The UAW's Shell Game
The United Autoworkers (UAW) and GM are asking the U.S. Department of Labor (DOL) for a chance to play the old shell game. In back alleys the only winner is the person running the game and in this case the UAW is running it while autoworkers and U.S. taxpayers are being duped. DOL can put a stop to this and should insist on an honest game.
For decades the big three automakers, GM, Ford, and Chrysler, signed contracts with the UAW for lavish healthcare benefits. These benefits -- which could even be called "the Cadillac of healthcare benefits" -- extended well after the workers retired.
After years of avoiding dealing responsibly with retiree health care it became obvious to both the automakers and the union that the companies could not afford these extravagant lifetime health care benefits. Each car company individually cut a deal with the UAW that called for them to put a combined $50 billion in assets into Voluntary Employee Benefit Association accounts. The VEBAs would be run by the UAW for the ‘benefit' of the workers.
Unfortunately the UAW waited too long to cut its deals. GM and Chrysler declared bankruptcy and were bailed out by the Federal Government before the big assets were moved over to the VEBAs. So they were forced to go back the drawing table and negotiate yet another arrangement.
The new agreement requires the approval of the DOL. GM and Chrysler have already filed the paperwork to see that approval -- can Ford be far behind? Just like in a shell game, the Department should follow the money -- and be sure that they protect the workers and not union or corporate bosses.
Who will control the VEBA? Not the government. This is all set up as a private arrangement. Not the automakers. One of the reasons they wanted to cut the deal was to get the liability for the long term benefits off their books. To do that, accounting rules require that they keep their hands off the VEBA. But there is no such problem for the UAW and in fact, they will name 5 of the 11 trustees who will control the VEBA. The UAW can replace any or all of these trustees at any time with no oversight. There will also be 6 "independent" trustees, who will be appointed at first by the judge who is overseeing the lawsuits filed by the UAW against the automakers that are being settled by setting up the VEBA.
Now what happens when one of the "independent" trustees dies or retires? The remaining members of the board of trustees will select the new trustee. When one of the "independent" trustees resigns or dies, the UAW will have 5 of the 10 votes needed to name a replacement.
All of which means that as a practical matter, the UAW will soon have control over the entire muti-billion dollar fund -- with minimal oversight by anyone.
DOL is being asked to give exemptions to laws which require healthcare and pension plans to diversify their investments and not engage in self dealing with the employer that funded the plan. For example the GM deal shows the bulk of the assets will be tied to the success of new GM. The current plan is that the GM VEBA will have 87.5 million shares of stock in the new GM or about 17.5% of the company and the right to buy up to 2.5% more. But that stock is not traded publically so it is difficult to buy or sell -- or to decide what it might be worth. Of course it will be worthless if the new GM falls back into bankruptcy again. And another big part of the assets -- about $9 billion -- will be in the form of corporate IOU's (preferred stock and promissory notes) from - that's right -- the new GM.
So what happens if the assets turn out to be worthless? Will the UAW be responsible? Nope. Will the automakers be responsible? Nope. Will the average retired worker be able to depend on VEBA healthcare benefits? Nope.
If DOL grants the VEBAs exceptions autoworkers may well end up without the benefits the UAW, the companies -- and the U.S. Department of Labor -- were all supposed ensure they receive. The VEBAs are great for the automakers who will remove health care liabilities from their balance sheets and great for the UAW which will have over $50 billion in assets to play with as they wish. The real losers are the workers who could see their healthcare benefits vanish and the taxpayers who may be forced to bailout -- yet again -- ill-conceived decisions that benefit only UAW bosses and the automaker executives.