The U.S. Department of Labor’s Employee Benefits Security Administration announced a proposed exemption in the Federal Register today that, if granted, would allow the Chrysler to transfer about $4.59 billion promissory note and company securities to the Voluntary Employees Beneficiary Association (VEBA) plan established to provide health benefits for the company’s retirees.
Following the same request by General Motors Company last month, Chrysler wants an exemption under the Employee Retirement Income Security Act (ERISA) to allow the VEBA plan to hold stock and debt of the reorganized Chrysler. The retiree health plan would cover about 120,000 retirees and dependents when it becomes effective on Jan. 1, 2010.
At the time they were originally proposed, VEBAs at the auto companies were a piece of financial engineering that allowed the transfer of billions of dollars in health care obligations from the books of the auto companies, thereby lowering their borrowing costs. The promised cash contributions from the auto companies never materialized in the amounts that were promised.
Now GM and Chrysler want to use securities in the reorganized companies to fund the health care but need a Federal exemption to do so. Ford Motor Company also has a similar agreement with the Untied Auto Workers union that allows it to use stock in lieu of cash payments. It is not clear when either Chrysler or General Motors will attempt a public stock offering.