GM Attempts Reduction of Pension, Health Care in Union Contract

September 19, 2007 ( - General Motors Corp. would give new union members 401(k)-style retirement plans instead of traditional pensions under a proposed United Auto Workers (UAW) contract, according to people familiar with the negotiations.

According to a Bloomberg report, the U.S. automaker wants to scale back three landmark gains by the UAW in the past half-century: a fixed pension, company-paid health care, and an annual cost of living raise. GM also proposed freezing cost-of- living raises to help pay for a union-run fund that would take responsibility for retiree health care, said the sources, who asked not to be identified because they are not authorized to speak publicly, Bloomberg reported.

The fund would relieve GM of $50 billion in future union health costs. New UAW hires would also receive a set amount of cash for medical care each year after they retire, under the proposal.

Other proposals include a cap on out-of-pocket health-care costs for retirees and active workers and lump-sum bonuses if the union accepts a wage freeze, the sources said, according to the news report.

The sources familiar with the 401(k) proposal did not provide figures on potential costs savings since no agreements were final. In the traditional fixed-income pension, union workers are guaranteed a set yearly payout – $36,000 for current GM retirees.

In 2006, GM Chairman and Chief Executive Officer Rick Wagoner announced the company would freeze its defined benefit program for salaried employees and move workers to a defined contribution or a cash balance arrangement. The automaker also capped its contributions to salaried retiree health-care at the level of its 2006 expenditures (See GM DB to DC Pension Move among Belt-Tightening Steps ).