Contract Challenges

JON SPRINGER

When hard times come, unionized retailers and their laborers typically resolve to “share the pain.”

Select figure to enlarge.

Unfortunately for many, there's still plenty of it to go around these days.

Union contracts for troubled retailers including A&P and some Supervalu banners are up for renewal this year and will challenge labor and management to strike deals that can keep them both in business. Elsewhere, negotiations will be heavy in California, where some of the largest grocery unions in the country will try to reach new deals with employers still scarred from a 2003 strike-lockout. Several contracts are also up for renewal in the Northeast and in Cleveland; Memphis, Tenn.; St. Louis; and Ontario.

In all, the United Food and Commercial Workers Union has 68 separate contracts representing more than 220,000 workers up for renewal in 2011. The UFCW had 75 contracts up for renewal in 2010, representing 214,000 workers.

As in recent years, pension funds — battered by the stock market collapse and operating under tighter federal regulations that some sources described as onerous — will be a key issue. Employers in many cases will be required to make greater contributions, but will likely look to union give-backs as a means of affording them.

The Pension Protection Act of 2006 required organizations to shore up their pension plans when certain “red” or “yellow” thresholds are reached. The stock market collapse of 2008 colored nearly all of them in those shades, with a return to green still off in the future.

“I don't know of a Taft-Hartley pension fund that's not in the red zone,” Greg Conger, president of UFCW Local 324, Buena Park, Calif., said. Conger's union is among six UFCW locals comprising 70,000 Southern California grocery workers whose deal with Ralphs, Safeway/Vons and Albertsons expires in March.

“Pension plans are in crisis everywhere,” added Jacques Loveall, president of UFCW 8-Golden State, Roseville, Calif., which is looking for increased employer pension contributions as part of its renegotiation of contracts covering more than 30,000 workers in Northern California.

Pension Tension

The pension issue will be especially acute for struggling retailers including A&P, Montvale, N.J., which filed for Chapter 11 bankruptcy protection last month citing underfunded pensions as a significant legacy cost it would look to reduce in court; and grocers like Acme, whose own plans to reduce long-term employee expenses through a union buyout reached a recent snag when a union representing some if its employees cited potential hits to the pension fund in rejecting the offer.

Wendell Young Jr., president of Philadelphia-based UFCW Local 1776, said workers earlier this month voted to reject Acme's offer of voluntary separation for as many as 300 veteran employees on the basis that the buyout would create further pension shortfalls. Local 1776's contract with Acme, the troubled Malvern, Pa.-based division of Supervalu, expires early next year.

Young said he wants Acme to apply some of the money it will save as a result of the buyouts toward the pension shortfalls, and expressed frustration that Acme appeared unwilling to negotiate on that point. The union has rejected the buyout offer twice.

“For every person who is currently working, there is a contribution being paid. And that contribution amount far exceeds what it costs to deliver the benefit because the funds need to be replenished,” Young explained. “For every person that leaves, it will create a shortfall in the fund.

“We're willing to find ways to be creative and structure it so they can still keep and benefit from most of the savings, but they refuse to have that conversation,” he added. “They want to pocket all of the savings and leave the impact on the pension funds, which will eventually cause our members to have their benefits reduced or limited.”

Steve Sylvan, a spokesman for Acme, in a statement said the buyout was part of a strategy to position Acme to grow again, and noted that other UFCW locals representing Acme workers had already accepted the deal.

“We continue to operate in a competitive and challenging economic environment and need to make the very difficult decisions we believe are necessary to meet our ever-changing business needs to re-position the company for the future. The voluntary severance program is an important part of that strategy, and we are disappointed that it appears that UFCW Local 1776 will walk away from the fair and generous plan that all of our other locals agreed was in the best interests of their members.”

Young, however, was skeptical. “They say they want to do this so they can have a plan to turn around Acme, but what is the plan?” he said. “When I look at the earnings about Supervalu and listen to their conference calls, I get the impression that they don't have a plan. They are simply going to tweak the bottom line here to pay down debt and reduce interest charges.”

Similarly, unions whose contracts are expiring with A&P and its banners this year will seek assurances that the retailer can get itself out of Chapter 11 and into growth mode. A contract covering multiple employers, including A&P, with UFCW Local 338, Mineola, N.Y., is set to expire in April. Separate contracts with UFCW Local 1262, Clifton, N.J., and Local 342, Mineola, expire in October.

“The unions would be open to anything constructive, but only if they see the company making some material moves to stimulate sales and job growth, which they haven't seen, no matter which executives or management firms have been there,” Burt P. Flickinger III, managing partner with Strategic Resource Group, New York, told SN.

Local 342 has launched a program it called Operation: Turnaround that asks workers to check in with reports of progress at A&P stores. While the union said its pension was safe, it has filed several arbitration cases to preserve retirement bonuses for employees under those plans that the retailer said are prohibited under federal restrictions because the plans were underfunded. These include a lump payment in excess of $5,000 per worker and installment payments paid for less than a participant's lifetime, according to a letter A&P sent to affected employees.

“A&P is trying to twist and manipulate their Chapter 11 bankruptcy filing to avoid paying members … their cash retirement bonus the way the contract says it has to be paid,” according to a statement on the local's website.

A&P has declined to answer questions about its pension funds.

“Our members have a 30-year-plus history of trying to save A&P from any number of different things that have gone on there,” Bill McDonough, executive vice president of UFCW in Washington, told SN in an interview. “This is obviously their biggest challenge ever, but we've been there before. Our members and locals have to feel fairly confident that there's a plan going forward.”

California Dreaming

In Southern California, six unions negotiating with the three major chains there have serious concerns about pension and health contributions from employers but hope to reach an agreement peacefully. Both sides still carry scars from a 2003 strike-lockout.

“There are always places for us to have disagreements, but I don't think there will be as many as in the past,” Conger told SN. “That's because we've been working well together since the strike-lockout.”

Conger described that event as “a classic lose-lose situation,” but one that was rebounded from during 2007 negotiations, “which both sides were very pleased with, and went the way they always should have gone.”

When talks begin shortly, labor will be looking for additional health and pension contributions from retailers to shore up pensions that have yet to rebound from the 2008 market crash — and from federal policy that according to Conger has made rebounding from such deficits more difficult by reducing the amortization periods for funds under duress.

“We need money to maintain pensions. And as long as the market starts to turn around, that will help because that's where we've made most of our money through the years,” he said. “If we can amortize our pensions for a longer period of time we can maintain without putting a whole lot of money in. But if the federal government forces us to reduce our amortization period we have to look at other forms of revenue.”

Where that comes from will get to the heart of negotiations, he added. “Employers are tight-fisted with money as always as we expect they should be, but they are reasonable too, and know they have an obligation to their employees to ensure that what they signed up for as employees is still going to still be there for them when they retire.”

Pensions, along with health care expenses and wages — are among the top priorities for workers set to negotiate with employers in Northern California this year, Loveall told SN. And he said reforming federal rules governing pensions is a goal shared by both sides.

“The workers didn't create this [pension] problem and they shouldn't be made to suffer because banks and Wall Street investment firms made a lot of reckless decisions,” Loveall said. “These financial institutions should be made to pay for the damage they have caused to America's workers. They can afford it — after the taxpayers bailed them out in 2008 and 2009, the big banks are already taking in huge profits.

“We also need to reform the laws that govern the pension plans. The so-called Pension Protection Act and Employee Retirement Investment Security Act [ERISA] are making the problems worse, not better. The PPA imposes counterproductive rules that destabilize pension funds and deny their trustees the flexibility they need to respond to changing market conditions. ERISA weakens pensions because it denies pension trustees the ability to invest in the strategic best interests of the employers and the workers.”

McDonough said the UFCW lobbied unsuccessfully for certain aspects of the PPA back when the law was crafted in 2006. “But nobody thought it would have been such a big deal until the market collapse of 2008 and then suddenly, PPA was something everyone had to deal with.

“It's the law; most of our plans have been through it and negotiated rehab plans consisting of increased contributions and reduction in benefits,” he added. “The economy has dealt a lot of those pieces a blow so we've got to figure out how to deal with the legacy costs and the liabilities.”

At least some unions have. Cleveland-based Local 880, which represents several groups of workers with Heinen's, Giant Eagle, Fred W. Albrecht and Fischers Foods whose contracts expire in September, addressed its pension woes successfully in its last round of negotiations, Thomas H. Robertson, the union's president, told SN.

“Due to the decisions of the trustees, and to the provisions of the pension language in our current agreements, and given the improved performance of the funds' investments since the last contract was signed, we do not believe that pensions will be an issue in the coming round of negotiations.”

Instead, Local 880's priority will be additional funds to pay for changes in its health plans, and for higher wages, Robertson said.