UAW Ratifies Ford Contract That Includes VEBA

Main Category: Health Insurance / Medical Insurance
Also Included In: Seniors / Aging
Article Date: 16 Nov 2007 - 12:00 PDT

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United Auto Workers on Wednesday said that rank-and-file Ford Motor employees ratified a four-year contract that follows the pattern set by General Motors and Chrysler Group and includes the creation of a voluntary employees' beneficiary association, the Detroit Free Press reports (Merx, Detroit Free Press, 11/14). Under the VEBA, Ford will remove nearly $23 billion in retiree health care liabilities from its books by contributing more than $13 billion to a UAW-controlled trust (Kaiser Daily Health Policy Report, 11/6). The contract was approved by 79% of rank-and-file employees, with 81% of production workers and 71% of skilled trades workers voting in favor (Detroit Free Press, 11/14).

UAW gave Ford a break on its VEBA contribution by allowing the automaker to calculate its retiree health care liabilities using a 6% health care inflation rate, instead of the 9% rate used at GM, the Detroit News reports. Ford will fund the VEBA at 46% of total liabilities, compared with 68% at GM. The automaker also will contribute a smaller portion of VEBA funding in cash. Instead, Ford will invest cash in making plants more flexible so they can produce different models of vehicles. Ford on Thursday will discuss details of the contract with Wall Street analysts (Terlep, Detroit News, 11/15).

Ratification of the Ford deal brings to an end a round of "transformational" contract talks that will enable the Big Three to hire some workers under a two-tier wage system with fewer benefits and will relieve them of retiree health care liabilities by 2010, according to the Free Press (Detroit Free Press, 11/14). Under the contracts, the automakers no longer will promise guaranteed pensions and health benefits in retirement to new hires (Detroit News, 11/15). Gregg Lemos Stein, an auto credit analyst at Standard & Poor's, said, "The health care portion of these contracts has a potential to save large sums, but the savings don't begin to accrue until 2010" (Koenig, Bloomberg/Washington Post, 11/15).

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