The estimate of the unfunded future expenses of the UAW Retiree Medical Benefits Trust that pays the health-care costs of more than 700,000 United Auto Workers retirees from three Detroit-area automakers widened by $16 billion last year as it changed accounting assumptions and adjusted for new projections of how long members will live.
The combined assets for retiree benefits at General Motors Co., Ford Motor Co. and Fiat Chrysler Automobiles fell 1.6% 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% 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 discount rate. 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 Ann Arbor, Mich.-based UAW Retiree Medical Benefits Trust said in a statement. It described the accounting assumptions as conservative.
The Society of Actuaries last year revised its projections based on newer data. Based on the changes, the society estimated there could be a 4% to 8% increase in private pension plan liability.
The discount rate fell to an average of 3.79% across all three automaker funds, compared to 4.71% in 2013.
“Both of these changes (discount rate and actuarial tables) impacted all private pension and retiree medical plans in the country,” the trust said.
