According to the AP, Ford said the cash flow benefit includes health care cost savings of $1.6 billion per year. The trust is part of the recently ratified agreement with the United Auto Workers, which shifts roughly $23 billion worth of U.S. hourly retiree health care liabilities to the voluntary employees beneficiary association (VEBA) (see Ford Strikes a Deal With UAW ).
In exchange for the cost savings, Ford will contribute $13.6 billion to the VEBA trust (see A Prescription for Relief? ) , including $2.7 billion in cash, $3.8 billion from an existing VEBA and two notes worth $6.3 billion that the company will take out to fund the trust.
Conference Call Details
In a conference call , the automaker affirmed that the UAW and Ford have agreed that responsibility for providing retiree health care will permanently shift from Ford to a new retiree plan funded by a new independent VEBA trust, one that incorporates their 2005 Health Care Agreement. It covers current retirees and active employees as of the effective date of the 2007 contract – and excludes all new hires. Furthermore, the labor agreement ensures that the UAW may not negotiate to increase Ford funding or otherwise seek to obligate Ford to either:
- Provide additional contributions to the VEBA
- Make any other payments for the purpose of providing retiree health care
- Provide retiree medical benefits through any other means
The trust still must be approved by a federal court before its expected effective date of January 1, 2010, the company said.
The use of the VEBA mirrors steps taken at General Motors, where that VEBA will take over $47 billion in health care obligations for 270,000 union-represented retirees (See UAW Members Ratify GM Contract Changing Retiree Health Care ). According to GM’s figures, the deal will boost cash flow starting in 2010 and will represent $3.3 billion in savings by 2011, a year after the trust fund begins operations (see GM Puts Out More VEBA Funding Details ).