Dive Brief:

• Fred Meyer and QFC workers belonging to four local unions have ratified an agreement with Kroger to transfer approximately $400 million in pension liabilities from an underfunded plan to the UFCW Consolidated Pension Plan, the grocer announced Friday.
• The agreement to transfer the funds from the Sound Retirement Trust to the UFCW plan covers benefits for more than 10,600 workers at the two Kroger banners and is intended to keep the grocer's exposure to market risk at a minimum while cutting administrative costs, according to Kroger.
• Kroger's deal with the labor groups comes as the federal government takes steps to protect retirement benefits for workers covered by troubled pension plans.

Dive Insight:

Kroger's arrangement with the labor groups representing Fred Meyer and QFC workers reflects broad financial problems with multi-employer pension plans that could cause them to fail in the coming years.

More than a million U.S. workers participate in more than 130 multi-employer retirement plans that are in danger of falling apart, according to the House Committee on Education and Labor. These types of plans, which provide benefits to unionized workers in a variety of industries, cover about 10 million people, CNBC reported.

The latest round of federal pandemic relief includes measures to stabilize financially troubled pensions plans and protect workers benefits, but the Sound Retirement Trust is ineligible for relief under the law, Kroger Chief Financial Officer Gary Millerchip said in a statement. The Pension Benefit Guaranty Corp. (PBGC), the federal government agency that serves as a backstop for pension plans that collapse, is itself in a weak financial position and projects that it could run out of money by the end of 2027.

The agreement between Kroger and the unions, which has been ratified by the workers it affects, has been approved by the PBGC, the UFCW Consolidated Pension Plan and the Sound Retirement Trust. Kroger said it plans to fulfill its obligations under the agreement, which amount to about $310 million after taxes, through even installment payments over the next six years.

Kroger noted that future benefits for the associates would accumulate in a newly created variable annuity pension plan that will be administered by the trust.

Millerchip said the arrangement to transfer the pension funds would be beneficial for its stockholders in addition to securing retirement benefits for its workers. "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," Millerchip said in a statement.

The deal Kroger has reached with workers at grocery stores it runs in the Northwest follows a tentative agreement the grocer and Stop & Shop reached with the United Food and Commercial Workers (UFCW) International Union last July under which the companies created a variable annuity pension plan that covers 33,000 Kroger workers and 18,000 Stop & Shop associates. The grocers withdrew from a multi-employer pension fund as part of the arrangement, which involves contributions to UFCW's Industry Pension Fund by Kroger and Stop & Shop of $962 million and $649 million, respectively.

Also last July, Albertsons reached a tentative deal with the UFCW to establish a separate variable annuity pension plan.

In January, Giant Food said it has fully implemented an $800 million plan to combine several pension plans into a single agreement.