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Shortfall rises by $16 billion at UAW retiree health care fund

The combined assets for retiree benefits at GM, Ford and FCA fell 1.6 percent to $60 billion in 2014.

DETROIT (Bloomberg) -- The estimate of the unfunded future expenses of a trust that pays the health care costs of more than 700,000 UAW retirees from the Detroit 3 automakers widened by $16 billion last year as it changed accounting assumptions and adjusted for new projections of how long members will live.

Prior to last year, the UAW Retiree Medical Benefits Trust had cut drug costs, added preventive care and restored benefits such as dental and vision while also increasing assets.

Based on that success, the UAW had proposed a health-care pool for 295,000 active autoworkers in a new contract. The idea was downgraded to area of study after almost two thirds of the union’s members at Fiat Chrysler Automobiles rejected the labor deal with that provision. The vote came before the new financial results were released.

The combined assets for retiree benefits at General Motors, Ford Motor Co. and Fiat Chrysler fell 1.6 percent to $60 billion in 2014 from 2013, based on the figures filed Oct. 9 to the U.S. Department of Labor. At the same time, the projected obligations increased 23 percent to $80.9 billion. The combination more than quadrupled the shortfall to $20.7 billion.

The retiree fund was first approved by workers in 2007 and delayed by the bankruptcy of GM and Chrysler in 2009. The three automakers agreed to seed the fund with cash and stock of about $59 billion in exchange for severing all future liabilities to pay the health care costs of retirees. The 2014 accounting changes mean the fund ratios are almost the same as when it was created in 2010.

The results included about $9.3 billion in added future costs because of a change in the so-called discount rate, a numerical way of showing that a dollar today is worth more than a dollar in the future. In addition, $3.5 billion was the result of new estimates of longevity by the American Society of Actuaries.

“On an operating basis, the Trust’s investments are expected to return at a rate higher than the discount rate that is required to be used for these reports and therefore, the ratio of assets to liabilities on an operating basis is more favorable than reflected in the financial reporting,” the UAW Retiree Medical Benefits Trust said in a statement. It described the accounting assumptions as conservative.

Revised estimates 

The Society of Actuaries, which estimates life spans, last year revised its projections based on newer data. As an example, among males age 65, overall longevity rose 2 years from 84.6 in 2000 to 86.6 in 2014. Based on the changes, the society estimated there could be a 4 percent to 8 percent increase in private pension plan liability.

The discount rate fell to an average of 3.79 percent across all three automaker funds, compared to 4.71 percent in 2013. Discounting estimates of future spending by a smaller rate results in a higher present value. A benchmark discount rate from Citigroup that is used by the fund as a guide fell to 3.95 percent in December from 4.95 percent a year earlier.

“Both of these changes (discount rate and actuarial tables) impacted all private pension and retiree medical plans in the country,” the trust said.

Not all the increase was from changing accounting assumptions. Estimates of future costs rose $2.2 billion because of changes in coverage, such as the decision to add dental and vision benefits at GM and FCA, offset by increases in co-pays and other out-of-pocket costs, according to the filings.

The shortfall was reported earlier today by The Wall Street Journal.

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