If an exemption proposed by the U.S. Department of Labor goes through, the New Chrysler Corp. could transfer a promissory note of about $4.59 billion and company shares to a voluntary employees benefit association plan set up to fund health benefits for the retirees of the company currently emerging from bankruptcy, according to a DoL release issued Friday. The VEBA would cover about 120,000 retirees and dependents when it becomes effective on January 1, 2010.
New Chrysler asked for an exemption under the Employee Retirement Income Security Act to allow the VEBA to hold stock and debt of New Chrysler in order to make the sale of the company to Fiat North America go more easily. ERISA bars certain plans from holding large percentages of plan assets in the form of employer securities; however, the law also gives the Labor Department authority to grant exemptions that guard the interests of plan participants and beneficiaries.
On May 31, the bankruptcy court issued an opinion allowing old Chrysler to sell practically all of its assets to New Chrysler, which is owned by the Canadian Government, the U.S. Treasury, Fiat, and the VEBA. The exemption would allow the securities transfer, permit New Chrysler and its health plans to pay each other back for benefit payments mistakenly paid by the wrong entity during the transition to the new plan, and permit the auto manufacturer to recover mistaken deposits to the plan.
The assets of the VEBA will be held by the same trust that holds the assets of the plans established by Ford and General Motors for their respective retirees. There will be separate accounting for each plan maintained by the three companies that are now funded through a single trust. (Under Internal Revenue Code section 501(c)(9), a VEBA is defined as “an organization organized to pay life, sick, accident, and similar benefits to members or their dependents, or designated beneficiaries if no part of the net earnings of the association inures to the benefit of any private shareholder or individual.”)
The proposed exemption is slated to be published on October 5 in The Federal Register.