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A VEBA Plan LLC site
UAW Rejects Stock for VEBA
When the UAW and the Detroit Three agreed to create a health
care trust in 2007, the move was heralded as a victory for the
automakers, who would get to wipe billions of dollars in liabilities
off their money-losing balance sheets at a huge discount.
But now, just two years later, the VEBA, which stands for Voluntary
Employee Beneficiary Association, has become a major sticking
point for the union and automakers as they try to finalize a deal that
would help the automakers become more competitive and satisfy
the requirements of the federal government.
As part of its $17.4 billion in loans to General Motors Corp. and
Chrysler LLC, the government proposed that the union accept
stock instead of cash to fund that VEBA.
The UAW has a tentative agreement with the Detroit Three on a
variety of key areas – including wages, work rules and benefits –
but it has drawn a line in the sand over the government’s stock
proposal to fund the VEBA.
Retirees told the Free Press they are wary of the government’s
“It’s not good to tie the stock market in the VEBA plan,” said David
Tyler, a Ford Motor Co. retiree who lives in Ypsilanti. “The volatility
of the stock market is not in anybody’s control.”
Lance Wallach, a VEBA consultant with Plainview, N.Y.-based
VEBA Plan, said the UAW already took a huge risk in 2007 when it
agreed to set up the plan because it agreed to accept cash
payments that were significantly less than the estimated future
“This was a terrible deal,” Wallach said. “They got cheated once.
Now, they are getting cheated again.”
Under the 2007 deal, the automakers were expected to put about
$46.1 billion into the VEBA over time, ridding themselves of about
$88 billion in estimated future health costs at a substantial discount.
GM originally agreed to pay $24.1 billion into the plan, with an
additional $13.2 billion from Ford and $8.8 billion from Chrysler.
In December, when the federal government agreed to provide GM
and Chrysler with $17.4 billion in loans, it included term sheets that
required the union to consider accepting half the money due from
GM and Chrysler for the retiree health care trust – but in stock
instead of cash.
But the automakers’ stock price has been volatile and trading at
historic lows, making its future value uncertain. On Wednesday,
shares of GM closed at $2.06. Ford closed at $1.67 a share.
Chrysler is a privately held company.
Ford has not applied for government loans and said the tentative
agreements it has reached with the UAW on other issues will help it
survive without federal aid – as long as it, too, reaches an
agreement with the UAW for reduced or restructured VEBA
Doug Bernstein, a bankruptcy attorney and partner at Plunkett
Cooney PC, said there is an additional risk with accepting stock
instead of cash payments.
In any bankruptcy case, shareholders receive the lowest priority for
debt payments and frequently don’t receive any payments.
On Wednesday, Moody’s investors Service said that the risk of a
bankruptcy filing by GM and Chrysler remains high.
Lance Wallach, CLU, ChFC, CIMC, speaks and writes about
benefit plans, tax reductions strategies, and financial plans.
He has authored numerous books for the AICPA, Bisk Total tape,
and others. He can be reached at (516) 938-5007 or
email@example.com. For more articles on this or other subjects, feel
free to visit his website at www.vebaplan.com.
Lance Wallach, the National Society of Accountants Speaker of the
Year, speaks and writes extensively about retirement plans,
Circular 230 problems and tax reduction strategies. He speaks at
more than 40 conventions annually, writes for over 50 publications,
is quoted regularly in the press, and has written numerous best-
selling AICPA books, including Avoiding Circular 230 Malpractice
Traps and Common Abusive Business Hot Spots. He does
extensive expert witness work and has never lost a case. Contact
him at 516.938.5007 or visit www.vebaplan.com.
The information provided herein is not intended as legal,
accounting, financial or any other type of advice for any
specific individual or other entity. You should contact an
appropriate professional for any such advice.