Several months after a large supermarket and drugstore company Kroger (NYSE: KR) clashed with unions over the end of his “hero pay” and periodic risk premiums, the company has reached an agreement with 20 local member unions of the United Food and Commercial Workers (UFCW). Although not yet finalized, the agreement provides for an improved pension plan for approximately 33,000 Kroger employees.
The newly struck deal involves Kroger leaving the current UFCW industry and International Union pension fund, paying a debt of $ 962 million. Workers will now use a variable annuity pension plan instead. The benefits will vary each year according to a formula based on the relationship between a minimum rate of return of 5.5% and the actual net returns on the investments.
The plan, if finalized, will last until 2028, when unions can choose to renegotiate its terms. This gives Kroger and investors an 8-year pension plan stability period, as CFO Gary Millerchip noted, stating that the change “will support our commitment to deliver sustainable and attractive total returns to shareholders by making facing future increases in pension costs and downplaying Kroger’s future. exposure to market risk associated with the current pension plan.
One of Kroger’s competitors, Albertsons (NYSE: ACI), who comes from launched its IPO in June, makes a similar gesture. Albertsons CEO Vivek Sankaran said the company believes the shift to an annuity-based plan “protects and delivers the right benefits to our employees, while reducing financial risk in the future,” echoing to Millerchip’s statement.
The change and its associated liability will incur a cost of $ 0.96 per dilution earnings per share (EPS) changes on the basis of generally accepted accounting principles (GAAP) regardless of the quarter in which the agreement is ratified (likely the third quarter of 2020), but will not affect adjusted EPS.
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