General Motors said it received Canadian provincial court approval to carry through with a plan to shift supplemental retiree health care expenses to a trust similar to a plan used by the automaker and its U.S. retirees.
GM said it will record a $800 million accounting gain in the fourth quarter as a result of taking retiree health care liabilities of C$3 billion off its balance sheet.
The Canadian Auto Workers union said GM will pay more than C$2.5 billion into the trust over the next seven years, including an initial C$1 billion, which the CAW said is the costs of benefits in 2010 and 2011.
Canada’s national health care plan covers the major medical expenses of retirees. The new trust will provide supplemental health benefits, including coverage for prescription drugs, dental and vision care.
“The new health care trust is another step forward as we work to de-risk and strengthen our balance sheet and position the company for sustainable profitability,” said Dan Ammann, GM chief financial officer.
About 32,000 GM retirees in Canada will receive supplemental health care benefits and be covered by the new health care trust.
The U.S. health care trust for major medical expenses covers some 515,000 GM retirees and their spouses.
The Canadian trust plan was mandated as part of the bankruptcy and restructuring of GM in 2009. It was agreed by GM and the CAW in June of that year.
A similar trust has been in effect for Chrysler’s Canadian retirees since the beginning of this year. No Canadian trust was created for Ford Motor Co. retirees because that company did not go through bankruptcy.
Courts in Ontario and Quebec recently approved the GM trust, which went into effect on Oct. 31, GM said.
“While the (trust plan) is not perfect, it provides our retirees with a level of security for future benefits that is far preferable to the previous system,” said Ken Lewenza, president of the CAW.
Lewenza said the trust is funded to 80 percent of the expected retiree health care needs and he expects “good investment returns” will make up the remaining funds.
The plan is similar to the United Auto Workers-GM plan in the United States in that the obligation for providing health care has been shifted to the union from the company and that funds are administered by a third-party independent trust.
The U.S. plan was implemented in December 2009.
In the United States, GM and its Detroit rivals Ford and Chrysler Group LLC have greatly narrowed what was a wide gap in hourly worker labor costs with Japanese, German and South Korean automakers with U.S. plants, largely because of the shift of retiree health care costs off their accounting books