Like many U.S. manufacturers whose foreign competitors pay less for labor, Goodyear has been slashing costs to remain competitive. So, when 2006 negotiations with the United Steelworkers (USW) rolled around, the $19.6 billion tire company investigated ways to find a cure for its retiree healthcare costs.

They found their answer in a Voluntary Employee's Beneficiary Association (VEBA). This VEBA differed from other companies' VEBAs in that it shifted the responsibility for retiree healthcare to an independent trust. They have been used in the past to augment employee healthcare programs, but Goodyear took it one step further–by creating a plan, since copied by many companies, that would eliminate all its USW retiree healthcare benefit (OPEB) obligations.

The VEBA, approved by the USW after a nearly three-month strike, was provided a one-time cash contribution of $1 billion by Goodyear up-front so the independent trust could provide retiree healthcare benefits. Goodyear, meanwhile, wipes out approximately $1.2 billion in OPEB liability from its balance sheet, reduces annual healthcare expense by $100 million, improves cash flow by $130 million (over 2007) and, most importantly, gets out of the risk associated with retiree healthcare.

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Officials from Goodyear's North American Tire business and its human resources, accounting and legal departments collaborated regularly with Bob Keegan, chairman, CEO and president, and his leadership team along with key advisers from Blackstone, Jones Day and Watson Wyatt, which provided modeling, legal and actuarial services.

"Gaining court approval for the VEBA is a win-win for Goodyear and for our current and future USW retirees," said Keegan. "This agreement both protects retiree benefits for years to come and removes a significant legacy obligation from our North American business."

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