J.C. Penney Completes Pension Liabilities Transfer to PBGC

At long last, the Pension Benefit Guaranty Corporation (PBGC) has taken over the pension plan for J.C. Penney, which covers about 36,000 beneficiaries.

The long-beleaguered American department store chain, which filed for bankruptcy protection in May, is preparing to sell its retail and operating assets to a joint venture led by mall operators Brookfield Asset Management and Simon Property Group, PBGC said Friday. Another 160 of the chain’s real estate assets will be handed over to its first lien lenders.

The federal insurer PBGC stepped in to take over the pension plan after both Brookfield and Simon Property declined to assume the pension liabilities. The pension plan officially terminated Friday.

“This action allows the agency to continue delivering hard-earned benefits as allowed under the law and to provide retirees with information that will help them plan for the future,” PBGC Director Gordon Hartogensis said in a statement.

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The pension transfer is good news for J.C. Penney, which had been seeking to expedite a sale to avoid a forced liquidation of its operations. PBGC estimates the J.C. Penney pension plan is 92% funded, with about $3.3 billion in assets and roughly $3.6 billion in benefit liabilities, meaning the entire plan is underfunded by $270 million.

The decision is good for mall owners, which are already dealing with other vacancies and deteriorating foot traffic. These landlords are unlikely to be able to replace a significant anchor tenant such as J.C. Penney in the middle of a pandemic. Operators are hoping that J.C. Penney CEO Jill Soltau will turn the business around.

Year to date, stock prices for significant mall owners such as Simon Property and Brookfield have fallen across the board, even as broader benchmarks have rallied. Since January, Brookfield is down 14% to about $33 per share. Over the same period, Simon Property has cratered 58% to about $62 per share.

For some investors, those dislocations could be cheap enough to present opportunity. While shopping malls are believed to be past their heyday, some are expected to survive and remain viable investments. Simon Property, with its 200 shopping malls, has a portfolio of desirable assets in good locations.

PBGC said retirees will receive benefits without any interruptions to their plans, and future retirees can apply for benefits once they are eligible.