Zaandam, the Netherlands, January 1, 2021 - Ahold Delhaize today announces the conclusion of negotiations by its U.S. subsidiary, Giant Food, regarding certain of its multi-employer pension plans.
Giant Food, UFCW Locals 27 and 400 (collectively the "Union Locals") and the Pension Benefit Guaranty Corporation ("PBGC") have reached an agreement on 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 combining 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 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. Giant Food will invest approximately $800 million (~€650 million) into pension benefits for associates as part of this agreement. The pension-related investments announced by Ahold Delhaize during the course of 2020 - including those of National, 1500, and today's announcement - have greatly reduced Ahold Delhaize's financial exposure to the multi-employer pension plans of its U.S. brands, Giant Food and Stop & Shop, and 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.
This agreement will not impact Ahold Delhaize's previously issued financial guidance for 2020 and is also not expected to have a material impact on Ahold Delhaize's free cash flows or underlying financial results beyond 2020. Further, this statement should not be interpreted as an update to any component of the previously issued 2020 outlook, announced in the Q3 2020 earnings release.
The agreement consists of the following 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 Giant Food 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 intends to exercise its option to withdraw from this plan, which is currently estimated to be approximately $10 million (€8 million) 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, as referred to in the 'How we manage risk' section of the 2019 Ahold Delhaize Annual Report for related risk factors for pension and other post-employment benefits.
As part of establishing these plans, Giant Food will record an approximately $800 million (~€650 million) pension-related liability, with 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 IFRS 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 (~€450 million).
Giant Food will also make contributions to a new variable annuity pension plan ("VAP") 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.
Overall, the 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 (€33 million) in 2019.
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.
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