Kroger Defends Pension Buyout

Kroger’s chief financial officer made a strong financial case for its move to buy out pensions, saying it would support shareholder returns and potentially allow for the company to become more competitive on prices.

“In an environment when pensions are faced with funding shortfalls, we are pleased that we can find an opportunity to improve the security and stability of future retirement benefits for our associates in a way that is also a good financial decision for our shareholders,” Gary Millerchip, SVP and CFO of The Kroger Co., said on a conference call with analysts, according to a Sentieo transcript.

The call came following news the Cincinnati-based grocer joined Ahold Delhaize and Albertsons in announcing a tentative agreement between the companies and the United Food and Commercial Workers (UFCW) to withdraw from a current multi-employer pension plan with the UFCW known as the National Fund, creating in its place a variable rate annuity pension.

After an analysis of cash flow scenarios, “we determined the best financial decision was to withdraw from the plan,” said Millerchip. The decision reportedly would allow 33,000 Kroger associates across 14 divisions to participate in a new plan for future service for their retirement benefits.

“Our strong free cash flow and confidence in our financial model is allowing us to pursue this opportunity in addition to our other capital priorities, including continued investments to grow the business and returning cash to shareholders via our growing dividend and share repurchase program,” continued Millerchip, adding that Kroger expects to exceed its 2020 outlook shared on April 1.

The pension shift may also be a move to ensure that Kroger continues to build on gains made during the pandemic.

“It’s really about how we mitigate future cost increases and ensure that we are able to deliver on our TSR (total shareholder return) growth,” he said.

Based on its own analysis and input from actuaries, Kroger determined the current pension plan was headed for a significant cost increase. Meanwhile, a $1 billion cost-savings plan, is allowing the company to focus on business investments that drive shareholder return and growth.

This is further expected to translate to better value for shoppers, Millerchip added.

“We’re investing … in delivering more value for customers, whether it’s in the experience or in personalization or in value in different ways that our customers really appreciate. And then, of course, our alternative profit streams are providing an accelerator of that model.”