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Obscure Health-Benefit Scheme Is Central Issue in Auto Talks
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"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 every day," 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 Governmental Accounting Standards Board recently began requiring disclosure of post-employment benefit obligations.
"They now have to do a 30-year projection on what the health costs will be, causing their financial statements to not look nearly as good as they did in the past," said Mark R. Wilkerson, a senior consultant at HRA Consultants, which manages Washington state's VEBA.
The model for GM appears to be the VEBA that Goodyear Tire & Rubber and the United Steelworkers union created last year, said John Russo, a labor professor at Youngstown State University in Ohio. Goodyear paid 77 percent of its estimated $1.3 billion liability up front, Russo said.
Wayne Ranick, a United Steelworkers spokesman, said Goodyear initially offered to fund just 50 percent of the liability and only changed its mind after a three-month strike. "Goodyear had to go through major losses before agreeing to fund the trust at what we thought was an appropriate level," Ranick said.
Staff writer Sholnn Freeman contributed to this report.
