GM, UAW Reach Health Care Coverage Agreement

November 11, 2005 ( - Giant carmaker General Motors won a victory of sorts when its hourly workers signed off on a plan under which active workers and retirees would have to pay more for their health care coverage.

Under the proposed agreement, GM retirees would have to pay up to $752 annually for families and $370 for individuals for their health care, the Associated Press reported. Right now, retirees pay no monthly premiums and a small fraction of other health care costs.

The agreement would require GM hourly workers to contribute $1 per hour in future pay increases to a new fund to help pay for retirees’ coverage. GM would contribute $3 billion to that fund over the next six years.

The tentative agreement, subject to finalized language and United Auto Workers (UAW)-GM member ratification, is projected to reduce GM’s retiree health-care liabilities by about $15 billion, or 25% of the company’s hourly health-care liability, and cut GM’s annual employee health-care expense by about $3 billion on a pre-tax basis, GM said in a Web site statement. Cash savings are estimated to be about $1 billion a year.

The tentative agreement also includes contributions to a new independent Defined Contribution Voluntary Employee Benefit Association (VEBA) that will be used to mitigate the impact of reduced GM health-care coverage on individual hourly retirees. The new independent VEBA will be partially funded by GM contributions of $1 billion in each of three years – currently expected to be 2006, 2007 and 2011.

GM had requested the worker givebacks from the UAW this spring after the company lost more than $3 billion in the first nine months of this year as its labor costs rose and competitors ate away at its domestic market share, the Associated Press reported.

Hourly workers approved the proposals by a 61% majority, UAW President Ron Gettelfinger and chief GM negotiator Richard Shoemaker said in a brief statement. Retirees couldn’t vote on the proposal. GM spokesman Stefan Weinmann said hourly workers would see changes in their health care immediately. Changes for retirees must still be approved by the US District Court in Detroit, he said – a development not expected until early next year.

GM said it was pleased that the agreement was ratified. GM pays for health care for a total of 750,000 US hourly employees, retirees and their dependents, including around 110,000 active workers.

“The agreement allows GM to continue to provide excellent health care benefits to our hourly employees and retirees while at the same time significantly reducing the cost to GM,” the company said in a statement.

GM’s Web statement about the deal is here .