UAW Aims to Restore Retiree Benefits Given Up in 2008 Crisis

At the center of a historic UAW strike against all three major US automakers is an effort against long odds to reclaim retirement benefits workers conceded decades ago as manufacturers teetered on the brink of collapse.

United Auto Worker union activists say they want back the guaranteed lifetime pension payments and retiree medical care they gave up during the 2008 automotive industry crisis. As workers gather on the picket lines, the fate of a complex, tiered stopgap benefits system hangs in the balance.

To some, the notion that employers should directly fund benefits for their former employees through retirement is the aspiration of a bygone era when workers weren’t as mobile and the regulatory burdens of providing a pension and retiree medical coverage weren’t so high. As the Big Three automakers report record corporate profits, the UAW is trying to recover long-lost retiree benefits, contending that workers only gave them up temporarily to bail out their bosses.

“It’s quite likely that there was an understanding that the union would provide givebacks when times were flat with the assumption that, in flush times, they’d get those back,” said Rick Eckstein, a professor of sociology at Villanova University who specializes in unions and labor agreements. “That gives the union leverage at the negotiating table.”

Skilled blue-collar workers have been able to cling onto guaranteed retirement benefits longer than those in any other private-sector industry, despite an onslaught of financial de-risking strategies companies have employed to shed them since the early aughts.

“Defined-benefit plans remain the Cadillac of pension arrangements for people who tend to spend most of their career with a single employer, which I think is still the case with the auto makers,” said Norman Stein, senior policy adviser at the Pension Rights Center.

‘Cadillac’ of Retirement Plans

Only about 15% of workers are covered by a traditional pension or combination pension-401(k) plan, compared to 64% for union workers, according to the US Bureau of Labor Statistics. Pre-Medicare eligible health benefits have been cut in half since 1988, yet companies with at least some union workers were more than twice as likely to provide retiree medical coverage in 2022, a Kaiser Family Foundation survey found.

“My pension is invaluable,” said Craig Nothnagel, a retired GM worker who first started on the Detroit Cadillac assembly line in high school more than four decades ago. “The pension is what keeps me in the middle class. These workers on the picket lines need to have the same benefits we had when they retire.”

Between 2005 and 2009, each of the Big Three automakers negotiated a freeze on their defined-benefit pensions, funneling new hires into a 401(k) plan instead. Free medical coverage former Ford, GM, and Stellantis workers enjoyed were parsed down into three separate voluntary employees’ beneficiary associations, or VEBAs, that pay out limited benefits from a trust.

Before the pensions were frozen and the VEBA installed, the cost of retiree health benefits alone made GM the nation’s largest single private health care provider and cost the company $5.4 billion to cover just over a million people, according to corporate disclosures. When the bottom fell out of the market during the financial crisis, that was a cost the automakers couldn’t bear any longer, and the union didn’t fight back.

“These were extremely expensive benefits to provide, but no guarantee is free and no guarantee is really a guarantee,” said Allison Schrager, a senior fellow at the Manhattan Institute and columnist for Bloomberg News.

UAW helped ensure that their nearly half a million retired workers’ benefits were slashed in order to save thousands of active workers who would be laid off if Ford and GM went under. The union even funded a lawyer to represent retirees fighting the deal who turned around and settled with the automakers in an agreement that guaranteed retiree health benefits weren’t considered a lifelong promise.

The US Supreme Court has since codified that interpretation.

Riding a Wave

There’s virtually no precedent for major corporations turning back the clock on old-style defined-benefit health, welfare, and pension plans, leaving open the possibility that the UAW might be using the request as bargaining chip, rather than a dealbreaking demand.

“It’s unrealistic to think that the union is going to get back these benefits,” said Ilene Davis, a certified financial planner and retirement investment adviser in Cocoa, Florida.

It’s not the first time the union has asked to restore pensions, though. They were a top priority for the rank-and-file “Unite All Workers for Democracy” movement during 2019 negotiations with automakers, but they didn’t make it across the finish line at the end of a 40-day strike.

It’s unclear exactly how much the UAW is asking the automakers to bend, particularly on retiree healthcare. The union has readily advertised that it wants to restore the coverage, but it hasn’t clarified whether that means higher contributions to the Ford, GM, and Stellantis VEBA trusts or wholly-subsidized health insurance paid for by automakers.

UAW didn’t immediately respond to a Bloomberg Law request for comment.

Schrager recently wrote that traditional pension benefits don’t align with younger workers’ job-switching habits and that past underfunding of pensions proves that they don’t always guarantee a comfortable retirement.

UAW may be using the retiree benefits they willingly gave up during negotiations in the early 2000s as a way to gain leverage on other wage issues they’re targeting now, such as a 46% pay hike over four years and a 32-hour workweek.

“The UAW is riding a wave here more than affecting a movement,” said Eckstein. “They paid the price back in the day, and now they’re using it as a bargaining tactic.”