UAW Healthcare Trusts Report $20.7 Billion 2014 Shortfall

By Christina Rogers And Jeff Bennett 

Healthcare trusts created nearly a decade ago to cover medical expenses for hundreds of thousands of Detroit's hourly retirees reported a funding shortfall of $20.7 billion last year, more than quadruple the gap recorded in 2013, according to government filings.

Administrators of the funds, also known as voluntary employee beneficiary association, or VEBAs, said financial reporting rules require conservative assumptions regarding return estimates, leading to a higher expected liability. It is unclear whether the gap could eventually force the funds--established by the United Auto Workers union to take retiree medical liabilities for factory workers off the car companies' books--to cut costs and trim benefits.

The trusts representing retirees at General Motors Co., Ford Motor Co. and Fiat Chrysler Automobiles NV recorded net assets of $60 billion last year, down less than a percentage point from the previous period, according to filings made with the U.S. Labor Department.

But the funds' benefit obligations grew 23% to $80.84 billion from 2013 to 2014. At the end of last year, the trusts were 74% funded versus 93% in the prior year.

The three trust funds spent a total of $3.2 billion last year paying out medical benefits for retirees. In a statement, the fund attributed the larger shortfall to a change its discount rate and actuarial assumptions.

"Both of these changes...impact all private pension and retiree medical plans in the country" and isn't unique to the UAW fund, said the fund, formally known as the UAW Retiree Medical Benefits Trust.

"On an operating basis, the Trust's investments are expected to return at a rate higher than the discount rate that is required and therefore, the ratio of assets to liabilities on an operating basis is more favorable than reflected in the financial reporting," the fund said in the statement.

The shortfall won't change the investing approach or expectations.

The health of these VEBAs are closely watched as UAW President Dennis Williams aims to eventually make changes to active-worker healthcare. Mr. Williams and other UAW leaders have pointed to the VEBAs as an example of a successful solution for healthcare costs, which are expected to continue to rise and further cut into earnings of Detroit's Big 3.

Write to Christina Rogers at [e-mail] and Jeff Bennett at [e-mail]

(END) Dow Jones Newswires

October 12, 2015 20:29 ET (00:29 GMT)

Copyright (c) 2015 Dow Jones & Company, Inc.