Tops Markets plans to ask a bankruptcy court judge to allow it to reduce its contributions by nearly two-thirds to the already underfunded pension plan that covers most of its employees, according to officials from the largest union representing workers at the supermarket chain.
Tops has not yet asked the U.S. Bankruptcy Court to reduce the payments, but officials from Local One of the United Food and Commercial Workers said they have been told by attorneys representing the supermarket chain that they intend to seek the reduction in payments.
Tops' bankruptcy attorneys did not respond to a request to comment.
Union officials said they were alarmed by the proposal, which would weaken the funding of a pension plan that has nearly 23,000 participants. Union officials also said the proposed reduction in funding could lead to a reduction in pension benefits for Tops workers.
"Our members deserve the pension they earned and the pension Tops promised," said Frank DeRiso, the president of UFCW Local One.
Union officials began meeting with Tops employees this week to discuss the proposed reduction in pension contributions.
"I'm confident our members will not sit on the sidelines and will be very vocal, if and when, Tops' bankruptcy attorneys try to persuade the judge to accept only one-third of the needed pension contribution," DeRiso said.
The proposal, as described by union officials based on their conversations with Tops' attorneys, would allow the supermarket chain to reduce its annual pension contributions by about $9 million a year. Instead of contributing $14.4 million a year to the pension plan, the Tops proposal would reduce the company's payments to about $5.3 million annually, union officials said.
That's a concern to the union because the UFCW Local One Pension Fund already is classified as being in "critical" condition by federal pension regulators because it only has enough assets to cover a little more than 50 percent of the benefit payments that have been promised to the plan's participants.
Reducing the company's pension contribution would make the underfunding even worse. The shortfall now totals $393 million, according to a bankruptcy court filing by Michael Buenzow, Tops' chief restructuring officer.
Underfunded pension plans can be terminated in a bankruptcy proceeding, but this usually only happens if a company's bankruptcy reorganization includes a termination and the bankruptcy court judge approves it. Beyond that, federal pension law forbids a termination in bankruptcy unless continuing the plan would make it too difficult to reorganize the company.
Tops workers in the UFCW pension also are protected by the federal Pension Benefit Guaranty Corp., which can take over failed pension plans, with participants receiving a guaranteed – but often reduced – benefit from the PBGC.
Tops, which filed for Chapter 11 bankruptcy protection last month, is trying to restructure its business after the company posted a loss of about $80 million last year, bogged down by interest payments on more than $700 million in debt and stagnant sales at its 174 supermarkets. The debt includes about $350 million in borrowings that were used to pay dividends to its previous owner, Morgan Stanley Private Equity.
While Tops has not tried to make changes to its union contracts that cover nearly 90 percent of its 14,000 employees during the bankruptcy process, the proposed reduction in pension contributions would save the cash-strapped company nearly $760,000 a month, union officials said.
Tops has been increasing its contributions to the pension plan in recent years. Its contributions rose nearly 18 percent last year and were scheduled to rise by another 10 percent this year and in 2019 and 2020 as well, according to a rehabilitation plan aimed at easing the shortfall.
"Our members did not put this company in the financial position Tops now finds themselves in. The pension obligation did not put Tops in the position they are in," DeRiso said. "We can thank corporate greed for overleveraging Tops right into bankruptcy."
Nearly 8,000 current Tops workers were participants in the UFCW pension plan at the beginning of last year, according to a report filed with the U.S. Department of Labor. A little more than 6,400 participants are collecting benefits from the plan, while another 8,000 participants are eligible to collect benefits in the future.
The UFCW is not the only pension issue that Tops is facing. The company also is locked in a dispute with a Teamsters union pension fund over a potential funding liability of as much as $180 million for a fund that covers workers at a warehouse that Tops acquired more than four years ago.
The Teamsters fund objected to an agreement Tops crafted with its chief supplier, C&S Wholesale, saying it was a bad deal for the supermarket chain. But the bankruptcy court approved the agreement earlier this week.