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PensionsJanuary 6, 2021

PBGC Approves Merger to Aid Struggling Multiemployer Plan

The settlement is intended to help protect 50,000 Giant, Safeway employees and retirees in the Washington, D.C., area.

By Michael Katz

KEY TAKEAWAYS

Settlement prevents PBGC Multiemployer Insurance Program from incurring more financial stress.
Former arrangement between unions and the pension fund risked increasing costs for participants, and those paying PBGC premiums.
Withdrawal liability payments expected to reduce the amount of PBGC financial assistance required.
Agreement is expected to extend the FELRA/UFCW Pension Fund’s insolvency by more than a year.

The Pension Benefit Guaranty Corporation (PBGC) has approved the merger of two multiemployer pension plans in a move to protect the retirement of approximately 50,000 Washington, D.C.-area grocery and warehouse workers and limit the financial burden on the agency’s multiemployer pension insurance program.

The agreement involves the Food Employers Labor Relations Association (FELRA), the United Food and Commercial Workers union locals 27 and 400 (UFCW), and the FELRA/UFCW Pension Fund. The two primary contributing employers for FELRA are supermarket chain operators Giant and Safeway. In 2013, the two companies, along with the UFCW union, enacted a series of actions that PBGC said undermined the “severely underfunded” FELRA/UFCW plan.

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Giant, Safeway, and UFCW froze benefits under the FELRA/UFCW plan and created a new multiemployer plan for future benefit accruals called the Mid-Atlantic UFCW and Participating Employers Pension Plan (MAP). According to PBGC, this weakened the FELRA/UFCW plan by diverting more than $100 million in contributions to MAP and accelerated the insolvency of the FELRA/UFCW plan. The agency said that without the new settlement, the FELRA/UFCW plan would have become insolvent this month.

Under the new agreement, MAP will combine with the FELRA/UFCW plan, which will be terminated by mass withdrawal, and Giant and Safeway will make withdrawal liability payments to the plan beginning in February for 25 years totaling approximately $56 million annually.

In exchange for the payments, the supermarket chains will be released from further withdrawal liability to the FELRA/UFCW plan. PBGC said the withdrawal liability payments are expected to reduce the amount of the financial assistance that the FELRA/UFCW plan will require from the agency when it becomes insolvent, which is now expected to occur in mid-2022.

“PBGC negotiated this settlement to protect participant benefits and safeguard the agency’s troubled Multiemployer Insurance Program from additional financial stress,” PBGC Director Gordon Hartogensis said in a statement. “Our new agreement delays the FELRA/UFCW plan’s insolvency and also prevents PBGC’s Multiemployer Insurance Program from going broke unnecessarily quickly.”

Hartogensis said the 2013 FELRA/UFCW arrangement threatened to increase costs for PBGC’s Multiemployer Insurance Program, which itself is projected to run out of money by 2026, as well as for participants and employers in the 1,400 other multiemployer plans that pay PBGC premiums.

Dutch grocery retail company Ahold Delhaize, which is the parent company of Giant Food, said the supermarket chain will create a new single employer plan to cover benefits accrued by its associates under the combined plan that exceed the PBGC’s guarantee level following the combined plan’s insolvency. Ahold Delhaize also said that at some time in the next few years Giant intends to exercise its option to withdraw from the new multiemployer plan with Safeway, the fee for which is currently estimated to be approximately $10 million in total.

“With this agreement, Giant Food has significantly de-risked its pension exposure and has improved the security of pension benefits for plan participants,” Ahold Delhaize said in a statement.

The Rebound Play: Brazilian Asset Manager Vinci to Go Public in the US

The firm, whose current investors include LACERA and the Rhode Island pension plan, believes the economically stricken South American nation is prepared for a turnaround.

By Sarah Min

Brazilian asset manager Vinci Partners plans to go public in a $100 million US offering to attract alternative investors seeking to take advantage of the country’s low interest rates and betting it will return from its economic woes.

In the past, the manager has raised capital from US investors seeking to invest in high-growth small and mid-size firms in the country. Last April, its Vinci Capital Partners III fund to invest in Brazilian companies raised about $1 billion and attracted capital from public pension funds, including the Los Angeles County Employees Retirement Association (LACERA) and the Rhode Island Employees’ Retirement System, which invested $30 million into the fund.

Other Brazilian private equity firms have recently filed to go public, including Blackstone-backed Patria Investments, which also filed to raise $100 million last month. It has $12.7 billion in assets under management (AUM).

Vinci, the Rio de Janeiro-based alternative investor, will list on the Nasdaq stock index, a securities filing from Monday shows.

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The investment firm expects the decline in the Brazilian rate of inflation to a record low of 2%, down from double-digit rates five years ago, will structurally shift capital in the country to alternative assets. This is a trend the manager believes it is well-positioned to capitalize on.

As it is, Brazil, which has the largest gross domestic product (GDP) in Latin America, has suffered greatly from the impact of the pandemic, which has infected upward of 7 million people in the country, placing it among the world’s worst affected countries, albeit behind the US and India.

The country’s GDP is also expected to have declined in 2020, down an estimated 4.4%, according to the World Bank. The economic decline is harming the nation’s poorest people, who are still recovering from the last recession, in 2015 and 2016.

Still, GDP is expected to rebound by 3% this year, which does not offset losses, but will be an improvement. Meanwhile, the stock market in Brazil, which gained 2.9% last year, is expected to reach pre-COVID-19 highs by the middle of 2021, provided that another wave won’t dampen recovery, according to a Reuters poll.

Meanwhile, Vinci believes that the country’s low interest rates will only spur growth in its asset management industry, which has increased by 14.1% per annum from 2010 to 2019.

As of September, Vinci had about $8.7 billion in assets under management, up 33% from $6.5 billion in December 2019.

In addition to investing in private equity, infrastructure, and public equities, it has more recently made allocations to real estate and hedge funds. The firm said it expects returns in the top quartile across all liquid and illiquid positions.

Still, going public is unusual for a private equity firm, which will require more financial disclosures from Vinci. The company admitted in its securities filing that its earnings are likely to vary widely from quarter to quarter. Vinci said it does not plan on publishing any earnings guidance.

Altogether, the firm’s three flagship private equity funds have invested $754 million into 22 Brazilian high-growth companies. Last month, the fund said it closed its fourth transaction from the VCP III fund, allocating roughly half to food service company Domino’s, telecommunications firm Vero, and diagnostics clinic Cura.

JPMorgan & Chase, Goldman Sachs, and BTG Pactual will manage the offering. The firm will be listed on Nasdaq under the symbol “VINP.”