 39 percent this year.

            The largest U.S. automaker reached a landmark agreement with the United Auto Workers last month to transfer $50 billion in such obligations to a Voluntary Employee Beneficiary Association, or VEBA.  The telecommunications companies, which will both negotiate new contracts with their unions in the next two years, reported a combined $71 billion in retiree liabilities last year.

            “We’ll be watching” how the GM union-run fund develops, said Alberto Canal , a spokeman for New York-based Verizon.  He declined to give additional details.  Verizon spends $3.5 billion a year for health-care coverage for 900,000 active workers, retirees and dependents, he said.

            Verizon and AT&T both have a union that may set a precedent for so-called VEBAs in separate talks with GM that started last week.  The Communications Workers of America’s industrial unit is considering a union-run fund for a GM plant it represents in Ohio.  Michael Coe, a spokesman for San Antonio-based AT&T, declined to comment.

            “Telecommunications are the next big group that will be looking at VEBAs,” said Howard Silverblatt, an analyst at Standard & Poor’s in New York.  The ratings service estimates companies in the S&P 500 had $387 billion in retiree health-care and insurance commitments at the end of last year.

Setting the Stage

            The GM agreement sets the stage for companies such as AT&T, Verizon and aircraft maker Boeing Co. to also restructure billions of dollars in retiree benefits, clearing out balance sheets and capping health-care costs that rose by an average of 8.4 percent last year in the U.S.

            Like GM, AT&T and Verizon might also get a share-price boost from union-run funds, said George Foley, who oversees $1.1 billion in assets at Glenmede Trust Co. in Philadelphia.  While the gains may be smaller, “the opportunity to move long-term legacy liabilities off the balance sheet is dramatic,” he said.

            AT&T shares have risen 18 percent, and Verizon has gained 22 percent so far this year.

            Several companies are already looking into union-run funds, according to Andy Kramer, a partner and labor lawyer for Jones Day in Washington , who has helped GM, Goodyear Tire & Rubber Co. and auto-parts maker Dana Corp. establish such funds in the last two years.

            He said he has received calls from telecommunications companies, auto-parts makers, and rubber and aluminum producers.  He declined to name them.

            Sparked in 2005

            Interest in retiree health-care trusts has been rising since 2005, when GM set up a $3 billion fund that it controlled with the United Auto Workers as part of a plan to require union retirees to pay health-care premiums fort the first time, said Lance Wallach, who runs VEBA Plan LLC, a consulting company in Plainview, New York.

            About a third of Wallach’s business is talking to private-equity investors and venture capitalists about the risks of retiree health-care liabilities and the potential for unlocking their value from companies’ balance sheets, he said.  “These are venture-capital guys looking for an edge.”

By Sharon Silke Carty

USA TODAY

DETROIT - General Motors' soaring health care costs have created a tempting pool of money the automaker is considering dipping into.

The hitch: That money is squirreled away in a fund designed to ensure that retirees will have their health care paid for by the automaker.

While discussing first-quarter results Tuesday, GM Chief Financial Officer John Devine said the company is considering tapping into the $20 billion Voluntary Employee's Beneficiary Association fund. The company is entitled to draw out cash equal to what it spent last year on health care and what it has spent so far this year.

That means GM could take $6 billion from the fund, Devine said, because its health care costs have been rising. For the first quarter alone, the company could account for $700 million in health care expenses. Once it takes money out of the fund, it is not required to replace it. And the money could be used for general business expenses, Devine said.

“'It is a source of liquidity if we need it," he said. "We can extract it pretty aggressively, if we have to."

Health care costs are a concern for the automaker.

It expects to spend $5.6 billion on health care for active and retired workers and their families this year, compared with $5.2 billion last year. That adds more than $1,000 to the price of each vehicle it produces, the company has said.

GM is working with the United Auto Workers union to try to reduce some of those costs. As part of its current union contract, which runs until 2007, GM and the union agreed to examine ways to cut costs by changing HMOs and preferred provider plans.

But GM executives have said they'd like to give union workers the same plan salaried workers get, which would cost union workers more.

Salaried workers pay for 27% of their health care, while union workers pay for about 7%, according to GM.

After a meeting with GM last week, top union officials said that's not something they'll likely agree to. “'If they'd like to give the salaried employees our plan, we'd be happy to share it with them," said Richard Shoemaker, UAW vice president.

 Lance Wallach, an accountant who specializes in VEBA plans, said GM's intention to pull money out of its health care account is a warning shot to the union.

And, "If General Motors gets away with this, it's something that could resonate through the auto industry," he said.

But Dallas Salisbury, president of the Employee Benefit Research Institute, said GM is planning to use the VEBA the way it was intended.

"This is really a shock absorber account that in essence, buys them some time to analyze what they actually want to do," he said. "It gives them greater flexibility in the end." 

The Washington Post

September 9, 2007 

Obscure Health-Benefit Scheme Is Central Issue in Auto Talks 

“We heard at the end of our careers that we were not going to get what was promised all the years we were coming into work everyday,” said Larry Solomon, former president of UAW Local 751 in Decatur, Ill.  “We felt betrayed.” 

The form of funding is also important.  A VEBA funded with cash is less risky than one funded with stock in a shaky company. 

Because VEBAs are so complicated, vigorously educating employees on how they work is key to their success, said Lance Wallach, a VEBA consultant.  “A few years ago, a lot of the casinos in Atlantic City started calling me about setting up a VEBA for them,” he said.  “I told them it wouldn’t work because a lot of the workforce were not English-speaking.  Part of making this work should be communicating to workers.” 

Some of the more successful VEBAs, analysts say, are run by states and municipalities, which can raise taxes if their VEBAs run low on money.  Government entities in California, Idaho, Indiana, Montana, Oregon and Washington have created VEBAs, and many more expect to do so in the next few years because the Government Accounting Standards Board recently began requiring disclosure of post-employment benefit obligations. ……..