Sears’ financial woes trigger pension concerns
Life insurance policies also at risk
Sears and Kmart retirees are worried about their pensions as the parent company raises doubts about its future and stirs speculation it could seek bankruptcy protection.
Sears Holdings has an almost $1.6 billion shortfall in obligations to its underfunded pension system for nearly 200,000 retirees, the parent firm’s public fil- ings show. The company’s retirees also could face termination of life insurance policies that provide roughly $10,000 to $12,000 in benefits for some.
Stunned by the company’s Tuesday night disclosure that it faces “substantial doubt” about being able to stay in business, the retirees are awaiting Sears Holdings’ next move.
“This has come as a shock. Sears has always put on a glad face,” Ronald Olbrysh, chairman of the National Association of Retired Sears Employees, said in a phone interview Wednesday. “All of this is definitely a significant concern for the retirees.”
Sears Holdings has contributed nearly $4 billion to its pen- sion plan over the last 12 years, Jason Hollar, the company’s chief financial officer, told analysts during a fourth-quarter earnings conference call March 8. The plan provides benefits for past service by Kmart and Sears retirees. Current employees don’t earn pension benefits because the plan is frozen.
But the pension contributions, while draining some of Sears Holdings’ income, nonetheless left a shortfall. As of late January, the company listed its pension obligations at roughly $5.2 billion and the fair value of the plan at nearly $3.6 billion.
The company has reached two agreements during the last year with the Pension Benefit Guaranty Corporation, the independent government agency that protects retirement incomes for Americans in private-sector pension plans with specified month- ly benefits.
The agreements added funding for the Sears Holding pension plan and gave the PBGC liens on certain real estate and other protected assets held by special purpose subsidiaries. In return, the PBGC said it would not involuntarily terminate the pension plan unless specific financial problems affected the aggregate market value of Sears Holdings’ stock.
“The company’s stock price is such that the PBGC would be permitted to cease forbearance,” Sears Holdings’ SEC filing stated. While the company has notified the agency, it “has not communicated any intention to cease its forbearance.”