The Chrysler Voluntary Employee Beneficiary Association (“VEBA”)
Heads I Win, Tails You Lose

The Opposite of Employee Ownership

Because of the Chrysler Voluntary Employee Beneficiary Association (“VEBA”) being partially funded by Chrysler stock, it has been mistakenly referred to as employee ownership. For the employees of the bankrupt company, it is just the opposite. In a real Employee Stock Ownership Plan (ESOP), the employees share directly in the risks and rewards of company stock. If the value of the company stock increases or decreases, the value of employees’ stock accounts goes up or down in direct proportion. That is fair. (It is very important to note that most ESOP participants have not seen the sharp decline in their ESOP accounts that have been experienced by almost everyone with a 401(k) plan.)

Chrysler (and the U.S. Government) Win

When a VEBA is funded with company stock, only the company, not the employees, can win. If the company stock increases in value, employees get the health benefits they were promised, nothing more. If the stock declines in value, the employees may see their health benefits reduced, perhaps drastically. On the other hand, Chrysler and the entity that controls it, the U.S. government, cannot lose. Once Chrysler stock is transferred to the VEBA, the company has no further obligation to provide additional funding for health benefits. A decline in stock value may mean less health benefits for company employees.

No upside potential, only downside risk. Heads I win, tails you lose.