DETROIT (Reuters) - The United Auto Workers union is establishing clear rules for a massive new health-care trust intended to guarantee the independence and solvency of a $56 billion fund that will be set up by the Detroit automakers.
By Poornima Gupta
DETROIT (Reuters) - The United Auto Workers union is establishing clear rules for a massive new health-care trust intended to guarantee the independence and solvency of a $56 billion fund that will be set up by the Detroit automakers.
"We are going to have some very strict controls in the trust agreement," UAW President Ron Gettelfinger told the Reuters Autos Summit in Detroit on Tuesday. "My biggest concern in the establishment of this (trust) is that we have the groundwork or framework in place, if you will, to ensure that we have the proper people in place to make sure we take care of business."
Detroit's three U.S. automakers all signed a landmark health-care deal with the union, under which responsibility for retiree health care would shift to a new UAW-aligned trust fund known as a voluntary employee beneficiary association (VEBA).
!ADVERTISEMENT!The trust needs court approval and U.S. Securities and Exchange Commission accounting clearance before taking effect in 2010 under just-completed labor agreements between the union and the automakers.
Gettelfinger said union representatives were currently putting together a list of all the issues the UAW needed to address to set up a framework for the VEBA ranging from the independence of trustees to the objectives for fund managers who were to be brought in.
He said the UAW would focus first on establishing a similar VEBA at auto parts supplier Dana Corp <DCNAQ.PK> before January and then shift its focus to the bigger trust fund.
"It will be a slow process," Gettelfinger said. "But by the time I leave here as president this thing's going to be well established, and it's going to be off and running."
The key investment priorities for the trust fund will be protecting its solvency and generating cash flow in order to ensure that it can provide health care for at least 80 years for over 700,000 UAW-represented workers and retirees, Gettelfinger said.
The UAW could become the single biggest shareholder in Ford Motor Co <F.N> and General Motors Corp <GM.N> since the health-care trust is being financed partly through convertible debt.
Gettelfinger said it was not clear if the VEBA trustees would make the decision alone or in consultation with the UAW about whether to convert the debt to shares equivalent to as much as 16 percent of GM stock and 15 percent of Ford stock.
With the sizable potential investment in the two automakers, Gettelfinger said the union had considered the question of whether it should have representation on the boards of the automakers.
"We discussed that somewhat," he said. "I think, down the road, board seats will eventually come about."
Analysts have said the UAW could wield a big stick as an investor, especially on issues already on its agenda, including health-care costs, corporate governance, executive compensation and trade.
But Gettelfinger said the fund would be cautious about pushing a social agenda with its investment decisions.
"That is something we will be discussing, we have tried to do that in the past, but sometimes you run into issues with that," he said.
Gettelfinger also said the new investment fund would be run by independent trustees who would be given a "wide berth" on investment decisions.
The UAW may appoint one representative to the board of trustees of the new fund, Gettelfinger said, adding that he would not serve on the board.
Gettelfinger, who said he would not be seeking another term as the union president, has received a lot of interest from Wall Street firms seeking to manage the funds.
"We've heard from a lot of folks on Wall Street and other places that have an interest in what we're trying to do," he said. "It's going to take us a while to get there."
"We're going to be seeking outside counsel on it," he added.
He said the Detroit-based union would draw the line on any lavish spending of workers' money by either the fund managers or the trustees.
"We will have administrative costs, but we are not going to have trustees holding meetings in California," Gettelfinger said. "This is not going to be a lavish party."
(For summit blog: http://summitnotebook.reuters.com/)
