Some random things. A number of people kept asking me, "so, what is a VEBA beyond the basic name?" Here’s an excerpt from today’s Wall Street Journal–interesting note that VEBAs are not that rare at large companies:
A. VEBAs are similar to pension funds. They have assets intended to pay for retiree health care, as well as other, smaller benefits like retiree life insurance or dental care. Employer contributions to VEBAs are deductible and grow tax free. Companies, or in some cases labor unions, withdraw money from the trusts to pay benefits each year as needed. GM’s deal removes $51 billion of retiree health obligations from its balance sheet. In return, its union gets to set and manage the health-insurance benefits.
Q. Apart from tax breaks, why do employers like VEBAs?
A. Employers can contribute their own stock to the plan; that can make it cheaper to fund. What’s more, like pension plans, retiree health trusts can also boost earnings: The VEBA at Proctor & Gamble Co., for example, has contributed more than $600 million to earnings since 2005. [If the GM VEBA is independent of the company, it wouldn’t affect GM’s bottom line once it is established.]
Q. Who has VEBAs?
A. About one-third of large companies have VEBAs. Most are companies with large union work forces, such as utilities and defense contractors. They include ConAgra Inc., Duke Energy Corp., Ford Motor Co., Kellog Co. and Texas Instruments Inc.
Q. Why are they more common at unionized companies?
A. Employers whose work forces have collective bargaining get additional tax breaks. Employers with salaried workers generally can’t deduct contributions to a VEBA that exceed the amount they actually spend on retiree benefits in a given year; if they do, the extra investment income from the VEBA is taxed. This rule was designed to make it harder for employers to abuse VEBAs as tax shelters. But companies with VEBAs covering union employees can contribute more, based on the retiree-benefit plan’s estimated liabilities, without incurring additional tax bills.
Beyond the health care issue, there are more ominous pieces to the deal, this from a different Journal article (the paper did a far better comprehensive look at details than the pedestrian accounts in The New York Times), though one has to caveat this by saying that no one–including many union members–know the specifics quite yet (that will become more known over the weekend as the ratification vote unfolds):
It also sets up a mechanism for the auto maker to buy out thousands of workers, whose wages and benefits total about $70 an hour, and to replace many of them, particularly those in nonproduction jobs, with new employees earning far less. In return, GM has agreed to invest in UAW-represented factories and to make certain improvements to retirement benefits.
If you are wondering where the jobs are and what they are going to pay:
The tentative pact appears to ratify what has become increasingly clear over the past several years: That Toyota Motor Corp., not GM or the UAW, now sets the bar for labor costs in the U.S. auto industry. Over time, the new contract could allow GM to significantly narrow the cost gap between its unionized U.S. operations and nonunion U.S. plants run by Toyota and other Asian and European auto makers — a gap now pegged at $25 to $30 an hour. Auto research firm CSM Worldwide Inc. estimates that the new pact may allow GM to reduce that differential by 40% to 50%.
Imported Japanese and European cars made inroads among American consumers. Honda Motor Co., followed by Nissan Motor Corp. and Toyota, began building nonunion factories outside the industry’s stronghold in the upper Midwest. These Japanese rivals succeeded in transplanting their celebrated manufacturing methods to American soil, using American workers. And they did so while keeping UAW organizers at bay. They paid comparable wages, but did not offer Detroit-style retiree benefits.
I’ve tried to make this point before: it’s a false idea that auto jobs are non-existent in the U.S. The industry is growing–but it’s growing non-union and primarily in the South.
The UAW did what it could in this negotiation. But, the fact is the bargaining took place in a worsening situation for unionized auto jobs.
What we see is clear: what the Journal likes to call "expensive defined-benefit health and pension programs"–which simply means that the elite doesn’t like the idea of making sure people have decent health care and a retirement with dignity and respect–are being destroyed. Nothing new, however. But, this is a moment that signaled to other companies "the game is on."
