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What Do the New Auto Industry VEBAs Mean for Current and Future Retirees?

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Older workers and current retirees are increasingly concerned about paying for health care in retirement, according to this AARP Public Policy Institute study. Nearly 18 million Americans have retiree health benefits through a former employer. But as health care costs climb, employers have been rethinking those promises and the obligations they entail. Fewer and fewer employers are offering retiree health benefits to workers and coverage rates have dropped. Until very recently, auto industry retirees have been relatively insulated from these trends. But health care was a top issue in the latest round of collective bargaining as the automakers pushed to reduce these “legacy costs” to address their competitive slide.

With the ratification of new labor contracts in the fall of 2007, the terms of the retiree health care deal for UAW retirees were substantially changed. Beginning January 1, 2010, Ford, General Motors, and Chrysler will no longer provide health benefits to union retirees and their dependents. Instead, the companies will contribute billions to retiree health care trusts (so-called voluntary employees' beneficiary associations, or VEBAs), and will turn over the responsibility for managing the trusts and providing retiree health care benefits to a board of union- and court-appointed trustees. UAW retirees of the Detroit Three automakers have not lost their retiree health coverage – nearly $60 billion is promised to the fund. But real questions remain about how secure the funding is and how long it will last.

For more information, please contact Ellen O'Brien at 202/434-3879. (17 pages)

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