The agreement, which was approved by about two-thirds of UAW members, calls for the establishment of a voluntary employee’s beneficiary association to fund retiree health care coverage, said the UAW.
The agreement also calls for GM to continue to provide current and future retirees with health care coverage—at an estimated cost of $5.4 billion—through January 1, 2010. At present, the automaker has approximately $50 billion in unfunded retiree health care obligations extended to current and future UAW retirees and their dependents.
On January 1 of 2008, GM will pump $24.1 billion in cash contributions into a retiree health care VEBA, which will be administered by the UAW. GM also is liable to make up to 20 additional annual VEBA payments of $165 million whenever the VEBA’s funding level is projected to be insufficient to provide current benefit levels for at least 25 years from the date of the required payment.
What’s more, GM also is contributing a convertible note to the VEBA with a face value of $4.37 billion. This note, which will pay interest, can be converted into GM stock by VEBA trustees and then can be sold by the trustees.
Also, retirees and surviving spouses who currently receive pension benefits will get an additional special monthly pension fixed benefit of $66.70, offset by a $51.67 monthly VEBA contribution. Even so-called “non-core” entry-level new employees will receive pension coverage through a cash balance plan. Under the plan, employees will receive credits of 6.4% of pay, with their account balances credited with interest tied to the interest rate on the 30-year U.S. Treasury bond.
GM becomes the fourth major employer to adopt a cash balance plan since Congress last year gave new plans protection from age discrimination suits. Other employers that have moved to cash balance plans over the last year or expanded existing plans include FedEx Corp., MeadWestvaco Corp., SunTrust Banks Inc. and, most recently, Dow Chemical Co.