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USW, Continental agree on retiree health care settlement details

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A settlement has been reached between the United Steelworkers (USW) and Continental Tire North America Inc. regarding litigation over changes that Continental made to its medical plan for hourly retirees.

The lawsuit was filed by the USW and a class of retirees when Continental implemented a $3,000 cap on its payments for retiree health coverage, a change which forced many retirees to pay $1,000 or more monthly for coverage. USW President Leo Gerard called the cap "an unconscionable attempt by an employer to strip away benefits from retirees who had already paid for them with a lifetime of work."

The lawsuit asserted that Continental's "unilateral modification of retiree health care coverage in April 2007 violated federal law." Last July, Judge Jack Zouhary of the Northern District of Ohio ruled that the company had no right to reduce or terminate benefits.

According to the terms of the settlement, Continental has agreed to make $158 million in payments to a Voluntary Employee Benefit Association (VEBA) retiree health insurance fund. The fund will provide benefits for about 2,300 retirees as well as about 100 active employees who are eligible for coverage upon their retirement.

The $158 million in payments is broken down as follows:

* $40 million to be paid immediately;

* $3 million in compensation to class members for the period in 2007 when Continental's $3,000 cap on its contributions for all class members was in effect;

* $21 million in seven annual installments; and

* $94 million (approximately) in Retiree Medical Benefit Liability Payments, paid over 20 years. (Continental Tire North America's parent company, Continental AG, is providing a corporate guaranty for $65 million of the $94 million Retiree Medical Benefit Liability Payments.)

The parties have filed the proposed settlement with the U.S. District Court, and have asked the court to grant preliminary approval to the settlement. After notice to retirees has been provided, the court will then be asked to give final approval to the settlement at a fairness hearing.

Continental expects the fairness hearing will be held sometime in the summer or early fall.

"We entered into this settlement after months of negotiations with representatives of the Steelworkers and attorneys for the retirees," says Continental spokesman Rick Holcomb. "Those negotiations were urged by the court after its preliminary ruling in July of 2007 on some of the issues in the lawsuit.

"While we were confident that the court would ultimately rule in our favor on the key issues that remained after this preliminary ruling, and that on appeal we would be successful, we entered into the settlement because it eliminates the uncertainty and substantial cost of continuing the litigation, and because we believe the terms are fair and reasonable for all concerned."

If the settlement is approved by the court and becomes effective in 2008, retiree health benefits for this group will be provided through a new retiree health care plan, funded by the VEBA, on Jan. 1, 2009.

If the settlement becomes effective in 2009, the new plan will begin to provide benefits on Jan. 1, 2010.

Until the settlement is approved, Continental Tire North America is providing interim benefits for most class members' households.

According to the USW, the VEBA Trust Committee will consist of five members, two of whom will be appointed by the USW. Continental will have no representatives on the committee, which will have the power to establish benefit levels, including the ability to raise or lower benefits for plan participants.

The USW represents 1.2 million active and retired members in North America in a broad cross-section of industries, including, steel, aluminum, paper, forestry and oil. Some 70,000 active members are employed in the tire and rubber industry.

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