Certain associates within the Fred Meyer and QFC divisions of Cincinnati, Ohio-based The Kroger Co. have ratified an agreement with four local unions for the transfer of liabilities from the Sound Retirement Trust to the UFCW Consolidated Pension Plan. This new arrangement will help secure the pension benefits of more than 10,600 Kroger Family of Companies’ associates and is expected to minimize the organization’s exposure to market risk going forward while also reducing administrative costs.
“I am delighted we have reached an agreement to address the underfunding of the Sound Retirement Trust, which is ineligible for relief under the Emergency Pension Plan Relief Act of 2021. This agreement is a great outcome for our associates as it better protects previously earned benefits and will stabilize future benefits,” said Gary Millerchip, Kroger’s CFO. “As with previously announced pension restructuring agreements, this agreement allows us to minimize future exposure to market risk, produces a return on investment above our internal hurdle rate by mitigating future costs and provides a more secure future for our associates’ pension benefits. The proactive steps Kroger has taken over many years to address the significant underfunding challenges faced by multi-employer pension plans puts us in a position of strength to continue to deliver strong and sustainable total shareholder return.”
This agreement has been approved by the UFCW Consolidated Pension Plan, the Pension Benefit Guaranty Corporation, Sound Retirement Trust and the local unions. As a result, Kroger will transfer approximately $400 million in net accrued pension liabilities, on a pre-tax basis, to fulfill obligations for past service for associates and retirees from the Sound Retirement Trust to the UFCW Consolidated Pension Plan. On an after-tax basis, approximately $310 million would be needed to execute this transaction. This agreement will be satisfied by installment payments to the UFCW Consolidated Pension Plan and is expected to be paid evenly over the next six years. Benefits for future service for these associates are expected to accrue in a newly created variable annuity pension plan administered by the Sound Retirement Trust.
As a result of this agreement, the organization will incur a charge to net earnings during the first quarter of 2021. The charge to net earnings is estimated to be approximately $0.40 per diluted share on a GAAP basis. This does not affect adjusted earnings per diluted share results for 2021, which are provided on a basis that excludes adjustment items such as this contribution, Capital Allocation Strategy.
The organization continues to generate strong free cash flow and remains committed to investing in the business to drive long-term sustainable earnings 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.
