Safeway (SWY) Updates on MEPPs; Says Pension Underfunded by $1.88B
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In light of recent inquiries from the investment community, Safeway Inc. (NYSE: SWY) is providing additional information regarding its U.S. multiemployer pension plans (MEPPs). Detailed information on these U.S. MEPPs has been shared with debt rating agencies since 2006, and has been incorporated in the company's ongoing debt ratings. (Canadian plans are not included, since they are not subject to U.S. pension laws, including provisions regarding withdrawal liabilities.)
Safeway's share of the underfunding of its U.S. MEPPs is estimated at a total of approximately $1.88 billion (pre-tax) for the plan years beginning closest to January 1, 2011, on the basis established by the Pension Protection Act of 2006 (PPA). PPA uses the actuarial value of assets and accrued liabilities. This underfunding amount has declined steadily since the steep drop in asset values in late 2008, due to improved market returns, contribution increases and benefit reductions. The underfunded liability is expected to be further reduced over time through collective bargaining, increased market returns or other actions taken by plan trustees.
All underfunded U.S. plans which require additional funding have rehabilitation plans in place to meet PPA-required funding levels over ten years or longer. The company does not anticipate any material increases in annual MEPP contributions or any large, one-time contributions to these plans in the foreseeable future. Contributions to U.S. MEPPs have increased modestly from $240 million in 2008 to $263 million in 2011. These contributions represent about 5% of total retail employee costs, and as a result, MEPP increases have added less than 0.2% to the total compound annual growth rate of retail employee costs during the same time period. In addition, the company's projected MEPP funding requirements have been included in its 2012 guidance and its five-year cash flow projections.
The company believes that MEPP contributions continue to be a manageable issue, are being handled well by all parties involved in collective bargaining and will continue to be an important part of future negotiations.
Safeway's share of the underfunding of its U.S. MEPPs is estimated at a total of approximately $1.88 billion (pre-tax) for the plan years beginning closest to January 1, 2011, on the basis established by the Pension Protection Act of 2006 (PPA). PPA uses the actuarial value of assets and accrued liabilities. This underfunding amount has declined steadily since the steep drop in asset values in late 2008, due to improved market returns, contribution increases and benefit reductions. The underfunded liability is expected to be further reduced over time through collective bargaining, increased market returns or other actions taken by plan trustees.
All underfunded U.S. plans which require additional funding have rehabilitation plans in place to meet PPA-required funding levels over ten years or longer. The company does not anticipate any material increases in annual MEPP contributions or any large, one-time contributions to these plans in the foreseeable future. Contributions to U.S. MEPPs have increased modestly from $240 million in 2008 to $263 million in 2011. These contributions represent about 5% of total retail employee costs, and as a result, MEPP increases have added less than 0.2% to the total compound annual growth rate of retail employee costs during the same time period. In addition, the company's projected MEPP funding requirements have been included in its 2012 guidance and its five-year cash flow projections.
The company believes that MEPP contributions continue to be a manageable issue, are being handled well by all parties involved in collective bargaining and will continue to be an important part of future negotiations.
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