In all the discussion about the auto industry’s financial problems, health care costs for retirees are often brought up as one of the major challenges the big 3 domestic companies. This is not a new issue, and one that I actually researched in the early 1990s when I worked for a Congressman from the Detroit area. What is new is that the companies had worked out an arrangement with the United Auto Workers union to turn paying for retiree health costs over to Voluntary employees’ beneficiary associations (VEBAs). These VEBAs – one for each company – were created in the fall of 2007, and were funded by the companies as a way to relieve the them of the unpredicatbility of future costs for retiree health benefits starting in 2010.
An AARP policy analyst wrote a paper about these VEBAs last spring, and noted that the VEBAs might be underfunded based upon the mixture of financial provisions and mechanisms included in their overall makeup. Of course what has happened to the companies in the last several months has raised questions about whether these VEBAs are viable at all.
As a Kaiser Family Foundation new summary noted on Monday, the government loans to GM and Chrysler included requirements for the companies to pay what they owe to the VEBAs in cash and stock. While this might provide short term help to the VEBAs – and thus to today’s retirees – it could also prevent the companies from maintaining their viability. It remains to be seen if the new Congress and Administration will modify those loan requirements, but with the fast changing situation in Washington and with the economy, anything seems possible to believe in.