Detroit Free Press
February 19, 2009
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 proposal.
“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 costs.
“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 obligations.
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 lawallach@aol.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.
GM Exchange-Offer to Bondholders Fails
Bureau of National Affairs May 28, 2009
GM Exchange-Offer to Bondholders Fails; Board to Meet on Company's 'Next Steps’
LANSING, Mich.--General Motors Corp.’s exchange offer to bondholders resulted in “substantially less” in notes being tendered than the 90 percent required to secure additional government support, the company said May 27, making a bankruptcy filing a near certainty.
GM said its board will meet to discuss the company's “next steps” in light of its failure to exchange the $27 billion in notes for equity. The exchange offer expired May 26.
On March 30, the Obama administration set a June 1 deadline for GM to put in place a restructuring plan that included a debt restructuring. (59 DER AA-1, 3/31/09). Chrysler LLC, given a May 1 deadline to restructure its operations, filed for bankruptcy April 30 in order to speed a merger with Fiat SpA (82 DER AA-1, 5/1/09; see related report in the section).
UAW Agreement Gives VEBA 17.5 Percent Stake.
Meanwhile, United Auto Workers members across the country were voting May 27 and 28 on changes to the union's contract with GM intended to cut costs and help the company survive. Local presidents and bargaining chairs voted unanimously May 26 in favor of the agreement (99 DER EE-12, 5/27/09), which gives the UAW a 17.5 percent equity stake in a restructured GM.
The UAW's share, which consists of common and preferred stock and a warrant to buy an additional 2.5 percent stake in GM, will be held by the union-run voluntary employees' beneficiary association, and “does not translate into governance” of GM, said Harley Shaiken, professor of labor studies at the University of California, Berkeley.
The U.S. government will end up owning the majority of the company, which “in effect, gives us an industrial policy,” Shaiken told BNA May 27. “The question is, what will be the character of that policy?”
The Obama administration's automotive task force has been working with the company, the union, and bondholders on a way to restructure GM, possibly through a bankruptcy reorganization. A spokeswoman for the task force had no comment on the government's plans May 27, and White House spokesman Robert Gibbs said he would not comment on “day-to-day negotiations” ahead of the “looming” June 1 deadline.
“I do think that the president strongly believes that, as he said in the lead-up to the Chrysler deadline, that all the stakeholders involved, the company, labor, management, bond holders, debt holders were all going to have to make some sacrifices if we're going to see GM continue,” Gibbs told reporters.
“The government is going to have a controlling stake in GM,” said Berkeley's Shaiken. Rather than using that stake as a platform for improving the country's manufacturing base, he said, the Obama administration appears to be acting more like a private equity firm that “seeks to get in, get its money back and get out as fast as possible.”
“The government is at great pains to say they are not running GM,” said Shaiken. “But in a way, that's a bit of a fiction, because their presence is such that their broad policies define very definitely what takes place on the ground.”
Those policies may at times be in conflict with its goal of bringing GM back to profitability as quickly as possible, said Shaiken. Yet by taking initiatives such as adopting new, tougher fuel-economy standards, he said, the government “goes beyond” just shaping what happens at GM.
UAW's Influence Shifts to Washington.
The UAW, Shaiken said, will in the future have more clout in Washington than at the bargaining table. While new contracts at both Chrysler and GM have no-strike provisions in them, he said, the reality is that “these companies going forward are going to be weak for some time,” and “the chances of the union striking are very, very slim.”
The fact that the union was able to get GM to “backtrack” on a plan to make a substantial number of cars overseas shows that the union is sill “a major player,” he said. The new contract prevents the company from adding shifts at overseas plants to make vehicles destined for the United States in cases where U.S. facilities make similar cars, and follows the UAW's vocal objection to a GM plan to import more cars.
“The union was able to preserve a lot, in this environment, for existing workers,” Shaiken said. “They were forced to give up some things that were painful for retirees and new workers, but, bottom line, they live to fight another day.”
Under the new agreement, workers at most GM facilities will be offered buyouts, with incentives ranging from $20,000 to $115,000, along with $25,000 vehicle vouchers, according to a summary of the agreement posted on the websites of some UAW locals.
Hourly workers remaining with GM will not see their base pay, health care, or pension benefits cut. However, they will have less overtime, shorter breaks, and fewer holidays, and they will lose perks such as tuition assistance and performance bonuses.
Under the new VEBA, retirees will no longer have access to vision or dental benefits, and co-pays for prescription drugs will be higher. The union said changes to the plan, including the new funding structure for the VEBA, were necessary in order to maintain government support.
Major Change in VEBA Funding.
Hailed as a way of capping costs for the automakers and paying for retiree benefits, the trust was a major part of the UAW's 2007 collective bargaining agreements with GM, Chrysler LLC, and Ford Motor Co. The union said the change in funding, which allows GM to contribute stock instead of cash, was a necessary part of the company's restructuring. Without the change, it said, GM could be forced to liquidate, leaving no VEBA at all.
As it is, the new agreement gives the union “17 percent of a worthless company,” said Lance Wallach, president and chief executive officer of Vebaplan LLC, a benefits consulting firm in Plainview, N.Y.. www.vebahealthcare.com.
“The VEBA's a great solution, but there'll never be enough money in there to provide the health care that was promised in the union contracts,” Wallach told BNA May 27. The UAW's VEBAs were not properly funded to begin with, he said, and the decline in GM's stock price since the fund was created has not helped. “It's got eight years at most,” Wallach said.
__________________________________________________________
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 lawallach@aol.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
GM Exchange-Offer to Bondholders Fails; Board to Meet on Company's 'Next Steps’
LANSING, Mich.--General Motors Corp.’s exchange offer to bondholders resulted in “substantially less” in notes being tendered than the 90 percent required to secure additional government support, the company said May 27, making a bankruptcy filing a near certainty.
GM said its board will meet to discuss the company's “next steps” in light of its failure to exchange the $27 billion in notes for equity. The exchange offer expired May 26.
On March 30, the Obama administration set a June 1 deadline for GM to put in place a restructuring plan that included a debt restructuring. (59 DER AA-1, 3/31/09). Chrysler LLC, given a May 1 deadline to restructure its operations, filed for bankruptcy April 30 in order to speed a merger with Fiat SpA (82 DER AA-1, 5/1/09; see related report in the section).
UAW Agreement Gives VEBA 17.5 Percent Stake.
Meanwhile, United Auto Workers members across the country were voting May 27 and 28 on changes to the union's contract with GM intended to cut costs and help the company survive. Local presidents and bargaining chairs voted unanimously May 26 in favor of the agreement (99 DER EE-12, 5/27/09), which gives the UAW a 17.5 percent equity stake in a restructured GM.
The UAW's share, which consists of common and preferred stock and a warrant to buy an additional 2.5 percent stake in GM, will be held by the union-run voluntary employees' beneficiary association, and “does not translate into governance” of GM, said Harley Shaiken, professor of labor studies at the University of California, Berkeley.
The U.S. government will end up owning the majority of the company, which “in effect, gives us an industrial policy,” Shaiken told BNA May 27. “The question is, what will be the character of that policy?”
The Obama administration's automotive task force has been working with the company, the union, and bondholders on a way to restructure GM, possibly through a bankruptcy reorganization. A spokeswoman for the task force had no comment on the government's plans May 27, and White House spokesman Robert Gibbs said he would not comment on “day-to-day negotiations” ahead of the “looming” June 1 deadline.
“I do think that the president strongly believes that, as he said in the lead-up to the Chrysler deadline, that all the stakeholders involved, the company, labor, management, bond holders, debt holders were all going to have to make some sacrifices if we're going to see GM continue,” Gibbs told reporters.
“The government is going to have a controlling stake in GM,” said Berkeley's Shaiken. Rather than using that stake as a platform for improving the country's manufacturing base, he said, the Obama administration appears to be acting more like a private equity firm that “seeks to get in, get its money back and get out as fast as possible.”
“The government is at great pains to say they are not running GM,” said Shaiken. “But in a way, that's a bit of a fiction, because their presence is such that their broad policies define very definitely what takes place on the ground.”
Those policies may at times be in conflict with its goal of bringing GM back to profitability as quickly as possible, said Shaiken. Yet by taking initiatives such as adopting new, tougher fuel-economy standards, he said, the government “goes beyond” just shaping what happens at GM.
UAW's Influence Shifts to Washington.
The UAW, Shaiken said, will in the future have more clout in Washington than at the bargaining table. While new contracts at both Chrysler and GM have no-strike provisions in them, he said, the reality is that “these companies going forward are going to be weak for some time,” and “the chances of the union striking are very, very slim.”
The fact that the union was able to get GM to “backtrack” on a plan to make a substantial number of cars overseas shows that the union is sill “a major player,” he said. The new contract prevents the company from adding shifts at overseas plants to make vehicles destined for the United States in cases where U.S. facilities make similar cars, and follows the UAW's vocal objection to a GM plan to import more cars.
“The union was able to preserve a lot, in this environment, for existing workers,” Shaiken said. “They were forced to give up some things that were painful for retirees and new workers, but, bottom line, they live to fight another day.”
Under the new agreement, workers at most GM facilities will be offered buyouts, with incentives ranging from $20,000 to $115,000, along with $25,000 vehicle vouchers, according to a summary of the agreement posted on the websites of some UAW locals.
Hourly workers remaining with GM will not see their base pay, health care, or pension benefits cut. However, they will have less overtime, shorter breaks, and fewer holidays, and they will lose perks such as tuition assistance and performance bonuses.
Under the new VEBA, retirees will no longer have access to vision or dental benefits, and co-pays for prescription drugs will be higher. The union said changes to the plan, including the new funding structure for the VEBA, were necessary in order to maintain government support.
Major Change in VEBA Funding.
Hailed as a way of capping costs for the automakers and paying for retiree benefits, the trust was a major part of the UAW's 2007 collective bargaining agreements with GM, Chrysler LLC, and Ford Motor Co. The union said the change in funding, which allows GM to contribute stock instead of cash, was a necessary part of the company's restructuring. Without the change, it said, GM could be forced to liquidate, leaving no VEBA at all.
As it is, the new agreement gives the union “17 percent of a worthless company,” said Lance Wallach, president and chief executive officer of Vebaplan LLC, a benefits consulting firm in Plainview, N.Y.. www.vebahealthcare.com.
“The VEBA's a great solution, but there'll never be enough money in there to provide the health care that was promised in the union contracts,” Wallach told BNA May 27. The UAW's VEBAs were not properly funded to begin with, he said, and the decline in GM's stock price since the fund was created has not helped. “It's got eight years at most,” Wallach said.
__________________________________________________________
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 lawallach@aol.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
UAW could put VEBA on shaky ground
Union agrees to take half from Detroit 3
BY GREG GARDNER •
PRESS BUSINESS WRITER • APRIL 28, 2009
With ranks of active UAW workers shrinking and the pool of retirees growing, the union's decision to accept half of what General Motors and Chrysler owe to the retiree health care trust is putting the fund on shaky ground.
a Voluntary Employee Beneficiary Association, or VEBA, the trust fund was hailed as part of a transformational labor deal the UAW reached with Chrysler, Ford and General Motors in 2007.
The union would take responsibility for managing health care benefits for retirees. The automakers, meanwhile, would get to take a crushing cost off their books.
But to get it started, all three companies agreed to make huge initial payments -- GM had to pay $20 billion, while Chrysler's tab was $10.6 billion. Now, with the UAW's consent, each company will pay half those amounts. "I said a year ago it wasn't viable when the market was going up," said Lance Wallach, a consultant in New York. Now, he said the VEBA is even less feasible."
Instead of the VEBA failing in 15 years, now it will fail in 6," Wallach said.
As GM announced plans to shed an additional 7,000 to 8,000 hourly jobs, the pool of people who may someday depend on the VEBA is swelling."
Everyone is very concerned about losing their health care. That's what the union fought for," said Kandy O'Neill, 40, who works at GM's Orion Township assembly plant. Thousands of hourly workers won't have the luxury of retiring early. If their plants close, they may have to shop for new coverage.
Arthur Augustus, who has 31 years with GM, said he thinks about retiring all the time. "But I'm worried about my pension and my health insurance," he said as he left work at the Detroit-Hamtramck assembly plant Monday.
Mike Earl, who works at the Delta Township assembly plant near Lansing, said he's nervous, even though his plant is to run without any breaks through summer."
There's going to be people all over the nation laid off with more seniority than me," he said. "I could lose my job."
_______________________________________
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 lawallach@aol.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
BY GREG GARDNER •
PRESS BUSINESS WRITER • APRIL 28, 2009
With ranks of active UAW workers shrinking and the pool of retirees growing, the union's decision to accept half of what General Motors and Chrysler owe to the retiree health care trust is putting the fund on shaky ground.
a Voluntary Employee Beneficiary Association, or VEBA, the trust fund was hailed as part of a transformational labor deal the UAW reached with Chrysler, Ford and General Motors in 2007.
The union would take responsibility for managing health care benefits for retirees. The automakers, meanwhile, would get to take a crushing cost off their books.
But to get it started, all three companies agreed to make huge initial payments -- GM had to pay $20 billion, while Chrysler's tab was $10.6 billion. Now, with the UAW's consent, each company will pay half those amounts. "I said a year ago it wasn't viable when the market was going up," said Lance Wallach, a consultant in New York. Now, he said the VEBA is even less feasible."
Instead of the VEBA failing in 15 years, now it will fail in 6," Wallach said.
As GM announced plans to shed an additional 7,000 to 8,000 hourly jobs, the pool of people who may someday depend on the VEBA is swelling."
Everyone is very concerned about losing their health care. That's what the union fought for," said Kandy O'Neill, 40, who works at GM's Orion Township assembly plant. Thousands of hourly workers won't have the luxury of retiring early. If their plants close, they may have to shop for new coverage.
Arthur Augustus, who has 31 years with GM, said he thinks about retiring all the time. "But I'm worried about my pension and my health insurance," he said as he left work at the Detroit-Hamtramck assembly plant Monday.
Mike Earl, who works at the Delta Township assembly plant near Lansing, said he's nervous, even though his plant is to run without any breaks through summer."
There's going to be people all over the nation laid off with more seniority than me," he said. "I could lose my job."
_______________________________________
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 lawallach@aol.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
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