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Four of the union/multi-employer pension funds to which The Kroger Co. contributes will merge into a new fund effective Jan. 1, a move expected to reduce the Cincinnati-based grocer’s annual pension contribution expense and 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 CFO. “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 United Food and Commercial Workers locals, Kroger expects to contribute approximately $650 million to the new fund in January. As a result, the company would incur a charge to earnings for the fourth quarter of 2011 of about 73 cents per share. On an after-tax basis, about $413 million would be needed to make this contribution. The new pension arrangement will result in a reduced fiscal year 2012 pension expense, and increase fiscal year 2012 net earnings by 4 to 6 cents per diluted share.
The consolidation of the plans 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 in 14 UFCW locals. 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.
Kroger employs more than 338,000 associates who serve customers at 2,439 supermarkets and multidepartment stores in 31 states under two dozen local banner names including Kroger, City Market, Dillons, Jay C, Food 4 Less, Fred Meyer, Fry’s, King Soopers, QFC, Ralphs and Smith’s.