Kroger is one of America’s largest chains of retail stores. The company is loved not only by its customers but also by its employees. The benefits offered by Kroger to its employees are some of the best in the US job market.
Pension Plans are a very vital component of Employee Benefits. However, it is important that the long term interests of both the employer and employee are well protected. For the last few months, the retail giant was making efforts to revamp its pension plan.
The good news is that Kroger has reached an agreement with 20 local member unions of the United Food and Commercial Workers (UFCW). This agreement, which is in the final stages, will improve the pension plans for thousands of Kroger employees.
The proposed plan involves Kroger’s exit from the current UFCW International Union Industry Pension Fund. Kroger is liable to pay $962 MN in lieu of this move. This existing plan will then be replaced with a variable annuity pension plan.
Variable annuity pension plans are a much better alternative to defined contribution (DC) based plans. Variable annuity plans offer much better protection to both the employer and employee. Returns for employees are a much better reflective of market conditions.
For the Kroger’s plan, a hurdle rate of 5.5% return has been agreed upon. This hurdle rate will act as a benchmark against which actual annual returns on investments will be determined and necessary adjustments to the actual return will be made.
The proposed pension plan will continue as such until the year 2028, after which the unions may renegotiate its terms. The proposed plan links the pension fund returns to actual returns generated from the underlying assets purchased from those funds.
Variable annuity pension plans provide protection to employers by linking the pension fund returns to actual returns, instead of fixed returns. Such plans also tend to benefit employees by providing a more stable annual return and reducing volatility in returns.
In this way, such pension plans provide better protection to retired employees from inflation and other volatility factors such as business cycles. Once implemented, the proposed plan is expected to dilute Kroger’s earnings per share (EPS) by $0.96.
However, in the long run, this proposed pension plan aims to improve the long term viability and sustainability of the US retail giant. At the same time, this plan provides a much more stable and consistent return to Kroger’s retired employees.
We hope Kroger finalizes this agreement at the earliest so that any uncertainties can be laid to rest. Happy and satisfied employees play a key role in making customers happy, which in turn benefits the organization over the long haul.