Kroger disclosed Monday it will contribute up to $1 billion to its pension plan this year, citing “strategic opportunities” such as the current interest rate environment.
In a regulatory filing, the nation’s largest grocer said it believes the pension contribution “will significantly address the underfunded position of the plan.” The liability will be funded through issuance of debt.
Additionally, Kroger said, certain participants’ benefit balances will be distributed out of the plan through a transfer to other qualified retirement plan options or a lump sum payout, based on each participant’s election.
“We 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 Corporation fee increases,” the filing stated.
As of Dec. 31, Kroger’s pension plan assets totaled $3.138 billion, while projected benefit obligations totaled $4.14 billion, for a funding ratio of 75.8%. Kroger contributed $3 million to the plan in 2016 and $5 million in 2015.
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.
Kroger, which had total debt of $13.44 billion as of May 20, said the funding of the contribution will not affect its “overall balance sheet obligations” and that it would incur a one-time expense associated with the payout to participants.
“This one-time cost is not contemplated in our earnings guidance for the year,” it said.
Last month, Kroger stock tumbled after the company lowered its full-year earnings forecast, reflecting inventory accounting charges and rising labor costs amid an intensifying price war. In trading Monday, the shares were up 0.33% at $23.08.