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Kroger Co. will soon stop contributing to and withdraw its membership from the massive Central States Pension Fund.
The Cincinnati-based grocery chain intends to complete its withdrawal from the Central States, Southeast and Southwest Areas Pension Fund, likely on Sept. 16, and move some 2,100 active plan participants to a new traditional pension, Thomas C. Nyhan, executive director and general counsel of the fund, told Bloomberg BNA. That date marks the expiration of Kroger’s collective bargaining agreement with the Teamsters. The withdrawal from the fund is expected to be completed under terms of a new bargaining agreement reached between the company and union in March 2017.
If Kroger assumes liability for the period before the fund’s projected insolvency in late 2024, the fund stands to be relieved of liability in the hundreds of millions of dollars. However, Central States says that it would receive little to no benefit if Kroger were to assume pension liabilitise for the period beyond the date of insolvency.
Nyhan said the fund and Kroger have been negotiating for several years over the withdrawal liability payments that Kroger would pay the fund. In addition, they have negotiated over whether the fund would offset withdrawal liability payments in return for the new Kroger/Teamsters plan’s assumption of pension liabilities, he said.
Negotiations broke down in recent months and there is uncertainty as to how much liability Kroger intends to pay and how it will structure the payments, Nyhan said. The fund prefers that the payments be in a lump sum rather than installment payments, he said.
Under the Employee Retirement Income Security Act, an employer can decide to make annual withdrawal payments for up to 20 years, and the plan can’t require a lump sum payment.
There has also been disagreement over whether the fund would offset Kroger’s withdrawal liability in return for the newly created Kroger/Teamsters pension plan’s assumption of liabilities beyond the Central States plan’s projected insolvency or merely up to that date, Nyhan said.
Kroger didn’t respond to Bloomberg BNA’s request for comments and the Teamsters declined to comment.
In a March 2017 letter that the Teamsters and Kroger sent to Central States, the aggregate withdrawal liability of Kroger and several Kroger affiliates operating under separate bargaining agreements was estimated at $698 million for a 2016 withdrawal payable in annual installments of $60 million for 20 years.
In April, a group of current and former Kroger workers filed a lawsuit accusing the fund and its trustees of breaching their ERISA fiduciary duties by failing to consider a proposal that would remove the company from the plan and create a new fully funded traditional pension.
In the complaint, filed in the U.S. District Court for the Northern District of Illinois, the workers alleged that the trustees were preventing them from moving to a more stable plan that will pay full pension benefits.
In response, Nyhan told Bloomberg BNA at that time that, as fiduciaries, the trustees “have a duty to safeguard the retirement benefits of all of our 407,000 participants—not a select few from a particular employer.”
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