AP Online via NewsEdge Corporation :
DETROIT_The United Auto Workers and General Motors Corp. have
taken a big legal step toward shifting billions in retiree health
care costs from the automaker to an independent trust fund.
The union and attorneys representing several retirees sued GM on
Thursday in U.S. District Court in Detroit in an effort to get court
approval of the change. It would cover about 500,000 GM retirees and
spouses, plus current UAW workers when they retire.
The lawsuit is not a hostile action. GM will not oppose its major
points and joined the UAW and retirees in filing a settlement
agreement that would govern how the trust would be run.
If the court approves, the trust will take on $46.7 billion in
health care costs starting as early as Jan. 1, 2010.
According to court records, GM will pay $33 billion to $36.5
billion into the trust, called a voluntary employees beneficiary
association, or VEBA.
GM, Ford Motor Co., Chrysler LLC and the UAW all agreed to form
trusts in contract talks last year, and court approval similar to
that needed for the GM trust is required in the Ford and Chrysler
cases. The court needs to approve the change because the retirees
are affected by the new contracts, but were not involved in those
negotiations.
The Detroit Three automakers combined have about $86 billion in
retiree health care liabilities on their books. Shifting them to the
trusts was the linchpin of the historic four-year deals they reached
with the UAW and is considered key to making the U.S.-based
companies cost-competitive with Asian automakers.
GM alone said the new contract will save it $3 billion per year,
with a big chunk coming from reduced retiree health care costs.
Formulas for the companies' contributions to the trusts are
complex, with varying levels of cash and notes that are convertible
into stock, and further payments if the funding level drops.
The UAW has said that the trusts will secure health benefits for
retirees for 80 years, no matter what happens to the automakers'
finances.
"GM can't cut benefits for our retirees, or threaten to cut
them," UAW Vice President Cal Rapson said in a statement. "And since
the money for our benefits will be paid up front, our retirees will
have important protections in case of changes in GM's financial
condition."
Under the agreement filed with the court, the GM VEBA trust would
be run by an 11-member committee, with six members picked by the
court and five chosen by the UAW.
Retiree health benefits will continue without change at least
through 2011. After that, the committee has the authority to change
the benefits, according to the court documents.
"Whether benefits or participant contributions would have to be
adjusted by the VEBA trustees thereafter will depend on many
factors, including whether GM remains financially viable so it can
make the required payments on time," the court records say.
Health care experts have said that since the companies are paying
the trusts less than the total retiree health care costs, the trusts
will have to invest wisely and work to cut costs in order to remain
solvent.
The agreement says the committee running the trust will be
governed by a code of ethics that stops members from holding a
substantial interest in any business with which the trust has a
relationship.
Judge Robert H. Cleland has scheduled hearings for March 4 and
June 3 to determine if the agreement is fair to retirees.
<<AP Online -- 02/25/08>>