IAS 19 US multi-employer defined benefit plans treated as defined contribution because of insufficient information

Koninklijke Ahold Delhaize N.V. – Annual report – 31 December 2017

Industry: retail

23 Pensions and other post-employment benefits (extract)

Multi-employer plans

A significant number of union employees in the United States are covered by multi-employer plans based on obligations arising from collective bargaining agreements. These plans provide retirement and other benefits to participants generally 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 and they are typically responsible for oversight of the investment of the assets and administration of the plan. Contribution rates and, in some instances, benefit levels are generally determined through the collective bargaining process between the participating employers and unions. None of the Company’s collective bargaining agreements require that a minimum funding requirement exists for these plans.

Most of these plans are defined contribution plans. All plans that are defined benefit plans, on the basis of the terms of the benefits provided, are accounted for as defined contribution plans because, among other things, there is insufficient information available to account for these plans as defined benefit plans. These plans are generally flat dollar benefit plans. Ahold Delhaize is only one of several employers participating in most of these plans and in the event that Ahold Delhaize withdraws from a plan, its allocable share of the plan’s obligations (with certain exceptions) is based upon unfunded vested benefits in the plan at the time of such withdrawal. Ahold Delhaize’s obligation to pay for its allocable share of a plan’s unfunded vested benefits is called a withdrawal liability. The withdrawal liability payable by Ahold Delhaize at such time as it experiences a withdrawal from a plan, is based upon the applicable statutory formula, plan computation methods and actuarial assumptions, and the amount of the plan’s unfunded benefits as of the date of the withdrawal. Ahold Delhaize does not have sufficient information to accurately determine its ratable share of plan obligations and assets following defined benefit accounting principles and the financial statements of the multi-employer plans are drawn up on the basis of other accounting policies than those applied by Ahold Delhaize. Consequently, these multi-employer plans are not included in the Company’s balance sheet.

The risks of participating in multi-employer plans are different from the risks of single employer plans. Ahold Delhaize’s contributions are pooled with the contributions of other contributing employers, and are therefore used to provide benefits to employees of such other participating employers. If other participating employers cease to participate in the plan without paying their allocable portion of the plan’s unfunded obligations, this could result in increases in the amount of the plan’s unfunded benefits and, thus, Ahold Delhaize’s future contributions. Similarly, if a number of employers cease to have employees participating in the plan, Ahold Delhaize could be responsible for an increased share of the plan’s deficit. If Ahold Delhaize seeks to withdraw from a multiemployer plan, it must obtain the agreement of the applicable unions and, in connection therewith, it will likely be required to pay a withdrawal liability. In the event a multi-employer plan in which Ahold Delhaize participates becomes insolvent, Ahold Delhaize may be required to increase its contributions, in certain circumstances, to fund the payment of benefits by such multi-employer plan.

Defined benefit plans

Ahold Delhaize participates in 11 multi-employer pension plans that are defined benefit plans on the basis of the terms of the benefits provided. The estimate of the Company’s net proportionate share of the plans’ deficits is based on the latest available information received from these plans, such as the plans’ measurement of plan assets and the use of discount rates between 6.5% and 8.0%. The Company’s participation in these multi-employer plans is outlined in the following tables. The EIN / Pension Plan Number column provides the Employer Identification Number (EIN) and the three-digit pension plan number. Multi-employer pension plans, similar to all pension plans, in the U.S. are regulated by the Employee Retirement Income Security Act of 1974 (ERISA), as amended, the Pension Protection Act of 2006 (PPA), and the Multi-employer Pension Reform Act of 2014 (MPRA) among other legislation. Under the PPA, plans are categorized as “endangered” (Yellow Zone), “seriously endangered” (Orange Zone), “critical” (Red Zone), or neither endangered nor critical (Green Zone), primarily based on three measures: the plan’s funded percentage, the number of years before the plan is projected to have a minimum funding deficiency under ERISA and the number of years before the plan is projected to become insolvent. A plan is in the “Yellow Zone” if the funded percentage is less than 80% or a minimum funding deficiency is projected within seven years. If both of these triggers are reached, the plan is in the “Orange Zone.” Generally, a plan is in the “Red Zone” if a funding deficiency is projected at any time in the next four years (or five years if the funded percentage is less than 65%). Plans with a funding ratio above 80% are designated as being in the “Green Zone.” Multi-employer plans in endangered or critical status are required by U.S. law to develop either a funding improvement plan (FIP) or a rehabilitation plan (RP) to enhance funding through reductions in benefits, increases in contributions, or both. The FIP / RP Status Pending / Implemented column in the table below indicates plans for which an FIP or an RP is pending or has been implemented. Additional information regarding the multi-employer plans listed in the following tables can be found on the website of the U.S. Department of Labor (www.efast.dol.gov).

ahold1

ahold2

If the underfunded liabilities of the multi-employer pension plans are not reduced, either by improved market conditions, reduction in benefits, or collective bargaining changes, increased future payments by the Company and the other participating employers may result. However, all future increases will be subject to the collective bargaining process. In 2018, the Company expects its contributions to decrease to €80 million. Ahold Delhaize has a risk of increased contributions and withdrawal liability if any of the participating employers in an underfunded multi-employer plan withdraw from the plan or become insolvent and are no longer able to meet their contribution requirements or if the multi-employer plan itself no longer has sufficient assets available to fund its short-term obligations to the participants in the plan. Any adjustment for a withdrawal liability will be recorded when it is probable that a liability exists and the amount can be reasonably estimated. Except for the UFCW Local #338 withdrawal liability payment mentioned below, no other withdrawal payments were incurred or included in the 2017 and 2016 contributions disclosed above. During 2015, Stop & Shop reached an agreement with UFCW Local #338 whereby Stop & Shop was allowed to withdraw from the pension plan. The withdrawal occurred in September 2015 and resulted in a $12 million (€11 million) withdrawal liability. The settlement of the liability was made in installments, with $6 million paid at the time of withdrawal and the second and third installments, of $3 million each, paid in May and October of 2016.

Defined contribution plans

Ahold Delhaize also participates in 39 multi-employer plans that are defined contribution plans on the basis of the terms of the benefits provided. The majority of these plans provide health and welfare benefits. The Company contributed €264 million and €276 million to multi-employer defined contribution plans during 2017 and 2016, respectively. These contributions are recognized as an expense in the consolidated income statement and related entirely to continuing operations in 2017 and 2016. These plans vary significantly in size, with contributions to the three largest plans representing 52% of total contributions.

 

 

 

 

 

 

 

 

 

Advertisements