AT&T, Verizon may shift to union-run health funds
GM, UAW made similar deal last month
By Jeff Gree and John Uppert, Bloomberg News
Wednesday, October 17, 2007
SOUTHFIELD, Mich. — AT&T Inc., the biggest U.S. phone
company, and No. 2 Verizon Communications Inc. may follow
General Motors in trying to shift retiree health-care
liabilities to a union-run fund, a trend that has broad
implications for American workers.
The largest U.S. automaker reached a landmark agreement with the
United Auto Workers last month to transfer as much as $50
billion in such obligations to a voluntary employee beneficiary
association, or VEBA. The telecommunications companies, which
will negotiate new contracts with their unions in the next two
years, reported a combined $71 billion in retiree liabilities
"Telecommunications are the next big group that will be looking
at VEBAs," said How ard Silverblatt, a Standard & Poor's analyst
in New York. The ratings service estimates companies in the S&P
500 had $387 billion in retiree health-care and insurance
commitments at the end of last year.
"We'll be watching" how the GM union-run fund develops, said
Alberto Canal, a spokesman for Verizon, which is focused on
changing the health-care system to reduce costs. Verizon spends
$3.5 billion a year for coverage for 900,000 active workers,
retirees and dependents, he said.
The GM agreement sets the stage for companies such as AT&T,
Verizon and aircraft maker Boeing Co. to also restructure
billions of dollars in retiree benefits, clearing out balance
sheets and capping health-care costs that rose by an average of
8.4 percent last year in the United States.
Accounting rules change
Several companies are already looking into union-run funds,
according to Andy Kramer, a partner and labor lawyer for Jones
Day in Washington, who has helped GM, Goodyear Tire & Rubber Co.
and auto-parts maker Dana Corp. establish such funds in the past
He said he has received calls from telecommunications companies,
auto-parts makers, and rubber and aluminum producers. He
declined to name them.
Interest in retiree health-care trusts has been rising since
2005, when GM set up a $3 billion fund that it controlled with
the United Auto Workers as part of a plan to require union
retirees to pay health-care premiums for the first time, said
Lance Wallach, who runs VEBA Plan LLC, a consulting company in
About a third of Wallach's business is talking to private-equity
investors and venture capitalists about the risks of retiree
health-care liabilities and the potential for unlocking their
value from companies' balance sheets, he said. "These are
venture-capital guys looking for an edge."
New accounting rules this year force companies to add retiree
health-care costs as a liability on their balance sheets, a
shift that turned GM and Ford Motor Co. shareholder value
negative. Offloading the funds to the union will reverse the
Exelon Corp., the largest U.S. utility owner by market value, is
considering a retiree health-care trust fund, said Jennifer
Medley, a spokeswoman for the Chicago-based company. Exelon had
$3.3 billion in retiree health-care liabilities at the end of
last year, according to S&P.
Benefits can be locked in
The telecommunications industry is similar to the automotive
business in that it has large union retiree-health obligations
plus "readily available assets that you could contribute without
killing your cash flow," S&P's Silverblatt said.
The industry also is much more profitable than the carmakers.
Verizon, AT&T and Qwest had combined profits of $14.1 billion
last year, compared with losses of $15 billion at the three
For unions, the health insurance funds are a chance to lock in
benefits before they are cut or eliminated.
Even a union at a healthy company is more likely to consider a
VEBA now that GM has one, said Harry Katz, dean of the School of
Industrial and Labor Relations at Cornell University in Ithaca,