Negotiations between the United Auto Workers (UAW) and General Motors (GM) in 2007 created a new entity to provide retiree healthcare, a Voluntary Employee Beneficiary Association (VEBA). The agreement shifted the responsibility and the risk for retiree healthcare to the new VEBA trust. GM would provide a set amount of money for retiree health coverage and would no longer guarantee "defined benefits," promises of specific retiree healthcare benefits, which the UAW had negotiated with GM over many years. After settling with GM, the UAW negotiated similar agreements with Ford and Chrysler.
The implications of this new agreement were substantial. Finances were shaky for all Big Three U.S. automakers in 2007, and set-asides for legacy healthcare costs were growing liabilities on their balance sheets. Downsizing and layoffs had increased the number of retirees and decreased the number of employees. GM’s figures were most startling, with four union retirees for every active employee.
Defining the level and structure of the funding for the VEBA required the automaker and the union to agree on assumptions about healthcare cost inflation, life expectancy, and potential capital earnings. The company had to consider its available cash as well as its growing balance sheet liability. The union had to compare any settlement option with risks inherent in GM’s continuing to provide these services should the company enter bankruptcy. The potential adoption of national healthcare reform would change the calculations as well.
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Jean W. Rosenthal, Jaan Elias, William N. Goetzmann, Stanley Garstka, and Jacob Thomas, “UAW VEBA,” Yale SOM Case 08-035, May 7, 2009
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