Giant Food, UFCW Locals 27 and 400 and the Pension Benefit Guaranty Corporation (PBGC) reached a final agreement on January 1 concerning Giant Food’s funding obligations with respect to two multi-employer pension plans: the Food Employers Labor Relations Association and United Food and Commercial Workers Pension Fund (FELRA) and the Mid-Atlantic UFCW and Participating Employers Pension Fund (MAP). As a result of this agreement, the PBGC has approved the merging of MAP into FELRA (the combined plan) and has agreed to provide financial assistance to the combined plan following its insolvency, which is currently projected to occur in 2022. The framework of the agreement was first disclosed when Giant (and Safeway) agreed to new four-year labor contracts in early March 2020.
Additionally, parent company Ahold Delhaize announced that it has completed its majority acquisition of New York City-based online grocer FreshDirect. That deal was first announced on November 18, 2020.
The new pension agreement is intended to resolve all of Giant Food’s existing liabilities with respect to the FELRA and MAP plans and improves the security of pension benefits for associates as well as reduces financial risk for Giant Food.
The Landover, MD-based retailer will invest approximately $800 million into pension benefits for approximately 18,000 associates in Maryland, Delaware, Virginia and the District of Columbia as part of this agreement.
In mid-December, another Ahold Delhaize USA brand – Stop & Shop – confirmed that it ratified a similar new pension agreement with Westbury, NY-based UFCW Local 1500 in which the Quincy, MA merchant would invest $229 million in the union’s new plan.
And earlier last month, Stop & Shop, Kroger and Albertsons made a $667 million investment in pension benefits to 34 Local unions (five other Stop & Shop Locals) that are switching to Variable Annuity Pension Plans (VAPP).
The pension-related investments announced by Ahold Delhaize during the course of the past year- including those plans of the UFCW National, Locals 1500, 400 and 27 – have greatly reduced Ahold Delhaize’s financial exposure to the multi-employer pension plans of its U.S. brands, Giant Food and Stop & Shop (ADUSA’s only unionized banners), the retailer noted.
The Zaandam, Netherlands-based retailer also stated those changes were achieved without impacting the 2020 financial outlook due to the strong financial performance in the year to date through Q3 2020 at Ahold Delhaize.
Recapping the agreement with Giant Food, the new deal consists of these components:
*Following the combination of FELRA and MAP, the PBGC will provide financial assistance to the combined plan to fund benefit payments up to the level guaranteed by the PBGC. Giant Food will pay the withdrawal liability to the combined plan in monthly installments, commencing in February 2021 for the next 25 years.
*Giant Food will create a new single employer plan to cover benefits accrued by the company’s associates under the combined plan that exceed the PBGC’s guarantee level following the combined plan’s insolvency (excess benefits).
*Giant Food will create a new multi-employer plan with Safeway to provide excess benefits for certain other participants in the combined plan for whom Giant Food previously assumed responsibility. Giant Food said it intends to exercise its option to withdraw from this plan, which is currently estimated to be approximately $10 million (8 million euros) in total, at some point during the next few years.
*Each of the above plans is a frozen plan, meaning that no further benefits will be accrued. With this agreement, Giant Food has significantly de-risked its pension exposure and has improved the security of pension benefits for plan participants. The above plans, in essence, remain defined benefit plans.
*With Giant’s $800 million there will be a corresponding reduction in the Ahold Delhaize FELRA and MAP multi-employer plan off-balance sheet liabilities. This pension-related liability will be recorded as a non-cash, pre-tax charge to pension expense, which will impact Q4 2020 results. This charge will be excluded from underlying results and will therefore not impact the previously issued underlying operating results outlook for 2020. On an after-tax basis, the charge amounts to approximately $554 million.
*Giant Food will also make contributions to a VAPP for future service benefits for Giant Food associates who are represented by UFCW Locals 27 and 400. The VAP as well as the above plans are designed to protect benefit accrual of participants, with a significantly reduced risk of plan underfunding and improved visibility on annual contributions.
*Specific to future financial impact, Ahold Delhaize said that total ongoing annual contributions to settle the combined plan and for the newly created plans are not expected to impact Ahold Delhaize’s underlying financial results going forward. The total impact to underlying net income does not differ materially to the impact from contribution amounts that have been in place for the previous plans, which totaled $37 million in 2019.
Moreover, Ahold Delhaize’s full year 2020 free cash flow outlook, as well as future free cash flows beyond 2020, are not expected to be materially impacted by these agreements.
As for Ahold Delhaize’s 80 percent stake in FreshDirect, FTC approval came after only six weeks of review. While neither merchant disclosed the selling price, several financial analysts pegged the deal in the $325-$350 million range.
Private investment firm Centerbridge Partners owns the remaining 20 percent of the e-commerce grocer which was founded in 1999. As previously reported, FreshDirect will retain its brand name and continue to independently operate out of its facility in New York City. The company will have seven directors on its board (five from Ahold Delhaize and two from Centerbridge. The directors are still unannounced.
Frans Muller, Ahold Delhaize’s CEO, said, “We are very pleased that we can now definitively welcome FreshDirect to our family of great local brands. This leading local online brand with a large and loyal following will help us reach additional customers in the New York trade area and further propel our omni-channel evolution. We are looking forward to working with our new FreshDirect colleagues.”
David McInerney, FreshDirect’s chief executive, who has been involved with the perishables-driven delivery firm from nearly its outset, noted, “Today marks the beginning of an exciting new era for FreshDirect. Ahold Delhaize will build on FreshDirect’s success ensuring the continued growth of our company, while creating synergy and maintaining the uniqueness of the brand. I am thankful to our loyal and devoted customers, many of whom have been with us since the beginning, and very proud of and grateful for the FreshDirect team, which has worked tirelessly over the years to make our company a leader in the field. The entire FreshDirect team looks forward to working together with our new Ahold Delhaize colleagues.”