UAW Retiree Benefit Trust Underfunded Bu $20B.
A nasty combination of rising health care costs and poor stock market performance has caused a drop in available funding for the UAW‘s Retiree Medical Benefits Trust, according to documents filed in October with the U.S. Department of Labor.
The trust pays for health care benefit costs for 840,000 retired autoworkers and their dependents that currently amount to $4.5 billion each year.
The fund has net assets of $58.8 billion and total benefit obligations of $79 billion, resulting in a $20.2 billion shortfall, said the UAW documents.
“It is important to realize that the financial statements are based on a calculation of the liability mandated by accounting rules,” according to a statement provided to Crain’s by the trust.
Trust officials said liability projections were based on long-term bond yields rated AA or better instead of the trust’s actual investments, which averaged 9.7 percent in 2010.
“The trust’s actual investments are expected to earn a long-term return greater than the yield of conservative long-term bond portfolio,” the statement said.
However, the trust also said that because of a reduction in the consumer price index and lower-than-expected long-term returns, annual asset returns are expected to decline to 7 percent over the next several years.
“It is anticipated that cost sharing (with retirees) will increase as health care inflation affects the cost of health care,” the trust statement said. “The trust must live within its means, providing a core level of health care benefits today while preserving assets to fund benefits in the future.”
Jim Cherundolo, the voluntary employee benefit association’s director of contracting, said the trust knew the trends were causing the stock market to drop and health care inflation to tip upward slightly above projections.
“There will be no change in our contracting approach,” he said. “We knew this was coming.” Source: Jay Greene. Crain’s Detroit Business.