Kroger 2010 Annual Report Download - page 98

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A-18
Protection Act to avoid any benefit restrictions. We expect any contributions made during 2011 will decrease
our required contributions in future years. Among other things, investment performance of plan assets, the
interest rates required to be used to calculate the pension obligations, and future changes in legislation,
will determine the amounts of any contributions.
We contributed and expensed $119 million in 2010, $115 million in 2009 and $92 million in 2008
to employee 401(k) retirement savings accounts. The 401(k) retirement savings account plans provide to
eligible employees both matching contributions and automatic contributions from the Company based on
participant contributions, plan compensation, and length of service.
(b) Multi-Employer Plans
We also contribute to various multi-employer pension plans based on obligations arising from most
of our collective bargaining agreements. These plans provide retirement benefits to participants based on
their service to contributing employers. The benefits are paid from assets held in trust for that purpose.
Trustees are appointed in equal number by employers and unions. The trustees typically are responsible for
determining the level of benefits to be provided to participants as well as for such matters as the investment
of the assets and the administration of the plans.
We recognize expense in connection with these plans as contributions are funded, in accordance
with GAAP. We made contributions to these plans, and recognized expense, of $262 million in 2010, $233
million in 2009 and $219 million in 2008.
Based on the most recent information available to us, we believe that the present value of actuarially
accrued liabilities in most or all of these multi-employer plans substantially exceeds the value of the assets
held in trust to pay benefits. We have attempted to estimate the amount by which these liabilities exceed
the assets, (i.e., the amount of underfunding), as of December 31, 2010. Because Kroger is only one of a
number of employers contributing to these plans, we also have attempted to estimate the ratio of Kroger’s
contributions to the total of all contributions to these plans in a year as a way of assessing Kroger’s “share”
of the underfunding. Nonetheless, the underfunding is not a direct obligation or liability of Kroger or of any
employer. As of December 31, 2010, we estimate that Kroger’s share of the underfunding of multi-employer
plans to which Kroger contributes was $2.5 billion, pre-tax, or $1.6 billion, after-tax. This represents a
decrease in the estimated amount of underfunding of approximately $125 million, pre-tax, or $75 million,
after-tax, as of December 31, 2010, compared to December 31, 2009. The decrease in the amount of
underfunding is attributable to the strength of the market during the last year and benefit reductions.
Our estimate is based on the most current information available to us including actuarial evaluations and
other data (that include the estimates of others), and such information may be outdated or otherwise
unreliable.
We have made and disclosed this estimate not because this underfunding is a direct liability of Kroger.
Rather, we believe the underfunding is likely to have important consequences. In 2010, our contributions
to these plans increased approximately 12% over the prior year and have grown at a compound annual rate
of approximately 7% since 2005. In 2011, we expect to contribute approximately $300 million to our multi-
employer pension plans, subject to collective bargaining and capital market conditions. Based on current market
conditions, we expect meaningful increases in funding and in expense as a result of increases in multi-employer
pension plan contributions over the next few years. Finally, underfunding means that, in the event we were to
exit certain markets or otherwise cease making contributions to these funds, we could trigger a substantial
withdrawal liability. Any adjustment for withdrawal liability will be recorded when it is probable that a
liability exists and can be reasonably estimated, in accordance with GAAP.