The agreement, approved by nearly 75 percent of UAW members, also requires GM to continue its defined benefit pension plan offered to UAW members.
The agreement on the eve of GM’s expected bankruptcy filing next week modifies a 2007 accord between GM and the UAW that would have capped GM’s burgeoning retiree health care liabilities. That agreement called for GM to transfer assets—currently valued at $10 billion—from an existing voluntary employees’ beneficiary association to a new VEBA controlled by the UAW. For about $20 billion in cash and other contributions to the trust, GM no longer would have been responsible for retiree health care benefits as of Jan. 1, 2010. The accumulated value of those assets was estimated at roughly $50 billion last year.
The new agreement maintains that VEBA-to-VEBA transfer arrangement. However, instead of GM contributing about $20 billion in cash and other contributions, the new VEBA will receive a note, payable in cash, with a principal amount of $2.5 billion. The note will make cash payments of $1.38 billion, including accrued interest, in 2013, 2015 and 2017.
The VEBA also will receive preferred stock in the restructured company with a face value of $6.5 billion. The stock will pay an annual cash dividend of $585 million for as long as the VEBA holds the stock.
Finally, the VEBA will receive 17.5% of the common stock issued by the restructured GM and warrants giving the VEBA the right to purchase an additional 2.5% of the reorganized company’s common stock.
Like an earlier agreement the UAW reached with Chrysler L.L.C., GM’s deal will eliminate retiree vision and dental benefits effective July 1. The UAW said further adjustments of retiree health benefits are likely in 2010 and 2011.
While an exact figure of how much the latest agreement will save GM is not available, GM said the savings will eliminate the wage and benefits gap with its competitors.