Kroger Reaches Tentative Agreement with UFCW Local Unions to Improve Security and Stability of Future Pension Benefits for Associates
The Kroger Co. announced today a tentative 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”), a multi-employer pension plan. This would allow 33,000 Kroger family of companies’ associates across 14 divisions to participate in a new variable annuity pension plan that improves security for future retirement benefits.
This tentative agreement has been approved by Kroger and the National Fund board of trustees. The 20 UFCW local unions representing Kroger family of companies’ associates have agreed to present this tentative agreement to their members for ratification.
“In an environment where pensions are faced with funding challenges, we are pleased to have reached a tentative agreement that will protect benefits for our associates,” said Gary Millerchip, Kroger’s chief financial officer. “Our strong financial position is allowing us to make this investment in our associates and support our commitment to deliver sustainable and attractive total shareholder returns by addressing future pension cost increases and minimizing Kroger’s future exposure to market risk associated with the current pension plan. Our strong free cash flow and confidence in our model is allowing us to pursue this opportunity, while still accomplishing our other capital priorities such as returning cash to shareholders via our dividend and share repurchase program.”
Kroger continues to expect to exceed the 2020 outlook shared in its April 1 Business Update for identical sales without fuel, adjusted FIFO operating profit, adjusted EPS and adjusted free cash flow.
Pending ratification of the tentative agreement, Kroger expects to 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 would 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 would be satisfied by installment payments to the National Fund during the next three years.
The tentative 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 negotiations 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 tentative agreement, the company would incur a charge to net earnings during the quarter that respective UFCW locals ratify the agreement. This is expected to be in the third quarter of 2020. The charge to net earnings is estimated to be approximately $0.96 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.
The Stop and Shop Supermarket Company LLC and Albertsons Companies, Inc. have each entered into a separate tentative agreement with the UFCW local unions to withdraw from the National Fund. Kroger and Stop & Shop have agreed to transition to the new variable annuity pension plan for 33,000 Kroger family of companies’ associates and 18,000 Stop & Shop employees. Together, Kroger, Stop & Shop and the UFCW would create the UFCW and Employer’s Variable Annuity Pension Plan for benefits for future service.
This tentative agreement is subject to ratification by 33,000 Kroger family of companies’ associates, including most Meat and Deli clerks and some Retail clerks, from 20 UFCW local unions covering 40 separate UFCW contracts, as well as ratification by the UFCW locals covering employees of Stop & Shop. The possibility exists that the membership of one or more of the UFCW locals of Kroger or Stop & Shop will fail to ratify the tentative agreement. If this were to occur, Kroger would not move forward with this transaction and would not withdraw from the National Fund or transition its affected associates to the new variable annuity pension plan.