The Pension Benefit Guaranty Corp. (PBGC) said it will assume responsibility for bankrupt retailer Sears Holdings Corporation’s two defined benefit pension plans, which cover approximately 90,000 workers and retirees at Sears, Roebuck and Co. and Kmart Corp.
Sears filed for Chapter 11 protection in October, and the PBGC, the government-sponsored lifeboat for struggling pensions, is intervening to become responsible for the plans because it said that Sears’ continuation of the plans is no longer viable.
“Our mission is to protect the retirement income of plan participants and their families,” said PBGC Director Tom Reeder in a release. “When it’s no longer possible for plan sponsors to maintain their pension plans, PBGC plays the crucial role of providing lifetime retirement income for the workers and retirees.”
PBGC, which is looking to terminate the Sears plans at the end of January, estimates that they are underfunded by $1.4 billion, giving them a funded ratio of only 64%, which puts them in “critical status” as defined by the Pension Protection Act of 2006.
The PBGC will become responsible for the pension plans when Sears agrees to the termination, or a court orders the plans to be terminated. However, until that time, they remain the responsibility of Sears Holdings Corp. The PBGC said retirees can expect to continue to receive benefits without interruption, and future retirees can apply for benefits as soon as they are eligible.
Sears’ two pension plans are covered by the PBGC’s Single-Employer Insurance Program, and benefit accruals under the plans have been frozen since 2005. Unlike the agency’s multiemployer program, the PBGC’s single-employer insurance program is in relatively good shape, as PBGC simulations show significant improvement in its projected net position over the next 10 years.
The PBGC said it expects that its guarantees will cover the vast majority of pension benefits earned under the plans, and added that it will not have a significant effect on its financial statements because the claim has already been included in the agency’s fiscal year 2017 and 2018 financial statements.
On Jan. 17, Sears reported that privately owned hedge fund ESL Investments, Inc. was selected as the winning bidder in the company’s auction, and will acquire substantially all of the company’s assets for approximately $5.2 billion. The hearing to approve the sale is scheduled for Feb. 1. The company said that if the acquisition is approved, it would preserve approximately 45,000 jobs.