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GM Retirees Who Lost Health Care Benefits in Bankruptcy Fight to Get Them Back

July 14, 2009
The new GM emerged from bankruptcy Friday, July 10, with a leaner workforce and less debt. One reason is that, with the help of the Treasury Department, the Detroit automaker will not have to pay for the health care of thousands of retirees.

But now some of those retirees are fighting back.

While retirees represented by the United Auto Workers will have a partially funded health care trust managing their health benefits, more than 50,000 retirees represented by three unions—the IUE-CWA, the United Steelworkers and the International Union of Operating Engineers—will have no money from the automaker to fund the more than $3 billion in health care obligations.

The largest among this trio, known by the courts as the splinter unions, are about 28,000 retired workers from the IUE-CWA, the industrial arm of the Communication Workers of America. The union represents, among others, workers from a now defunct assembly plant in Moraine, Ohio, that was the only non-UAW-staffed assembly plant in the country.

In their latest contract, GM had agreed to create a health care trust similar to the UAW’s voluntary employee beneficiary association, IUE-CWA president Jim Clark said.

Unlike the UAW, however, the trust was not funded. And while the UAW received a 17.5 percent ownership stake in the new GM in lieu of cash, the IUE-CWA and other retirees have received nothing but an offer from GM of health insurance with very high out-of-pocket costs.

The unions, as unsecured creditors, stand at the back of the line while the assets of what’s left of the old GM, now called the Motors Liquidation Co., get sold off.

“We don’t feel our retirees should have been left behind with the old GM,” Clark said. “You can change your logo color or do what you want to do, but it’s still the GM company.”

In the eyes of the law, however, it is not.

While the court offered sympathy to retirees, the court said GM was within its legal right to break its contract with the workers. It even articulated the political calculus behind GM and the Treasury Department’s decision to provide for UAW retirees over the other unions.

The court wrote that “with very limited exceptions, the Splinter Unions no longer have active employees working for GM and the U.S. Treasury—triaging its ability to undertake obligations, and trying to make New GM as lean and as viable as possible—allocated its available money to spend it only where necessary to build a new and stronger GM.”

Neither a GM spokesman nor a spokeswoman for the Treasury Department returned requests for comment.

Lance Wallach, an expert on voluntary employee beneficiary associations, said the union’s mistake was to establish a VEBA without funding it.

“The little splinter groups are being cheated,” he said.

And while these so-called splinter unions are appealing the court’s decision, the IUE-CWA is applying political pressure in hopes that the administration of President Barack Obama will support the union workers who endorsed Obama’s candidacy.

To that end, the union published advertisements in major newspapers Tuesday, July 14. In a half-page advertisement in The Wall Street Journal, Debra Turner, a 51-year-old GM retiree with multiple sclerosis, stands next to a wheelchair with a caption that reads: “This Wheelchair Is My Future Once the U.S. Treasury Stops My GM Health Care.”

The ad, perhaps unintentionally, also underscores the very argument GM has made—namely that health care costs for retirees who are not eligible for Medicare are too costly for the company to maintain.

In the ad, Turner, whom the union would not make available for an interview, says that “until now, GM health care paid for most of the $3,400 a month in medicines I have to take.”

The IUE-CWA had negotiated a contract that would require the company to pay for retiree health care through 2011, after which the VEBA would fund future retiree health care costs, Clark said.

Now, with the old GM in liquidation, the union will likely receive mere pennies on the dollar for its health trust if it rejects the Treasury Department and GM’s offer of a catastrophic health plan for retirees.

Clark said this health plan, which would require individuals to spend $8,000 before being covered, “was almost an insult.”

The average cost of a health plan for pre-Medicare retirees is about $700 a month, or $8,400 a year, for individuals, according to estimates by the Employee Benefit Research Institute. Normally, an employer would pick up some of those costs.

Proposed health reforms, if they pass, may make it easier for retirees like Turner to purchase health coverage. But until then, a plan with an $8,000 deductible may be the best option Clark and retirees like Turner can find.

“I think the administration is concerned about health care reform, but you don’t start out by taking away people’s benefits who have earned them,” Clark said.

—Jeremy Smerd

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