The Cincinnati, Ohio-based Kroger Co. has released that associates across 14 divisions have ratified an agreement with 20 local unions of the United Food and Commercial Workers (UFCW) to withdraw from the UFCW International Union-Industry Pension Fund (National Fund).
“We are pleased to reach an agreement that improves the security and stability of future benefits for our associates and modernizes our retirement benefits offering,” said Gary Millerchip, Kroger’s CFO. “In an environment where pensions are faced with funding challenges, our strong financial position permits us to invest in our associates.”
This agreement has been approved by Kroger, the National Fund Board of Trustees, the UFCW local unions and associates. The Stop & Shop Supermarket Co. and Albertsons Cos. have each entered into separate agreements with the UFCW local unions to withdraw from the National Fund. Together, Kroger, Stop & Shop and the UFCW have created the UFCW and employer’s variable annuity pension plan for benefits for future service.
Kroger will pay the National Fund withdrawal liability of $962 million, on a pre-tax basis, to fulfill obligations for past service for associates and retirees in the National Fund. Kroger also will make a $27 million contribution to a transition reserve in the new variable annuity pension plan. On an after-tax basis, the withdrawal liability and contribution to the transition reserve total approximately $760 million. This withdrawal liability will be satisfied by installment payments to the National Fund over the next three years.
“Kroger’s investment of nearly $1 billion to help secure and stabilize pensions for our associates is the most recent of several meaningful commitments we’ve made over the last decade to address the funding challenges facing associate pension plans,” said Tim Massa, SVP and chief people officer. “This pension investment is in addition to the more than $1 billion we have invested since March to both reward our associates and to safeguard them and our customers through the implementation of dozens of COVID-19 safety measures. Additionally, as part of Restock Kroger announced in 2017, over the period of 2018 to 2020 Kroger will have invested an incremental $800 million in associate wage increases.”
The agreement also establishes a pension benefit formula for the Kroger organization’s contributions to the new plan through June 2028 – at which time it is subject to negotiation with the union. This effectively fixes the terms of the Kroger Family of Companies’ collectively bargained pension obligation with these 20 UFCW local unions for the next eight years, thereby addressing Kroger’s projected future pension costs and minimizing future exposure to market risk associated with the current plan.
As a result of this agreement, the company will incur a charge to net earnings during the fourth quarter of 2020. The charge to net earnings is estimated to be approximately $0.98 per diluted share on a GAAP basis. This does not affect adjusted earnings per diluted share results for 2020, which are provided on a basis that excludes adjustment items such as this contribution.
Kroger continues to generate strong free cash flow and remains committed to investing in the business to drive profitable growth, maintaining its current investment grade debt rating, and returning excess free cash flow to shareholders via share repurchase and a growing dividend over time.
