SEC Issues Subpoenas to GM in Investigation of Retiree Pensions, Health Benefits

The Securities and Exchange Commission has issued subpoenas to General Motors related to plans by the company to reduce pension and health benefits for employees and retirees, GM said on Wednesday, USA Today reports (Woodyard, USA Today, 10/27). GM early last week announced a tentative agreement with the United Auto Workers to reduce company retiree health care liability by about 25%, or $15 billion, and reduce annual health care costs by about $3 billion. On Thursday, local UAW leaders approved the agreement. Under the agreement, GM would contribute $1 billion annually in 2006, 2007 and 2011 to a Defined Contribution Voluntary Employee Benefit Association to offset the cost impact. In addition, UAW retirees would pay monthly health insurance premiums and annual deductibles to help reduce GM health care costs (Kaiser Daily Health Policy Report, 10/24). GM said that the subpoenas also involve potential obligations to provide pension and other retirement benefits for employees of the auto parts supplier Delphi, which filed for Chapter 11 bankruptcy protection earlier this month (Hawkins, Wall Street Journal, 10/27). As the former parent company of Delphi, GM might have to provide $12 billion in benefits for Delphi retirees. The SEC investigation also involves "certain transactions" between the companies, GM said. GM officials said they had planned to report the investigation in the company's regular quarterly report, which will be submitted to SEC next month, but decided to make the announcement early after DaimlerChrysler officials on Monday said that the company had received SEC subpoenas related to GM. Chrysler said that the subpoenas asked about the discount rate used for pension and retirement benefits (USA Today, 10/27). GM spokesperson Toni Simonetti said, "We're just cooperating with the SEC at this point. This is an investigation, not an accusation. We have not been accused of any wrongdoing" (Wall Street Journal, 10/27).

Delphi Proposes To Reduce Employee Health Benefits
In related news, Delphi, in a letter to UAW, proposed to eliminate health benefits for union retirees and require active employees to pay health insurance premiums, as well as reduce their wages and vacation time, as part of a plan to become fiscally solvent, Bloomberg/Akron Beacon Journal reports. Delphi officials proposed to require active UAW employees to pay health insurance premiums of as much as $656 monthly per family; workers currently pay no premiums. In addition, Delphi officials proposed to eliminate coverage for dental and vision care and cost-of-living adjustments that protect wages against inflation. Sean McAlinden, a labor analyst with the Center for Automotive Research, said, "It's up to the UAW to make a counter offer." Delphi reported losses of $4.8 billion in 2004 and has asked GM for as much as $6 billion in financial assistance, which the company would use in part to cover the cost of pensions and retiree health benefits (Lippert/Bennett, Bloomberg/Akron Beacon Journal, 10/27).

Chrysler, Ford Seek To Reduce Health Care Costs
Chrysler officials on Wednesday announced plans to reduce health care costs by 25% to 30% but said that they will hold off on negotiations with UAW until the agreement with GM is finalized. Chrysler CFO Bodo Uebber said, "We'll scrutinize General Motors' deal with the UAW and aim for similar conditions" (Wall Street Journal, 10/27). Ford Motors also likely will propose reductions in health benefits based on the GM agreement with UAW to help reduce company health care costs (Forster, St. Paul Pioneer Press, 10/27).

WSJ Examines Effects of GM Agreement on Other Industries
The Wall Street Journal on Thursday examined how the GM agreement with UAW "is sending out ripples well beyond the auto world, potentially affecting labor negotiations in industries ranging from telecommunications to aerospace." According to Ralph Maly, chief negotiator for the Communications Workers of America, the agreement "will have an impact because it will have employers believing that, if you can get it from the UAW, you can get it from other unions." The Journal reports that the "more-concessionary approach that unions are taking is a natural outgrowth of the economic reality facing companies" in a global market at a time when they seek "to stem rising costs for health care and pensions as U.S. workers age." Gregory Junemann, president of the International Federation of Professional and Technical Engineers, said that the GM agreement with UAW has "got to have an influence" on union contract negotiations with companies such as Boeing, General Electric and Lockheed Martin. Daniel Cornfield, a labor sociologist at Vanderbilt University, said, "In heavily unionized sectors that are experiencing global economic competitive pressures, labor leaders are essentially being asked to rethink the formula that was used to compensate workers through fringe benefits. The UAW pioneered the whole package of employer-provided fringe benefits. We're witnessing that being dismantled" (Maher, Wall Street Journal, 10/27).