The announcement gave more details of the proposal under the deal between GM and the UAW two weeks ago (See GM and UAW Agree to Retiree Health Care Trust ). The contract provides that on January 1, 2008, GM will make a cash contribution of $24.1 billion to a retiree health care VEBA, to be administered by the UAW. GM also is liable for up to 20 additional annual VEBA payments of $165 million. These payments would be triggered at any time the VEBA’s funding level is projected to be insufficient to provide current benefit levels for at least 25 years from the date of the required payment, according to the Business Insurance report.
GM also is contributing a convertible note to the VEBA with a face value of $4.37 billion. The note, which will pay interest, can be converted into GM stock by VEBA trustees and then sold. A GM employee and a retiree this week challenged the use of the note, saying GM should have released a formal prospectus with details about the note and that the trust could be at risk if GM filed for bankruptcy (See Worker and Retiree Challenge GM/UAW Health Care Trust Proposal ).
The deal additionally calls for retirees and surviving spouses currently receiving pension benefits to receive an additional special monthly pension benefit of $66.70, offset by a $51.67 monthly VEBA contribution. New “non-core” entry-level employees will receive pension coverage through a cash balance plan.
Under the cash balance plan design, employees will receive credits of 6.4% of pay and interest tied to the interest rate on the 30-year U.S. Treasury bond.