UAW Healthcare Trusts Report $20.7 Billion 2014 Shortfall
October 12 2015 - 9:00PM
Dow Jones News
Healthcare trusts created nearly a decade ago to cover medical
expenses for hundreds of thousands of Detroit's hourly retirees
reported a funding shortfall of $20.7 billion last year, more than
quadruple the gap recorded in 2013, according to government
filings.
Administrators of the funds, also known as voluntary employee
beneficiary association, or VEBAs, said financial reporting rules
require conservative assumptions regarding return estimates,
leading to a higher expected liability. It is unclear whether the
gap could eventually force the funds—established by the United Auto
Workers union to take retiree medical liabilities for factory
workers off the car companies' books—to cut costs and trim
benefits.
The trusts representing retirees at General Motors Co., Ford
Motor Co. and Fiat Chrysler Automobiles NV recorded net assets of
$60 billion last year, down less than a percentage point from the
previous period, according to filings made with the U.S. Labor
Department.
But the funds' benefit obligations grew 23% to $80.84 billion
from 2013 to 2014. At the end of last year, the trusts were 74%
funded versus 93% in the prior year.
The three trust funds spent a total of $3.2 billion last year
paying out medical benefits for retirees. In a statement, the fund
attributed the larger shortfall to a change its discount rate and
actuarial assumptions.
"Both of these changes…impact all private pension and retiree
medical plans in the country" and isn't unique to the UAW fund,
said the fund, formally known as the UAW Retiree Medical Benefits
Trust.
"On an operating basis, the Trust's investments are expected to
return at a rate higher than the discount rate that is required and
therefore, the ratio of assets to liabilities on an operating basis
is more favorable than reflected in the financial reporting," the
fund said in the statement.
The shortfall won't change the investing approach or
expectations.
The health of these VEBAs are closely watched as UAW President
Dennis Williams aims to eventually make changes to active-worker
healthcare. Mr. Williams and other UAW leaders have pointed to the
VEBAs as an example of a successful solution for healthcare costs,
which are expected to continue to rise and further cut into
earnings of Detroit's Big 3.
Write to Christina Rogers at christina.rogers@wsj.com and Jeff
Bennett at jeff.bennett@wsj.com
Subscribe to WSJ: http://online.wsj.com?mod=djnwires
(END) Dow Jones Newswires
October 12, 2015 20:45 ET (00:45 GMT)
Copyright (c) 2015 Dow Jones & Company, Inc.
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