Sears Canada Pen­sion­ers Try­ing to Re­cover Looted Pen­sions

Trillions - - Content -

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.

Photo: Mike Kalas­nik, CC

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