Human Resource/ Ch 14 – Assignment Example

Teacher Employer-Labor Relations Management Changes in Labor Relations have been greatly influenced by technological advancement. It has drastically affected how manufacturing companies and industries operate. The era of automation featured machines replacing human workers doing the same tasks at a faster speed, greater volume output and efficiency. The impact of this development started the downsizing of companies which resulted to significant mass lay-offs. It has also come to a point that automation “diminished the effectiveness of strikes because highly automated organizations are now capable of maintaining satisfactory levels of operation with minimum staff levels during work stoppages” (Bohlander and Snell, 645). Another factor setting the pace for change in labor relations is the growing retiree population. Statistics show that every eight baby boomers turn 50 every 10 mins. and according to U.S. Census projections, people age 65 and older are expected to number 86 million by 2050, an increase of 51 million since 2000 (Bohlander and Snell, 510) . Learning from these past events and considering the uncertainty of times, employees are now becoming vigilant about their short and long-term benefit plans which include health care and income after retirement to keep them going. This case study is about a situation where “General Motors Corp.s (GM ) boldly plans to off-load $51 billion in retiree health-care obligations onto the United Auto Workers (UAW). The deal between General Motors Corp. and the UAW would create a roughly $35 billion trust--$16 billion less than liabilities--to fund and administer benefits for the companys retirees and dependents.” (Bohlander and Snell, 651).
It also seeks to provide answers to three posed questions: 1) Why would UAW agree to administer an unfunded VEBA? ; 2) What risks does a VEBA hold for employees? and 3) Besides obvious cost savings, are there other benefits of a VEBA to GM? Explain.
For semantics clarification, Bohlander and Snell explained that “UAW stands for United Automobile Workers. It is one of the labor organizations categorized as craft unions. Craft unions are represented by skilled craft workers. VEBA stands for Volunteer Employees Beneficiary Association. Just like any associations, VEBA represents various groups of professionals and white collar employees in labor management relations and can be as aggressive as unions ” (Bohlander and Snell, 628).
As to why UAW would agree to administer an unfunded VEBA? As presented by Bohlander and Snell, it may be due to its role. There are now about 12,000 VEBAs nationwide and still growing (Bohlander and Snell, 651). In an article of News and Insights, it revealed that “getting a VEBA established is no easy task. GM and the UAW reached their deal only after weeks of haggling over its terms. They fought over health-care inflation rates, actuarial tables, assumed investment returns, and how much money should seed the trust”. Many are now using VEBAs to help employees save for medical costs tax-free. If setting up of VEBA’s are encouraged by the national government and companies like North West Airlines, then it must be doing some good to its beneficiaries. Thus, its setting up must be pursued or continued. VEBA was subtly described in News and Insights of Bloomberg Businessweek , 2007 as follows:
“For unions, a trust can provide an opportunity to safeguard members from losing benefits in the event of a corporate bankruptcy. Besides, such organization is conducive for setting up of trust funds. Secondly, it may be due for tax reasons. The trusts are most appealing to unionized companies, which get to make big up-front investments in them tax-free. They also can earn money on those funds without paying the Internal Revenue Service. "The VEBA is sensible," says investor Wilbur Ross, who established a union-controlled trust when he restructured several steel companies. "We figured the union is probably in a better position to figure out how to allocate [funds] to the workers."
The following question : What risks does a VEBA hold for employees? Bloomberg Businessweek cited that just like other investment funds everywhere, VEBAs sometimes underperform inflation. It cited “Truckmaker Navistar International Corp. (NAVZ ) which set up an employee trust in 1992 with $500 million, or 50% of liabilities, and a promise to put more money in later. The plan has kept benefits in place, but co-pays have risen and the VEBA is underfunded. Theres no guarantee that this wont happen to UAW workers as well, but it is better by far than losing all of their retiree medical benefits if the companies they worked for fell into bankruptcy.” (Bloomberg Businessweek, 2010)
Finally, besides obvious cost savings, are there other benefits of a VEBA to GM? Explain. It was cited that VEBA may be the only way many companies would love to unload medical liabilities from their balance sheets onto union-led trusts. GM is no exception. For example, while GM will take a big one-time hit, the ongoing drain of retiree health care, which now costs $1,400 per car, will finally end.
In retrospect, we are reminded that ignorance of labor legislation is no defense when managers and supervisors or employees themselves violate labor laws (Bohlander and Snell, 614)
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Bohlander, G. and Snell, S. Managing Human Resource 15E. SouthWestern What?, Year of Publication? Print
“Is GMs Health Plan Contagious? ”. News and Insights. October 08, 2007: Bloomberg BusinessWeek. Web. [ Accessed] Oct. 03, 2010
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