Kroger Takes More Action to Secure Retirement Benefits for Employees

The grocer has withdrawn from a multiemployer pension plan, and a new variable annuity pension plan will provide benefits for future service of Kroger and Stop & Shop employees.

The Kroger Co. has announced that associates across 14 divisions have ratified an agreement with 20 local branches of the United Food and Commercial Workers (UFCW) union to withdraw from the UFCW International Union-Industry Pension Fund (National Fund). A tentative agreement was announced on July 21.

This agreement has been approved by Kroger, the National Fund Board of Trustees, the UFCW local unions and associates. The Stop and Shop Supermarket Co. LLC and Albertsons Cos. Inc. have both 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 will also 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.

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.

“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,” says Gary Millerchip, Kroger’s chief financial officer (CFO). “In an environment where pensions are faced with funding challenges, our strong financial position permits us to invest in our associates.”

In a statement to PLANSPONSOR, the UFCW said: “America’s grocery workers are putting themselves in harm’s way every day of the COVID-19 pandemic. This historic agreement that UFCW secured with Kroger, Albertsons, and Stop & Shop is a critical step to ensuring that these brave workers have the financial security they need to provide for their families.

“This agreement increases the contribution of grocery chains to employees’ pension plan and will help to ensure that these hard-earned benefits will be there for our members when they retire.

“As COVID-19 cases skyrocket across the country, essential workers continue to serve their communities. Thousands of essential workers are still being exposed and infected every week as the hazards of this pandemic continue. Now more than ever, companies must invest in these hardworking men and women to ensure they have the hazard pay, essential benefits, and strong financial security that they have earned as this pandemic rages on.”

As Tim Massa, senior vice president and chief people officer at Kroger, notes in the announcement, the action “is the most recent of several meaningful commitments we’ve made over the last decade to address the funding challenges facing associate pension plans.”

Four of the UFCW multiemployer pension funds to which the Kroger Co. contributed merged into a new fund effective January 1, 2012, in an effort to provide greater stability of future benefits for Kroger associates, reduce administration costs and enhance the prospects for future returns.

In December 2017, after attempts to negotiate a withdrawal of Kroger employees from the financially troubled Central States, Southeast and Southwest Areas Pension Plan, Kroger and the International Brotherhood of Teamsters (IBT) ratified a new labor agreement that provided for Kroger’s withdrawal from the Central States Pension Fund. It established a new fund, called the International Brotherhood of Teamsters Consolidated Pension Fund that was designed to provide Kroger associates with a secure pension. Central States trustees did not have to approve the agreement.

Kroger and the IBT, which represents Kroger employees in collective bargaining, had previously attempted to negotiate with Central States, proposing to set up a separate, fully funded pension plan for the Kroger participants, taking away the Central States’ responsibility to pay participants’ benefits. However, in exchange, Kroger and the IBT would not have to pay an Employee Retirement Income Security Act (ERISA) withdrawal liability to the Central States plan, so the trustees rejected the proposal.

There was a period of back and forth between Kroger and the Central States plan until Kroger withdrew in 2017 per the new labor agreement. The fund sent Kroger a notice and demand for payment of $1.029 billion in withdrawal liability, “under which Kroger would be required to pay monthly installments of $2,841,001.39 for 20 years.” After some negotiation, the fund settled with Kroger for a lump-sum payment of $467 million.