Auto Makers Push VEBA Solution for Industry Crisis
A rising chorus of business gurus is singing the praises of a new solution to the U.S. auto industry’s ongoing crisis: one big health care trust for all the Big 3’s workers. According to the proposal’s cheerleaders, by making giant one-time pay-ins the Big 3 auto makers can slice off an estimated $116 billion worth of retiree health obligations from their balance sheets in one swoop and restore profitability.
What’s more, union members will gain too because the money and future administration of retiree health care will be placed in the hands of a massive UAW-administered trust, called a Voluntary Employees Beneficiary Association (VEBA).
A simple win-win for all, right?
“Wrong,” say a growing number of United Auto Workers members. UAW rank and filers, including members of the UAW rank-and-file group Soldiers of Solidarity, have launched a campaign to demand that all plans for such a solution be dropped in current contract negotiations.
In one campaign leaflet these workers say that VEBA really stands for “Vandalize Employee Benefits Again” and that the plan will allow “the company to walk away from retiree health care commitments, and shift all the risk.”
But what exactly is a VEBA?
On the surface, a VEBA is nothing more than a federally recognized non-profit 501(c) (9) corporation set up to insure that health care, pension, unemployment, or other benefits are routinely paid out to workers covered by the trust.
According to the non-profit monitoring service Guidestar, there are at least 2,700 VEBAs already in existence for union and non-union employees in industries ranging from steel to utilities to telecommunications. Indeed, several of them already exist (mostly to dole out unemployment money) for Big-3 companies or major auto part suppliers like Visteon, Delphi, Dana, and Johnson Controls.
VEBA RED FLAGS
On closer examination, however, red flags pop up for union members in several critical areas.
For one, many of the trusts start off under-funded. In fact, business analysts claim that this under-funding is one of the key advantages of a Big-3 VEBA solution. They point to the success of Goodyear Tires in dumping $1.3 billion of retiree health care obligations in favor of a $1 billion lump sum payment into a VEBA in the wake of the settlement of its grueling strike with the Steelworkers in late 2006.
Business analyst Mark Oline told Financial Week that General Motors may be only willing or able to offer less than $35 billion of the estimated $50 billion that it owes retired workers. Ford was estimated to only be able to put $13 billion of $17 billion, while Chrysler, with mounting financial pressures from its recent buyout by Cerberus, remained unknown in what it is expected to offer.
UAW members fear that under-funding could lead to a simple, grim arithmetic: each dollar shortchanged will presumably translate into a dollar that can’t be spent on health care premiums, co-pays, deductibles, or quality of care. Under a VEBA, the remaining costs of maintaining health care benefits will have to be shifted back to the workers themselves.
“VEBA shortchanges retirees on benefits they already earned because it is underfunded upfront,” said Gregg Shotwell, a member of UAW Local 2151. “Exchanging dimes for dollars does not make sense. Whatever the company stands to save, retirees stand to lose. Eventually, it will put the union in charge of demanding retirees pay more out of pocket to make up for the short fall.”
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Skyrocketing health care costs or an economic downturn may make an under-funded Big-3 VEBA into even more of a loser for workers. “God help us if we go into a depression or recession,” former UAW President Douglas Fraser commented to The Washington Post, “and the value of the fund plummets and the UAW is sitting there with this huge liability.”
Moreover, that liability may be more than financial—it may also be political. By taking on the role of health care administrator, the union could be forced into a compromised position, having to potentially limit or cut benefits for the workers it represents.
These pitfalls are not merely hypothetical. They have already occurred with disastrous results for workers inside the UAW.
Following the signing of a concessionary two-tiered contract in January 2005, workers at Caterpillar found themselves with a bankrupt VEBA. According to the Caterpillar VEBA’s 2005 tax filing, the fund paid out $1,350,131 while only having $1,345,186 left in contributions, leaving it owing $4,500.
Retired Caterpillar workers expecting to draw from the fund suffered from the shortfall. They were left to deal with dramatic increases in co-pays, premiums, and deductibles despite previous agreements to protect them.
“I knew I had paid for my lifetime health care coverage through the wage and benefit structure of all the previous contracts I worked under, but this agreement vetoed them all,” retired Caterpillar worker and former UAW Local 751 President Larry Solomon wrote in Labor Notes at the time. “My wife and I will be paying $118/month premiums in 2005, and these will increase each year to a projected $332 by 2010.”
Fed-up with the inaction of UAW International leadership, members filed a federal class-action lawsuit against Caterpillar in May 2007. According to Shotwell, the case is still pending in the courts and in a final twist “now Caterpillar is suing the UAW because they should have prevented retirees from suing the company.”
A similar case occurred again at Detroit Diesel. Set up in 1993 to fund retiree benefits, the joint company-and-UAW-administered fund was exhausted by 2004. Saddled with sudden out-of-pocket health care costs, three Detroit Diesel members turned to the courts in desperation, filing a class action suit in January 2007 in defense of the 1,126 affected retirees and surviving family members.
In certain cases, employers can even raid a VEBA’s funds after it has been set up to fund capital expenditures. In 2000, General Motors shifted $1 billion from a VEBA that covered members of the UAW and other unions, according to William Hanline, a member of UAW Local 2195 in Decatur, Alabama. GM spent $500 million of the $1 billion on investments in Suzuki plants and another $500 million to boost the profits of its financing arm, GMAC.
With these dangers in mind, anti-VEBA UAW members are hoping that they can put up enough resistance to force VEBA plans to be dropped. They plan on distributing flyers and lobbying fellow members at Labor Day parades, union picnics, and other events throughout Michigan.
They also plan on taking the fight beyond just a defensive one around stopping VEBA. Many members are advocating a more far-reaching solution to the auto industry’s health care crisis: a national single-payer health care system for all workers.
“The union is not a financial institution,” said Shotwell. “The union’s purpose is to advance social justice not manage the retreat from corporate accountability.”
Tiffany Ten Eyck assisted with research for this article.