Kroger Co., Cincinnati, is going to purchase a group annuity contract from an insurance company, said company spokesman Keith G. Dailey in an email.
The company also plans to make up to $1 billion in pension contributions in 2017, it disclosed in its 10-K filing with the SEC on Monday.
Executives decided to make the moves to address the "underfunded position of the plan," according to the filing. As of Dec. 31, plan assets totaled $3.138 billion, while projected benefit obligations totaled $4.14 billion, for a funding ratio of 75.8%, the company's most recent 10-K filing showed. Kroger contributed $3 million to the plan in 2016 and $5 million in 2015.
As part of the move to reduce underfunding, about 12,000 current retirees who have a monthly benefit of less than $1,000 will receive their benefits from an insurance company that is still to be decided, Mr. Dailey said. In addition, "approximately 25,000 current associates with a cash balance benefit will be able to elect a distribution from the plan in the form of a rollover to our 401(k) plan, a rollover to an IRA, a lump-sum cash payment (minus taxes) or an annuity," he said.
Kroger said in the 10-K filing that company officials believe "a contribution to the plan and payout to participants at this time are strategic opportunities based on the current interest rate environment, the potential future changes to the U.S. tax code and scheduled Pension Benefit Guaranty Corp. fee increases."
The plan's target allocations are: 39% hedge funds, 14% high-yield fixed income, 13.2% global equities, 11% other, 8% investment-grade fixed income, 6% private equity, 5.8% emerging markets equities and 3% real estate.