Tuesday, August 25, 2009

Shocker: $10 billion Provision in HR3200 Benefits Unions

Remember how UAW came out of the GM and Chrysler bankruptcy making few concessions in return for owning 55% of Chrysler and 39% of GM?
Bondholders were shoved to the back of the line in favor of the unions. Among the "concessions" made by UAW was the acceptance of stock in return for billions owed to the union-run health care trust specifically:
It also gives a union-run retiree health care trust 17.5 percent ownership of a post-bankruptcy protection GM, with a warrant to buy another 2.5 percent.
In what has to be a stunning turn of events, turns out HR3200 (pg 65 section 164) has a provision that would reimburse "participating employment-based plans with the cost of providing health benefits to retirees and to eligible spouses, surviving spouses and dependents of such retirees".
Eligible groups are defined as:
(i) is maintained by one or more employers, former employers or employee associations, or a voluntary employees beneficiary association, or a committee or board of individuals appointed to administer such plan
Yesterday, Detroit News reported that UAW president Ron Gettelfinger urged support for health care reform "citing a provision that includes $10 billion to defray the medical costs of union members and others in retiree group health care associations." Which provision would that be I wonder? If you guessed section 164 you would be correct. More from Detroit News:
The provision could provide badly needed financial support to hourly retirees, who have agreed to accept stock in exchange for billions owed in retiree health care at General Motors Co. and Chrysler Group LLC. The UAW's voluntary employee beneficiary association, or VEBA, owns a 55 percent stake in Chrysler in exchange for billions Chrysler owed in health benefits. The UAW GM VEBA received a 17.5 percent stake in GM in exchange for billions owed. It also received a warrant for 2.5 percent of GM stock and a note for $2.5 billion.
The Senate HELP bill conatins the same language.

The provision in HR3200 is for retirees between the ages of 55 and 65 and presumably would be open to any plan providing insurance for retirees before they qualify for Medicare. This type of insurance is generally only offered by government agencies, unions, professional organizations and certain larger employers. Communication Workers of America, a division of the AFL-CIO, has stated that only 30% of retirees receive such benefits from employer based programs. Section 164 outlines that such plans must apply for the program and be approved. Are we really supposed to believe large employers who offer this insurance to retain executives are going to be approved? It's no coincidence section 164 includes the specific language "voluntary employee beneficiary association when UAW runs a program that operates under the acronym VEBA. Section 164 and the corresponding provision in the Senate HELP bill are union givebacks and most likely a means to compensate UAW for its concession in the GM and Chrysler bankruptcies.

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