Kroger 2012 Annual Report Download - page 77

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We contributed and expensed $140 million in 2012, $130 million in 2011, and $119 million in 2010 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.
Multi-Employer Pension Plans
We also contribute to various multi-employer pension plans based on obligations arising from 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.
In the fourth quarter of 2011, we entered into a memorandum of understanding (“MOU”) with 14 locals
of the UFCW that participated in four multi-employer pension funds. The MOU established a process that
amended each of the collective bargaining agreements between Kroger and the UFCW locals under which
we made contributions to these funds and consolidated the four multi-employer pension funds into one multi-
employer pension fund.
Under the terms of the MOU, the locals of the UFCW agreed to a future pension benefit formula through
2021. We are designated as the named fiduciary of the new consolidated pension plan with sole investment
authority over the assets. We committed to contribute sufficient funds to cover the actuarial cost of current
accruals and to fund the pre-consolidation Unfunded Actuarial Accrued Liability (“UAAL”) that existed as
of December 31, 2011, in a series of installments on or before March 31, 2018. At January 1, 2012, the UAAL
was estimated to be $911 million (pre-tax). In accordance with GAAP, we expensed $911 million in 2011
related to the UAAL. The expense was based on a preliminary estimate of the contractual commitment. In
2012, we finalized the UAAL contractual commitment and recorded an adjustment that reduced our 2011
estimated commitment by $53 million (pre-tax). The final UAAL contractual commitment, at January 1, 2012,
was $858 million (pre-tax). In the fourth quarter of 2011, we contributed $650 million to the consolidated
multi-employer pension plan of which $600 million was allocated to the UAAL and $50 million was allocated
to service and interest costs and expensed in 2011. In the fourth quarter of 2012, we contributed $258 million
to the consolidated multi-employer pension plan to fully fund our UAAL contractual commitment. Future
contributions will be dependent, among other things, on the investment performance of assets in the plan.
The funding commitments under the MOU replace the prior commitments under the four existing funds to
pay an agreed upon amount per hour worked by eligible employees.
We recognize expense in connection with these plans as contributions are funded or, in the case of the
UFCW consolidated pension plan, when commitments are made, in accordance with GAAP. We made cash
contributions to these plans of $492 million in 2012, $946 million in 2011 and $262 million in 2010. The
cash contributions for 2012 and 2011 include our $258 million contribution in 2012 and our $650 million
contribution in 2011 to the UFCW consolidated pension plan in the fourth quarter of each year.
Based on the most recent information available to us, we believe that the present value of actuarially
accrued liabilities in most 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, 2012. 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 except as
noted above. As of December 31, 2012, we estimate that Kroger’s share of the underfunding of multi-employer
plans to which Kroger contributes was $1.8 billion, pre-tax, or $1.1 billion, after-tax. This represents a decrease
in the estimated amount of underfunding of approximately $471 million, pre-tax, or $295 million, after-tax,
as of December 31, 2012, compared to December 31, 2011. The decrease in the amount of underfunding is
attributable to our contribution to the UFCW consolidated pension plan in 2012 and the increased returns on