A company and a union, both worried about the expense of health care benefits, work out an arrangement in which the company establishes and contributes to a union-run trust fund or Voluntary Employee Beneficiary Association, and the union assumes the obligation of providing health care benefits for retirees or present workers.
VEBAs recently negotiated by the Big Three automakers appear to be a fresh, new and cooperative way of attacking the burgeoning cost of health care plans. But they are seriously lopsided deals that lead to financial relief for the companies, while posing financial risk to unions.
Companies that off-load their obligations to provide health care benefits no longer have to bargain over health care benefits, an extremely expensive and contentious bargaining issue and the primary cause of the strikes over the past decade. A huge financial obligation is taken off their balance sheets, making them seem financially healthy and enabling them to borrow at a lower rate. The price of their stock rises.
What do unions gain? Because health care benefits become a union's responsibility, and not management's, they cannot be diluted or ended if the company files for bankruptcy.
VEBAs make some sense for companies in bankruptcy or at the threshold of bankruptcy. But the recent funds of the Detroit car makers make little sense for the United Autoworkers.
General Motors, Chrysler and Ford were undoubtedly in poor financial shape, but bankruptcy was never a serious option. Also, over the past decade, the companies have made small adjustments to benefits, lessening the coverage in one or raising the premiums of another, and saving millions of dollars. Why make a sudden radical change if small changes over the years will do the job?
VEBAs can save companies billions of dollars -- GM will save more than $3 billion annually -- but there is no guarantee that the savings will be put into new product development and job creation rather than management bonuses and new plants overseas.
The biggest problem with VEBAs, however, is the way they distort and diminish the mission of unions as workers representatives. They transform unions from being negotiators of heath care benefits to being administrators of them. Unions no longer do the best they can for workers or retirees, they do the best they can for the trust funds, reducing benefits if funds seem low, rather than pressing employers to increase funds.
If there is to be a fair balance, unions must insist that as a reward for assuming new risks, their members' jobs and wages not be cut and that employers work with them to reduce the costs, but not the coverage, of health care plans.
Gary Chaison is professor of industrial relations at Clark University's Graduate School of Management in Worcester, Mass. He is the author of "Unions in America" (SAGE Publications 2006).