Dive Brief:

• Kroger, Albertsons and Stop & Shop all separately announced that they have reached a tentative agreement with the United Food and Commercial Workers Union (UFCW) and numerous local chapters to withdraw from a multi-employer pension fund for current and former workers associates. The chains will instead contribute to two different variable annuity pension plans.
• Kroger and Stop & Shop together established a variable annuity pension plan covering 33,000 Kroger workers across 20 UFCW local chapters and 18,000 Stop & Shop associates across five local chapters. Kroger said it agreed to make a pre-tax contribution of $962 million to fulfill its obligations to the UFCW’s existing Industry Pension Fund, known as the “National Fund,” while Stop & Shop said it would pay $649 million.   
• Albertsons said it had reached a tentative agreement with the UFCW to establish a separate variable annuity pension plan. The company said it will incur a $286 million pre-tax charge to withdraw from the National Fund.

Dive Insight:

Three of the U.S.’s largest union-affiliated grocers are taking advantage of their strong financial positions during the pandemic to reset their pension fund commitments with the UFCW. By withdrawing from the underfunded National Fund and investing in variable annuity plans, the chains said they will protect benefits for members and lower the financial risk to the companies.

"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."

Both the Kroger/Stop & Shop and Albertsons variable annuity pension plans apply benefits formulas that are fixed until June 2028, allowing the chains, which are all publicly traded, to model out cost impacts long-term in addition to minimizing risk.

The companies said withdrawing from the National Fund and establishing the new variable funds would not materially impact the guidance they’ve set forth for fiscal 2020. Kroger said it still expects to exceed financial guidance it established in early April, which included identical-store sales growth above 2.25% and earnings per share between $2.30 and $2.40. Stop & Shop said its withdrawal charge would not impact free cash flow, and that contributions to the new pension fund would be “nearly identical” to those it made to the National Fund.

Kroger, Stop & Shop and Albertsons all noted they will pay their National Fund withdrawal charges over the next three years.