The Kroger Co. announced that four of the UFCW/multi-employer pension funds to which the company contributes will merge into a new fund effective January 1, 2012. This new arrangement is expected to reduce Kroger’s annual pension contribution expense and will secure the pension benefits of more than 65,000 Kroger associates.
“Given the challenging environment that exists for pension plans today, we are pleased to have reached an agreement that provides a meaningful future benefit for Kroger associates who participate in these plans,” said Mike Schlotman, Kroger’s chief financial officer. “The unique characteristics of these plans, coupled with our strong financial position and today’s low interest rate environment, give us the ability to contribute to the new fund in a manner that we expect to produce significant future savings.”
Pending market conditions, favorable discussions with the rating agencies and the approval of three remaining UFCW locals, Kroger expects to contribute approximately $650 million to the new fund in January 2012. As a result, the company would incur a charge to earnings for the fourth quarter of 2011 of approximately $0.73 per share. On an after-tax basis, approximately $413 million would be needed to make this contribution. The exact effect on net earnings per diluted share will depend on the actual amount contributed.
The new pension arrangement will result in a reduced fiscal year 2012 pension expense, and increase fiscal year 2012 net earnings, by $0.04 to $0.06 per diluted share. This increase was not contemplated in the guidance for fiscal year 2012 earnings per share growth of 8% to 10% that Kroger provided on December 1. Absent this agreement, contributions and the related expense would have continued to grow in 2012 and beyond.
The consolidation of the four pension plans into one will provide greater stability of future benefits for Kroger associates, reduce administration costs and enhance the prospects for future returns. The plans cover more than 65,000 Kroger associates from 14 UFCW local unions. Kroger associates represent 92 percent of the total active participants in the four funds, which was a key factor that facilitated this arrangement. At the same time, this initiative enables Kroger to cost-effectively fund its contributions by taking advantage of the current low interest-rate environment. The agreement also establishes a pension benefit formula through 2021, which concludes collective bargaining with these 14 UFCW local unions on this subject for the next 10 years.