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Takeaway: We see 20%-40% downside for shares of Kroger from current levels. Not to mention the massive potential pain ahead for pensioners.

Are 10 Million Americans About To Be Screwed Out Of Their Pensions? $KR - traffic light

Earlier this spring, I presented my short call on Kroger (KR), arguing that America’s largest supermarket chain was feeling the increased pressure of an intensely competitive food retail environment. That’s the plain vanilla rationale behind my bear case. But there’s more.

One of the more distressing risks lurking beneath the surface—one that represents a threat not only to shareholders, but to pensioners as well—is Kroger’s exposure to a large number of multi-employer pension plans (MPPs). The company intentionally keeps these plans in an underfunded status and this has the potential to backfire on the company. In addition to increasing annual costs, the company’s total exposure to these plans, in another downturn, is potentially debilitating.

Kroger’s woes are emblematic of an affliction plaguing pension funds across the country. It’s the same old story – chronic underfunding, as the swelling ranks of retirees overtake a smaller base of currently contributing employees.

To underscore the issue at hand, MPPs are the primary source of retirement income for over ten million active, inactive and retired workers and their survivors. A number of these pension plans, much like their state-run brethren, are severely underfunded. In a report to Congress in 2013, the Pension Benefit Guaranty Corporation (PBGC) estimated that MPPs have $757 billion in pension benefit liabilities, $391 billion of which are unfunded obligations. No small potatoes.

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