The Canadian Auto Workers union has reached an initial agreement with General Motors and Chrysler to create a new healthcare trust that will manage the health benefits of more than 50,000 retirees.


Although some of the details still need to be worked out, the CAW has told the Canadian Press the groundwork has been laid and the companies should start contributing to the trust by next year.


“We have agreed on the detailed timeline for that with both GM and Chrysler,” CAW economist Jim Stanford was quoted as saying.


The trust, which has been dubbed the HCT for ‘healthcare trust’, is being negotiated as part of the union’s new labour agreements with Chrysler and GM subsidiaries in Canada.


The Canadian Press said it was based loosely on a similar trust created by the United Auto Workers in the US (though smaller due to Canada’s national healthcare system) and designed to save the companies money by taking the future health care liability off their books after an initial contribution.

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The Canadian trust would pay benefits and administer dental and drug plans as well as other private medical payments for services not covered by Canada’s publicly funded medicare system, the report said.


“They will put money into the fund at specified times over the next few years to endow the fund with enough money to pay out benefits over the long run,” Stanford said.


Chrysler spokeswoman Mary Gauthier confirmed only that a framework agreement had been reached.


The report added that the Canadian trust would be funded by a one-time monetary contribution and then a series of smaller payments over time.


The trust is to be run independently with an initial contribution by the companies invested and managed by a group of outside directors.


Stanford told the Canadian Press it would protect retirees from the risk of one or both companies finding themselves unable to pay benefits but would expose them to the vagaries of the marketplace.


“The benefit for us is we’ve got money in the bank,” he said.


“The risk is if that money doesn’t earn enough profit then we may have to adjust the benefits down the road. On the other hand, if the investment returns are very good, then we could actually improve benefits down the road, so it’s kind of a trade-off for us.”


The trust would be set up once both troubled companies have completed their restructuring plans with the assistance of US bankruptcy protection and government financial aid – likely next year, Stanford was quoted as saying.