AT&T, Verizon May Follow GM, Let Unions Take on
    Retiree Costs

    By Jeff Green and John Lippert

    Oct. 15, 2007 (Bloomberg) – AT&T Inc., the biggest U.S. phone company, and No. 2 Verizon
    Communications Inc. may follow General Motors Corp. in trying to shift retiree health-care
    liabilities to a union-run fund, a move that has helped boost GM’s shares 39 percent this year.

    The largest U.S. automaker reached a landmark agreement with the United Auto Workers last
    month to transfer $50 billion in such obligations to a Voluntary Employee Beneficiary
    Association, or VEBA.  The telecommunications companies, which will both negotiate new
    contracts with their unions in the next two years, reported a combined $71 billion in retiree
    liabilities last year.

    “We’ll be watching” how the GM union-run fund develops, said Alberto Canal, a spokeman for
    New York-based Verizon.  He declined to give additional details.  Verizon spends $3.5 billion a
    year for health-care coverage for 900,000 active workers, retirees and dependents, he said.

    Verizon and AT&T both have a union that may set a precedent for so-called VEBAs in separate
    talks with GM that started last week.  The Communications Workers of America’s industrial
    unit is considering a union-run fund for a GM plant it represents in Ohio.  Michael Coe, a
    spokesman for San Antonio-based AT&T, declined to comment.

    “Telecommunications are the next big group that will be looking at VEBAs,” said Howard
    Silverblatt, an analyst at Standard & Poor’s in New York.  The ratings service estimates
    companies in the S&P 500 had $387 billion in retiree health-care and insurance commitments at
    the end of last year.

    Setting the Stage

    The GM agreement sets the stage for companies such as AT&T, Verizon and aircraft maker
    Boeing Co. to also restructure billions of dollars in retiree benefits, clearing out balance sheets
    and capping health-care costs that rose by an average of 8.4 percent last year in the U.S.

    Like GM, AT&T and Verizon might also get a share-price boost from union-run funds, said
    George Foley, who oversees $1.1 billion in assets at Glenmede Trust Co. in Philadelphia.  While
    the gains may be smaller, “the opportunity to move long-term legacy liabilities off the balance
    sheet is dramatic,” he said.

    AT&T shares have risen 18 percent, and Verizon has gained 22 percent so far this year.

    Several companies are already looking into union-run funds, according to Andy Kramer, a
    partner and labor lawyer for Jones Day in Washington, who has helped GM, Goodyear Tire &
    Rubber Co. and auto-parts maker Dana Corp. establish such funds in the last two years.

    He said he has received calls from telecommunications companies, auto-parts makers, and
    rubber and aluminum producers.  He declined to name them.
    Sparked in 2005

    Interest in retiree health-care trusts has been rising since 2005, when GM set up a $3 billion
    fund that it controlled with the United Auto Workers as part of a plan to require union retirees to
    pay health-care premiums fort the first time, said Lance Wallach, who runs VEBA Plan LLC, a
    consulting company in Plainview, New York.

    About a third of Wallach’s business is talking to private-equity investors and venture capitalists
    about the risks of retiree health-care liabilities and the potential for unlocking their value from
    companies’ balance sheets, he said.  “These are venture-capital guys looking for an edge.”
Let Unions Take on Retiree Costs