AT&T, Verizon May Follow GM, Let Unions Take on
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.”