The three largest union-backed food retailers in the U.S. separately announced they have reached tentative agreements with multiple United Food and Commercial Workers (UFCW) union locals to withdraw from an underfunded multiemployer pension fund they participate in, and establish variable annuity pension plans in their place.
The deals would appear to take advantage of sales windfalls at all three retailers related to the recent COVID crisis to shore up liabilities and bring additional cost certainty to worker pension obligations in the future.
The deals will cost them hundreds of millions in the meantime.
Kroger, Cincinnati, said it would make a pretax payment of $962 million to the UFCW International Union-Industry Pension Fund, known as the National Fund, to fulfill obligations for past service for associates and retirees in the National Fund. Stop & Shop, the Quincy, Mass.-based division of Ahold Delhaize USA, said it would pay a $649 million withdrawal liability, and Albertsons, Boise, Idaho, will contribute $286 million pretax.
Kroger, which in recent years has made several such opportunistic pension deals, framed the agreements as an opportunity to safeguard future benefits for associates and address rising risks associated with their existing funds.
“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,” Gary Millerchip, Kroger’s chief financial officer, said in a statement. “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 said it would team with Stop & Shop in establishing a new variable annuity pension plan for 33,000 Kroger associates and 18,000 Stop & Shop employees to be known as the UFCW and Employer’s Variable Annuity Pension Plan.
Kroger said the tentative agreement establishes a pension benefit formula for Kroger’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,” the company said in a statement.
Albertsons, in the meantime, said it reached a separate agreement with UFCW local unions to establish a variable annuity plan. Similar to the Kroger and Stop & Shop plan, Albertsons said pension benefit formula fixes the terms of projected future pension costs through June 30, 2028, for affected union locals, lowering its future financial risk and protecting benefits for employees.
“We are pleased with this agreement,” Vivek Sankaran, president and CEO of Albertsons, said in a release. “We believe this protects and provides the right benefits for our employees, while reducing financial risk going forward.”
The retailers said the tentative agreements are subject to ratification by employees of all three companies represented by various UFCW local unions. In Kroger’s case, this includes most meat and deli clerks and some retail clerks, from 20 UFCW local unions covering 40 separate UFCW contracts. Albertsons said nine local unions are involved in its part of the agreement, and five UFCW locals for Stop & Shop.