GM to start Canada retiree health care fund

November 9, 2011

GM to start Canada retiree health care fund

/ The Detroit News

General Motors Co. has taken a big step toward reducing retiree costs in Canada by setting up a health care trust fund similar to the one established by the United Auto Workers union.

The company said Tuesday it received final legal approval to establish the independent fund, which will cover health care benefits for about 32,000 retirees represented by the Canadian Auto Workers union.

The fund, effective Oct. 31, allows GM to shift the expense of caring for aging retirees to the union-run health fund.

“The new health care trust is another step forward as we work to de-risk and strengthen our balance sheet and position the company for sustainable profitability,” said GM CFO Dan Ammann in a statement.

The Detroit-based automaker expects the transaction will take about $3 billion in retiree liabilities off its books.

GM and the Canadian union first agreed to the health care trust in June 2009 as part of cost-cutting measures associated with the automaker’s bankruptcy restructuring. Establishment was held up by legal approvals.

The UAW created separate health trusts — also known as a Voluntary Employee Beneficiary Associations, or VEBAs — with each of the Detroit automakers during 2007 contract talks. They were implemented in 2009.

GM will pay in total over $2.5 billion into the fund over the next seven years, starting with an initial payment of $1 billion.

In exchange, the Canadian union will release GM of its retiree health obligations, and instead, use money from the CAW trust to pay out claims and other health expenses for this group.

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