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Pension Funds

Kroger to begin Central States withdrawal

Kroger Co. will withdraw active participants from the $15.3 billion Teamsters Central States, Southeast & Southwest Areas Pension Fund, Rosemont, Ill., as the collective bargaining agreement covering pension contributions expires Friday.

Officials with the International Brotherhood of Teamsters in Washington and Cincinnati-based Kroger informed Central States Executive Director Thomas Nyhan and fund trustees in a March 27 letter that the company and union had reached an agreement to completely withdraw from Central States by Sept. 16. A Kroger subsidiary, Roundy's Supermarkets, bargained for a similar withdrawal on Feb. 19 that transfers Kroger participants to a new IBT Consolidated Pension Fund. The agreement called for Kroger to seek a transfer for all of its participants by Sept. 30. After that, "only the benefits of active employees will be protected," the letter said. Retirees will remain in Central States.

That new pension fund, Kroger and International Brotherhood of Teamsters officials wrote, "cannot become insolvent, like Central States," because employer contributions are based on how well funded the plan is, rather than the traditional flat rate. The agreement also calls for a make-whole benefit for active workers when Central States becomes insolvent, which is projected to happen in less than eight years.

In the March letter, Kroger and Teamsters officials estimated their withdrawal liability for Kroger and its subsidiaries when they leave Central States to be $698 million. Kroger will pay it in annual installments of $60 million over the next 20 years.

The company had previously offered to transfer benefit obligations for active, retired and former vested employees worth $682 million along with a cash payment of $50 million, which Central States trustees refused, the letter said, "Kroger's offer would have protected the benefits of the active employees, terminated vested employees and retirees … without harming the remaining participants in Central States," the letter said.

David Coar, the independent special counsel appointed to oversee Central States, said in an April 9 report that Central States officials presented several counteroffers that were rejected by Kroger.

In a June 6 letter to Steven Vairma, director of the Teamsters warehouse division, and Jon McPherson, Kroger vice president of labor relations, Mr. Nyhan disputed the details of Kroger's various offers and said that while the trustees are anxious for Kroger and Roundy participants to receive a broad guarantee, "Kroger's proposal ... would jeopardize the interests of the fund's non-Kroger participants."

Central States' investments are required by a consent decree to have 50% in passive or indexed accounts, and 50% actively managed under the control of Northern Trust, the court-appointed fiduciary. Investment returns in 2016 were 8.5%, Mr. Coar reported. The plan had 59,479 active participants and 203,415 retirees as of Nov. 1, with the number of retirees "very slowly declining," Mr. Coar said.

In May 2016, Central States' application to reduce benefits to avoid insolvency was denied by Treasury Department officials overseeing the Kline-Miller Multiemployer Pension Reform Act of 2014. The pension fund spends $2 billion more in benefits a year than it receives in contributions.

The new IBT Consolidated Pension Fund calls for retirement age of 62, with accrual rates starting at 0.75% of salary and rising to 1.125% in later years, but further details were not available.

Calls to Central States, Mr. Nyhan, IBT and Kroger were not returned by press time.