If Sears, once the nation’s largest retailer, declares bankruptcy, it could cause one of the biggest pension defaults in U.S. history, but the government would step in to keep checks coming to more than 90,000 retirees.
The company’s long-term pension obligations, which have been underfunded by more than $1 billion for years, would be covered by the federal Pension Benefit Guarantee Corp., which has footed the bill for nearly 5,000 failed employer pension plans since its founding in 1974.
“PBGC is monitoring developments at Sears and will continue to protect its two pension plans, which cover over 90,000 people,” the agency said in a statement Thursday. “PBGC’s guarantee is critical to the retirement security of workers and retirees in pension plans.”
A spokesman for Sears Holdings Corp. did not respond Thursday to a request for comment.
The struggling Hoffman Estates-based retailer is facing a $134 million debt repayment Monday, which reportedly could lead Sears to seek bankruptcy protection in the next few days. Under a Chapter 7 liquidation, the company’s pension obligations would shift to the government, while under a Chapter 11 reorganization, Sears could maintain one or both of its pension plans.
Drew Dawson, a law professor at the University of Miami, called the potential Sears pension default “pretty staggering” in its scope, based on historic comparisons.
“The human impact of this is really big on the individual retirees,” Dawson said. “But this would be a big impact on the PBGC itself, financially.”
In a blog post last month, CEO Edward Lampert wrote that Sears has contributed more than $4.5 billion to its pension plans since 2005, an obligation that “significantly impacted” the company, which hasn’t turned an annual profit since 2010.
“Had the company been able to employ those billions of dollars in its operations, we would have been in a better position to compete with other large retail companies, many of which don’t have large pension plan,” Lampert wrote.
Sears entered into a five-year pension protection plan with the Pension Benefit Guarantee Corp. in 2016, agreeing to set aside certain assets for pension funding. In November, Sears amended the agreement to sell up to 138 properties to finance a $407 million contribution to its pension plans.
Last year, the agency paid $5.7 billion to nearly 840,000 retirees from 4,845 failed single-employer plans, according to its annual report. Taking over the Sears pension plans would be one of the largest defaults in its 44-year history.
Chicago-based United Airlines had the largest pension default when it terminated its four retirement plans while operating under bankruptcy protection in 2005. That shifted $7.3 billion in claims for more than 122,000 participants over to the agency.
For Sears retirees, a pension default by the company is not a major issue, as long as the checks keep coming.
“Pensions are not our concern because pensions will be secured for our retirees,” said Ron Olbrysh, 77, chairman of the Chicago-based National Association of Retired Sears Employees, which represents thousands of former employees across the country.
Olbrysh, the company’s former assistant general counsel who retired in 1996, said the Sears pensioners were primarily hourly employees who would be fully covered under the set limits of the agency. He, along with many higher-income salaried employees, took a lump sum pension payment when they retired.
A bigger concern for many Sears retirees is the potential loss of a life insurance plan that the company has continued to fund but which the agency would not cover.
“The retirees can still maintain that insurance if they want to pay for it themselves, but the average age of most our retirees is about 80 and that the cost of that would be just ridiculous,” Olbrysh said
Olbrysh, who lives in suburban Lombard, started at Sears as a trademark attorney in 1972, and worked his way up the corporate ladder as the once powerful retailer began to lose its hold on consumers, failing to meet challenges from bricks-and-mortar competitors such as Walmart and, later, Amazon and other online giants.
He called its potential bankruptcy a shame, but perhaps a sign of the times.
In its heyday, Sears offered employees attractive benefits including a “phenomenal” profit-sharing plan, and of course, the pension plan, Olbrysh said.
“Sears was a good company for me,” he said. “I was lucky I got out when I did.”
This article provided by NewsEdge.