Sears Canada Pensioners Trying to Recover Looted Pensions
Imagine working hard to support your employer and its customers for years – or even decades – with the knowledge that when you retire, there will be enough of a pension for you to live on. Then imagine your pension getting stolen by your employer and your retirement suddenly in jeopardy.
In Canada, losing one's pension is potentially lifethreatening because the government's Old Age Security program is very stingy at best and if one doesn't have enough of a pension from their employer, substantial retirement savings or help from family then they simply can't cover their basic cost of living.
Immigrants are especially affected because one must have lived in Canada for at least 40 years to receive the full pension, which is currently only $586/month. Someone who lived in Canada for only 10 years would receive a mere Cad$146/month or $113USD.
When Sears Canada was liquidated not long ago, many of those owed money by the company were given none of what they were owed. That is the unfortunate reality of this kind of bankruptcy, but there is more to the story. In the case of the pensioners who had worked for Sears Canada, they claim that more than $270 million is missing from their pension fund.
Among the places the pensioners feel this money may have gone is to Sears shareholders via inappropriate payouts prior to the bankruptcy. Almost $3 billion was paid out in dividends to Sears shareholders over time. The biggest recipient was Eddie Lampert himself, the CEO of U.S. hedge fund ESL Investments.
Going back to 2005, a time when Sears Canada was in better financial shape, the company went under the management of ESL Investments, which was also being run by Lampert at that time. Between 2005 and 2013, the company began to get into financial trouble, partially due to mismanagement by ESL Investments. Sales were down, profits were down even more and the pension plan was beginning to see shortfalls. Yet through all that time the board of directors for Sears Canada continued to bleed the company through payment of dividends to its shareholders – in the total amount of $2.934 billion. This money was not profit the company had earned but was from liquidated assets – assets that should have first gone to the pension fund, not to shareholders.
The primary beneficiaries of those dividend payouts were ESL Investments and Lampert.
While those dividends were being paid out and up until the final demise of the company, the pension plan – which was protected from other creditors postliquidation – ended up being underfunded by about $270 million. That works out to a 19% reduction in the pensions of about 16,000 former Sears employees.
The pensioners have asked the Ontario Superior Court to appoint a trustee to determine whether Sears Canada, its board of directors, ESL Investments and Lampert acted appropriately in funding such sizeable dividend payouts while the pension plan was suffering. The court in turn has sent them back to talk directly – via lawyers, of course – with the remains of their ex-employer, Sears Canada, to reach an agreement on
whether a trustee should be appointed to review those payouts. This is not what the pensioners were hoping for.
Lampert defended the dividend distributions in several online communications. Part of his justification for the money going to dividends was his position that paying dividends is part of what makes a company viable and the board needed to do it. He also reminded all that while the pensioners may have a shortfall of $270 million, Sears Canada shareholders together have lost more than $1 billion since 2012 as the stock plummeted and became worthless. That calculation, he said, included the dividend payments to those shareholders.
Lampert said that he thinks the $270 million pension shortfall number is inflated. He is also on record as saying that when all of the numbers are calculated and the last payments have gone out, there may in fact be no shortfall after all.
Regarding what happened to cause Sears Canada to take its final fatal plunge into bankruptcy, Lampert blamed it on an expensive restructuring attempt started in 2016. He said he raised questions about the strategy at the time, but the company management proceeded anyway.
Sears was once a great company, with roots going back to 1886, when Richard Warren Sears founded the R. W. Sears Watch Company, which he later sold. After a very brief retirement, Sears teamed up with Alvah C. Roebuck to form the iconic Sears, Roebuck and Company and they published their first catalog in 1888.
Sears grew to be America’s largest retailer and dominated the retail market until 1989 when it was eclipsed by Walmart and Americans’ growing desire for ever cheaper products to consume. With fewer people willing to invest in higher quality products that would last longer, Sears started its downward spiral and numerous attempts to reinvent the company or stay relevant were too little too late.
A poorly executed merger with Kmart in 2005 failed to attract enough consumers before online shopping started to shift the market once again.