Safeway Inc., the California-based grocery chain, will pump an additional $212 million into the company’s largest defined benefit plan, which covers 54,000 participants, as part of a settlement with the Pension Benefit Guaranty Corp.

The deal resulted after Safeway was acquired by Cerberus Capital Management, a private equity firm that also owns a stake in Albertsons, another supermarket chain, headquartered in Boise, Idaho.

The acquisition, along with the intent to merge the two chains, was announced last March and finalized Jan. 30 for $8 billion. The combined brands now boast 2,400 stores nationwide, and employ roughly 250,000 people.

The acquisition placed Safeway’s pension plan in line behind $11 billion in secured debt, according to the PBGC.

“From the beginning we knew this sale would put the retirement benefits of nearly 54,000 people at risk, so we moved quickly to engage with Cerberus and Albertsons to get better funding for the plan,” said Sanford Rich, PBGC's chief of negotiations and restructuring.

The agreement was a product of PBGC’s Early Warning Program, which monitors companies with underfunded plans that are bought out, potentially further jeopardizing obligations to participants in the acquired plan.

“This program allows PBGC to prevent losses before they occur, rather than waiting to pick up the pieces when a company goes bankrupt and its resources are limited,” according to a PBGC fact sheet.

Under guidance issued in 2000, the PBGC may seek pension protections under the Early Warning Program in limited circumstances.

The agency is allowed to inquire into the terms of a prospective transaction if the company being bought has a below investment-grade bond rating and pension liabilities in excess of $25 million, or the company has an unfunded liability in excess of $5 million, no matter its bond rating.

Following the announcement of the acquisition last March, Fitch Ratings downgraded Safeway to a BBB- rating, the lowest of its investment grade ratings. Moody’s had downgraded Safeway’s bond rating to just above “junk” status early in 2012.

In March of 2012, Safeway reported a $1.9 billion unfunded liability in its multiemployer pension plans.

Instant Insights /

Safeway stabilizes pension with $212 million infusion

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