12 minute read
A Masterful Achievement
OUR COMMUNITY
Bob Naftaly is the founding chair of the UAW Retiree Medical Benefits Trust.
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GLENN TRIEST
A Masterful
Achievement!
How Bob Naftaly, in the face of automaker bankruptcies, helped save health benefi ts for 872,000 UAW retirees.
DORON LEVIN
SPECIAL TO THE JEWISH NEWS T he future of Detroit and the U.S.-based automakers during the summer of 2007 had never looked so dreadful. General Motors, negotiating with the United Auto Workers union toward a new labor contract, had lost more than $12 billion during the previous two years. Bankruptcies for one or more of the Big Three automakers were growing more likely.
Desperate to stave off collapse, the Big Three proposed shrinking large liabilities for future medical and other post-retirement benefits to which hourly workers were promised. If bankruptcy happened, little or no money would be available for health care.
The UAW and the industry, however, found a solution: Entitlements would be secured by a separate, independent trust. The automakers agreed to fund the Voluntary Employee Benefit Association (VEBA), which was empowered to pay retirees’ medical benefits. In return, the three automakers were able to remove the massive liabilities from their balance sheets.
But who had the skill, experience and the credibility to organize and oversee the VEBA trust? With automakers and the union so often at odds, who could the union and automakers appoint to ensure the VEBA remained true to its mission, competent and, importantly, sufficiently funded to cover more than $50 billion of future medical bills for hundreds of thousands of retired autoworkers?
The UAW and auto industry agreed that Bob Naftaly was the right person to organize the VEBA’s creation and lead its board. A longtime financial executive who had served the Jewish Federation of Metropolitan Detroit as well as Democratic governors Jim Blanchard and Jennifer Granholm, Naftaly had retired a few years earlier as Executive Vice President of Blue Cross Blue Shield of Michigan. Finance was his skill, public service his passion — and problem-solving an invaluable attribute.
Naftaly, 83, continues to serve as chair for what now is known as the UAW Retiree Medical Benefits Trust, which pays out roughly $3.5 billion annually in health care benefits to nearly 600,000 former auto workers and their dependents. In addition to other prominent financial roles, the UAW knew
him as chair of an earlier, much smaller VEBA trust that administered dental benefits to union retirees.
AUTOMOBILE SLUMP IMPERILED RETIREES
Health benefits — with the specter of bankruptcy looming — was a whole different, larger and more complex undertaking.
“The auto industry and the union had a common problem” in 2007, Naftaly recalled. “They were worried about who would pay for the health care of their workers, and they were also worried about the future viability of the companies” if the automakers became insolvent.
“Workers needed protection, and everyone needed to get the liabilities off the automakers’ books.”
The VEBA trust option had existed in the U.S. tax code for decades — though no company or industry had ever attempted one as large. Following federal judicial approval, the UAW and the auto industry were handed an 18-month deadline to structure the organization, which today employs 127 people. It was a massive task at a moment when the automakers’ financial prospects were growing dimmer by the day. GM and Chrysler did file for bankruptcy in 2009 and were reorganized by the U.S. Treasury; Ford narrowly avoided it.
“This was a huge mission, taking on the health care responsibility for hundreds of thousands of people,” Naftaly said. “Almost like setting up a new insurance company from a blank piece of paper. We needed lots of specific expertise.” Naftaly apportions great credit to Dan Sherrick, then the UAW’s General Counsel, for writing the agreement between the UAW and the auto companies, and to Fran Parker, who had recently retired from HAP and became the Trust’s first hire and CEO.
“Dan knew the legal aspects. I knew finance and governance. Fran tackled the job of putting together the operations team,” Naftaly said.
“From a staff perspective, the chaos in the economy, the recession, worked in our favor. It was a good time to hire good people with expertise in health care. We hired actuarial experts, built a governance structure for the board. We were juggling a lot at the same time. We were being watched. We had to be ready to serve the retirees and their families. A lot of people were depending on us to do this right. We could not afford to miss the launch date of Jan. 1, 2010.”
Many retired auto workers, some not yet old enough for Medicare coverage, were terrified that they and their families would be deprived of health care. Skeptics wondered if the VEBA would fly, given the automakers’ miserable financial condition and the abundance of creditors.
“Once bankruptcy hit, there was a reluctance by some to help us complete the job,” Naftaly said. “Just one example, the company we had hired to determine the eligibility of Trust members suddenly dropped us before finishing its work.”
Naftaly had navigated many financial predicaments over the years; he knew indecision wasn’t an option.
The Trust, inaugurated at the start of 2010, was immediately responsible for providing health care to 872,000 eligible retiree members in all 50 states. The original funding had to be adjusted due to the bankruptcy and looked far less certain than the amounts originally agreed upon.
During Naftaly’s 12-year tenure, the Trust’s investments have prospered thanks in part to a flourishing stock market — as of 2019, assets were $60.3 billion — and thanks to the prudent purchasing of benefits.
The Trust, which operates totally independently from the union and automakers, covers members from retirement through the end of their lives. Current membership of eligible retirees and dependents, as expected, has declined to 594,277. An additional 67,000 active workers and their eligible dependents will have access to Trust coverage when they retire.
— BOB NAFTALY
Dan Sherrick Fran Parker FINANCIAL SAVIOR IN THE MAKING
For Naftaly, who grew up in Detroit and attended Central High School, his UAW Retiree Medical Benefits Trust role represents the latest highpoint during a long and distinguished career in financial management, health care and public service. He can’t say he always was aimed in this
OUR COMMUNITY
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direction: As a youngster, he’d never imagined such a life. At Central High, astonishingly, he had no inkling as to a future career. Fortuitously, a relative stepped in.
“My Uncle Sam Geller encouraged me to become a certified public accountant,” he said. “He told me to take bookkeeping in high school and then come to work for his accounting firm while taking college courses at night and on the weekends.”
Naftaly graduated from Walsh College in 1959 with a degree in accountancy and financial management. Later he would serve as the school’s alumni association president and a trustee; he also received Walsh’s distinguished alumnus award and an honorary doctorate.
Now based in Troy, Walsh in those days was located in Downtown Detroit. Attending night school meant snagging a decent parking spot and avoiding the meter maid. Night students “were all in the same boat — working at an accounting office or business during the day,” he said in a profile published by Walsh.
“Going to school was tiring, especially during tax season, but I always liked it. All the teachers were professional people, so we got a practical education as well as book learning.”
He worked and co-managed the Detroit-based accounting firm of Geller, Naftaly, Herbach & Shapero for more than 20 years. Following Jim Blanchard’s election as Michigan governor in 1982, Naftaly volunteered to serve on a “crisis committee” probing the state’s financial condition, which turned out to be more precarious than was generally understood.
“The state was insolvent,” he said. “The previous administration had been accounting for income on an accrual basis and expense on a cash basis.” In other words, kicking financial obligations down the road. Michigan’s financial condition appeared much better than it was because the state was booking expenses and obligations only when they were paid, instead of when they were incurred — an accounting no-no. A cash crisis was inevitable.
“We had to institute proper accounting and financial processes,” Naftaly said. “Otherwise, we were going to run out of cash and not be able to make payroll.”
Six months after volunteering his service to the committee, Blanchard appointed Naftaly as Director of the state’s Office of Management and Budget. He served in that post from 1983 to 1987. “By the time I left, the state was solvent again.”
Corporations took note of his judgment and expertise and sought him. After a year as Vice President and Auditor of Detroit Edison, Blue Cross Blue Shield of Michigan recruited him as Executive Vice President and Chief Financial Officer. Once again, Naftaly was faced with the task of straightening out a giant organization beset by money woes.
Like Michigan a few years earlier, Blue Cross Blue Shield in the late 1980s was more or less broke and in need of financial overhaul. Richard Whitmer — father of current Gov. Gretchen Whitmer — was the health-care insurer’s CEO. Naftaly got a green light to clean house, hiring a new finance staff, actuary and controller. He then dove into the minutia of the organization’s financial and actuarial practices, the nuts and bolts of daily operations.
“The staff wondered what I was doing,” he said. Insurance rates had to be increased. The state passed a “solvency tax” to shore up finances. “We also had to improve our relations with the attorney-general’s office.”
Then-Attorney General Frank Kelley had been hostile to Blue Cross Blue Shield, on one occasion filing lawsuits accusing misuse of the nonprofit organization’s taxfree status. But the two knew one another from Naftaly’s days in state government. By the time Naftaly retired 15 years later, the health-care insurer boasted a surplus of $1 billion.
Bob Naftaly was highly trusted by both the UAW and the automakers.
GLENN TRIEST
SAVING NURSING HOME OPTIONS FOR THE JEWISH COMMUNITY
Mark Davidoff, a longtime Detroit accounting and financial executive who considers himself Mark Davidoff a Naftaly protégé, says, “Bob brings vision and heart to the solutions that must be found for seemingly intractable financial problems.” Their relationship eventually led to Davidoff’s tenure as an executive of the Jewish Federation of Metropolitan Detroit, and later as a Partner with Deloitte’s accounting and consulting practices.
In the early 1990s, Davidoff had been working as the Chief Financial Officer for the long-term care subsidiary of what is now Trinity Health Care.
“I get a call from Bob — at that time serving on the
Jewish Federation’s board — who says, ‘I hear you’re a Jewish boy who knows something about nursing homes. We could use your help.’”
Two nursing homes operated by Federation, Borman Hall in Detroit and Prentis Manor in Southfield, were “draining the Federation’s resources and also raising questions about the level of care” for the more than 300 elderly Jewish residents, Davidoff said. The two homes stood to lose their federal certification from Medicare and Medicaid.
“The business approach for solving the problem was to shut them down. The humane approach was to recognize the moral obligation for delivering care to people in need. Bob found the sweet spot between the two.”
Under Naftaly’s guidance, a nationwide request for proposal was sent to nursing home operators. The Federation selected HCR ManorCare, a Toledobased operator, which helped to transfer residents and open a state-of-theart skilled nursing facility as the Marvin and Betty Danto Family Health Care Center on the Eugene and Marcia Applebaum Jewish Community Campus in West Bloomfield.
The migration from a nonprofit nursing home model to a for-profit model didn’t just avert a financial disaster, it led to several new elderly services, such as specialized care for Alzheimer and dementia patients, that hadn’t previously been offered.
Several years later, Naftaly “casually” introduced Davidoff to Deloitte’s thenmanaging partner, who had asked to learn more about the Detroit Jewish community. Naftaly’s role as the “great connector” led to Davidoff joining Deloitte and eventually led to his promotion as Michigan Managing Partner.
Davidoff, who retired from Deloitte in 2019, currently serves as President and CEO of The Fisher Group, the family office for the family of Max and Marjorie Fisher. He also serves as senior advisor to the board of the Detroit Jewish News Foundation, publisher of the Detroit Jewish News.
— BOB NAFTALY
STILL INVOLVED IN HELPING OTHERS
These days, Naftaly refers to himself as “retired,” though the list of his activities and philanthropic endeavors — including meetings and activities associated with chairing the UAW Retiree Medical Benefits Trust — suggest a schedule that remains fairly demanding.
“I’m still active with our Federation here in Detroit, as well the Jewish Federation in Palm Beach, Florida, where we spend the winter,” he said. He has cut back on corporate board memberships.
Naftaly and his wife, Anita, have been married for 30 years, with four adult children and six grandchildren to show for it. Anita Naftaly formerly instituted Opening the Doors, which provided special education programs on behalf of Detroit’s Jewish Federation.
She is also involved with inSIGHT through Education, a nonprofit in Florida that provides learning resources for Holocaust and genocide education in public schools.
His career never afforded Bob Naftaly much spare time for sporting pursuits. “I finally have taken up golf,” said the 40-year member of Franklin Hills Country Club in Farmington Hills, adding with rueful wit: “That was a mistake.”
He has no interest in club golf tournaments at Franklin Hills or in Palm Beach. “My friends and I play, then go to lunch,” he said.
“It’s a game of low expectations” — a pleasurable respite from a long and pressure-packed career putting out fiscal and financial fires.
From Walsh College night courses to corporate executive suites to the state capital to UAW headquarters, Naftaly has won the confidence of executives, assembled crisis teams to solve harrowing financial dilemmas, assisted the ill and the elderly in the name of Jewish welfare — consistently exceeding the expectations of him that were already quite high.
