Kroger reached an agreement with the International Brotherhood of Teamsters when the CBA expired on September 16th to completely withdraw from the Central States Pension Fund. The Teamsters Central States, Southeast & Southwest Area Pension Fund has been experiencing extreme financial issues. The pension fund currently spends $2 billion more benefits in a year than it receives in contributions and in May 2016 the Central States’ application to reduce benefits to avoid insolvency was denied by the Treasury Department.
While Kroger’s retirees will remain in the Central States Pension Fund, active employees will move to a new pension fund. The new pension fund ties employer contributions to how well-funded the plan is rather than a traditional flat rate in an attempt to avoid future funding issues. The agreement reached between Kroger and the Teamsters also provides for a make-whole benefit for active workers when the Central States’ Fund becomes insolvent, which is projected to happen in less than eight years. The estimated withdrawal liability for Kroger leaving Central States is $698 million which Kroger will pay in annual installments of $60 million over the next 20 years.