Man Bites Dog: UAW Finances GM Rescue Package

Last fall when the Big Three auto companies were in the middle of tough contract negotiations I published several research notes on the joint GM/UAW proposed solution to their health care problems.

The proposal agreed to led to a new off balance sheet vehicle controlled by the UAW itself to pay future retiree benefits.  GM agreed to transfer billions in assets to the new Voluntary Employee Beneficiary Association, or VEBA, and the UAW would appoint a board of trustees to manage the entity.
At the time I flagged two related concerns:
1) the UAW’s contract ratification process failed to inform union members of the risks associated with the new entity, thus potentially violating both federal labor law and securities law; and
2) the shaky financial structure that GM put in place to fund the VEBA was, I argued, a house of cards.
This week those cards began to tumble.
The UAW leadership sold the new collective bargaining agreement with GM, over fierce rank and file opposition, on the basis of an assertion that the VEBA would secure health care for retirees for 80 years.  
And now, only a few months later, it appears GM is not even good for its promised initial cash transfers to the VEBA!
Yesterday, GM announced a massive multi-billion dollar cost cutting restructuring effort that includes a commitment by the UAW to allow GM to delay a $1.7 billion cash payment GM now owes the VEBA. That is a loan to GM and, assuming GM has the money, it carries a 9% interest rate.
In essence, that means the UAW is now helping to finance deeply troubled GM.  There has been no explanation how the decision was made since it is not even clear that an independent board of trustees to run the VEBA has yet been appointed.
Legally the VEBA owes its beneficiaries a fiduciary duty to defend their long term interests. That means that any decision about how to invest fund assets should be made at arms length. 
Hence, the operative question is: if the VEBA wants to invest in the debt of another entity to the tune of $1.7 billion they must consider all the possible alternatives. 
It is not clear to me that it makes sense at all for the VEBA to be lending anyone $1.7 billion, much less General Motors.

GM/UAW VEBA: A House of Cards