Benefit certainty far better than a promise

RETIREE HEALTH CARE funding agreements between two major employers and unions representing employees covered by collective bargaining agreements show promising corporate and organized labor realism about the benefits.

As we report on page 1, automotive parts manufacturer Dana Corp. and the United Steelworkers and the United Auto Workers unions recently reached an agreement in which Dana will contribute hundreds of millions of dollars to special tax-exempt trusts, known as voluntary employee beneficiary associations, to fund retiree health care obligations.

After that, Dana will have no further obligation to contribute or provide health care benefits to current or future UAW- or USW-represented retirees.

The agreement follows a nearly identical accord reached earlier this year between Goodyear Tire & Rubber Co. and the USW.

The advantages to Dana and Goodyear are obvious. In exchange for a fixed contribution--$1 billion for Goodyear and nearly $800 million for Dana--the employers are shedding enormous liabilities. Goodyear pegs its projected liability for retiree health care benefits at $1.3 billion, while Dana's estimate is just over $1 billion.

With those liabilities behind them, the companies' financial statements will be much improved and their creditworthiness should improve, helping them to attract new capital. For Dana, in particular, the agreement will surely help them emerge from bankruptcy reorganization.

Union executives obviously understand the trade-offs involved in the agreements. Their retiree members will lose what has been an open-ended company promise to provide benefits. On the other hand, there will be real financial security--the money contributed to the VEBAs--for benefits.

Given how other companies--several in the steel industry come to mind--have failed and retirees have lost their health care benefits, union leaders have come to recognize that financial security for benefits is more valuable than a promise of rich but unfunded benefits.