Plan will save company billions, but not 'sufficient’: steering committee
General Motors of Canada (GM Canada) will contribute $2.535 billion to a trust fund for retiree health-care costs, eliminating the company’s current retiree health-care plan.
The creation of the trust was a condition of the $10.8 billion contribution the federal and Ontario governments made to bail out General Motors in 2008 when the company filed for bankruptcy protection.
The fund is expected to save the company billions of dollars because retiree medical benefits, including dental and vision care, will not be paid out by GM Canada, but rather by the trust fund itself. The trust will continue to provide coverage for retirees, dependents and surviving spouses.
The agreement is subject to approval by courts in Quebec and Ontario at the end of August 2011.
GM Canada contributions
GM Canada will make the following payments, bearing interest, to the Auto Sector Retiree Health Care Trust:
- an immediate cash payment of $1 billion
- a $800 million promissory note paid in five installments of $255 million each year between 2014 and 2018
- a $179 million supplementary promissory note to be paid in two installments of $130 million in 2014 and 2015
The promissory notes will only be paid out dependent on GM Canada’s ability to do so on the date they are due.
‘Trust will not be sufficient’ in comparison to current benefits: steering committee
While retiree representatives and lawyers support the settlement because they believe it is in the best interest of members, the plan will see a reduction in benefits for the retirees. Actuaries advising the Ontario and Quebec retiree representatives estimate the value of the plan represents between 77 per cent and 84 per cent of the value of the existing coverage, which was financed by GM Canada and adjusted according to contracts negotiated with the Canadian Auto Workers.
"The contributions by GM Canada to the Auto Sector Retiree Health Care Trust will not be sufficient to maintain the retiree health care benefits at their current levels," says an information package prepared for retirees. "Consequently, it is expected that benefits will have to be reduced or otherwise modified to ensure that the available funds will be sufficient to look after the needs of current and future retirees for their lifetimes."
The steering committee is recommending its members accept the plan because they feel there are significant gains over the original offer made by GM. The committee claims through negotiations they were able to secure concessions and additional contributions, bringing the present-day value of the plan to roughly $240 million. Additionally, GM Canada contributions to the trust will be protected from any future insolvency of the company.
Current retirees wishing to opt out of the new plan may do so and pursue legal action against the company individually. Those that opt out of the plan, however, will not be covered under the old or new plans.
