Is UAW GM VEBA Health Trust Ratification Vote Illegal?

[Omaha Steve]

http://www.laborradio.org/node/6951

Is UAW GM VEBA Health Trust Ratification Vote Illegal? - 10/03/07

By Doug Cunningham

UAW workers voting on a tentative contract agreement with GM could legally move to stop the ratification vote because they aren’t getting legally required disclosures about the financial risks of the new health care trust fund created in the agreement. That’s according to Santa Clara University Associate Law Professor Stephen Diamond.

: “My personal view is that it’s perfectly appropriate for workers to challenge this right now to stop the vote. Go into federal and obtain an injunction or other kinds of relief that are available. I think the SEC itself should step in and stop this.”

Diamond says the use of convertible bonds to finance 15 percent of the VEBA health care trust ties UAW retiree health care to GM’s future. But the union is selling the tentative agreement by saying it guarantees retiree health care regardless of what happens to GM.

: “This is in direct opposition to the statements that have been made by the United Auto Workers union leadership. They’re contending that this will make the health care obligation owed to future retirees safe from GM’s potential bankruptcy. And that’s simply not true.”

[papau]

1. The VEBA is a "Bankruptcy Remote Entity" meaning its assets are secure even if GM goes

bankrupt.

Those convertible bond could be sold at any time by the VEBA if that is worrying Mr. Diamond.

WHere does ERISA require risk disclosure to beneficiaries of a VEBA? That may be a requirement and if so Mr. Diamond is correct as to slowing down the agreement - but I do not know of that requirement

VEBA plans are covered by regulations regarding discrimination - IRC Section 505 -the amount and types of benefits have to be provided uniformly to all employees, based upon a fixed multiple of compensation, thus eliminating discrimination in favor of highly compensated employees. Tax courts have established that it is the use of a consistent multiple of salary and not the cost of the benefit that satisfies the non discrimination requirements.

VEBA benefits are protected by ERISA, which basically means that they cannot be touched by creditors, lawsuits, bankruptcy, IRS liens, EPA claims, etc.

Under ERISA VEBA’s are considered to be employee welfare benefit plans and its ERISA's Fiduciary Responsibility, Disclosure and Reporting, and Administration and Enforcement section of Title 1, Part B. The fiduciary is subject to ERISA fiduciary standards and enforcement provisions. The plan provides a health and welfare benefit and will have to annually file 5500 series forms (Return/Report of Employee Benefit Plan). A summary plan description must be provided to plan participants and the United States Department of Labor as well. ERISA's participation and vesting standards aren’t applicable to a VEBA because it is by definition neither a pension, retirement, nor a deferred compensation plan. ERISA's minimum funding standards should not apply based on the same theory and because contributions, such as profit sharing, are not mandatory.

I don't recall that ERISA's Fiduciary Responsibility, Disclosure and Reporting, and Administration and Enforcement section of Title 1, Part B, deals with the level of risk of the investments. The disclosure of the investments would seem to be enough - and that is in the contract.