UPDATE 1-Reuters Summit-UAW to set up strict controls on VEBA

(For other news from the Reuters Autos Summit, click here)

(Adds details and background)

By Poornima Gupta

DETROIT, Nov 20 (Reuters) - The United Auto Workers union is establishing clear rules for a massive new health-care trust intended to guarantee the independence and solvency of a $56 billion fund that will be set up by the Detroit automakers.

"We are going to have some very strict controls in the trust agreement," UAW President Ron Gettelfinger told the Reuters Autos Summit in Detroit on Tuesday. "My biggest concern in the establishment of this (trust) is that we have the groundwork or framework in place, if you will, to ensure that we have the proper people in place to make sure we take care of business."

Detroit's three U.S. automakers all signed a landmark health-care deal with the union, under which responsibility for retiree health care would shift to a new UAW-aligned trust fund known as a voluntary employee beneficiary association (VEBA).

The trust needs court approval and U.S. Securities and Exchange Commission accounting clearance before taking effect in 2010 under just-completed labor agreements between the union and the automakers.

Gettelfinger said union representatives were currently putting together a list of all the issues the UAW needed to address to set up a framework for the VEBA ranging from the independence of trustees to the objectives for fund managers who were to be brought in.

He said the UAW would focus first on establishing a similar VEBA at auto parts supplier Dana Corp DCNAQ.PK before January and then shift its focus to the bigger trust fund.

"It will be a slow process," Gettelfinger said. "But by the time I leave here as president this thing's going to be well established, and it's going to be off and running."

The key investment priorities for the trust fund will be protecting its solvency and generating cash flow in order to ensure that it can provide health care for at least 80 years for over 700,000 UAW-represented workers and retirees, Gettelfinger said.

The UAW could become the single biggest shareholder in Ford Motor Co (F.N) and General Motors Corp (GM.N) since the health-care trust is being financed partly through convertible debt.

Gettelfinger said it was not clear if the VEBA trustees would make the decision alone or in consultation with the UAW about whether to convert the debt to shares equivalent to as much as 16 percent of GM stock and 15 percent of Ford stock.

With the sizable potential investment in the two automakers, Gettelfinger said the union had considered the question of whether it should have representation on the boards of the automakers.

"We discussed that somewhat," he said. "I think, down the road, board seats will eventually come about."