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Thursday, September 9, 2010

Voluntary Employees’ Beneficiary Associations (VEBAs) and Retiree Health Insurance in Unionized Firms

Carol Rapaport
Analyst in Health Care Financing

Voluntary Employees' Beneficiary Associations (VEBAs) are tax-advantaged trust funds created to finance many aspects of employee welfare, including retiree health insurance benefits. This report shows that, under some circumstances, using VEBAs to fund retiree health insurance can benefit both firms and workers. Because the tax treatment of VEBAs is most favorable when the VEBA has been created under a collective bargaining agreement, a unionized firm can use VEBA contributions to reduce or eliminate its retiree health insurance liabilities. The unionized workforce will be able to afford at least some retiree health benefits, because once the firm has contributed funds into the VEBA, the funds can never revert back to the firm. The funds always remain with the workers, even if the firm enters bankruptcy. However, if the firm is not in a financial position to contribute to the VEBA, the workers will not benefit. 

The negotiations between each of General Motors, Ford, and Chrysler and the International Union, United Automobile, Aerospace & Agricultural Implement Workers of America (UAW) between 2007 and 2009, together with the retiree health VEBAs that became the source of the UAW members' retirement funding on January 1, 2010, illustrate many of the issues associated with implementing VEBAs. In particular, these VEBAs were first negotiated as part of a collective bargaining agreement and then modified during bankruptcy proceedings. They were funded by contributions from both the automobile companies and the UAW. It is, however, too soon to see whether the final automotive VEBAs will be successful in delivering health insurance benefits for all eligible beneficiaries.

Date of Report: August 31, 2010
Number of Pages: 12
Order Number: R41387
Price: $29.95

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