The Pension Benefit Guaranty Corp. (PBGC), the government-sponsored lifeboat for struggling pensions, said it expects that its guarantees will cover the “vast majority” of benefits for members of Sears’ pensions plans.
Last week, Sears filed for Chapter 11 bankruptcy, and its pension plans, which cover about 90,000 workers and retirees, are underfunded by about $1.5 billion.
The PBGC said it has been working with Sears for several years to improve the funding of the company’s two defined benefit pension plans. It also said that a preliminary analysis shows that the monthly plan benefit is fully guaranteed for the “vast majority” of participants covered under the Sears Holdings Corp. pension plans.
“If circumstances require,” said the PBGC in a release, “we are prepared to step in and provide PBGC-guaranteed benefits.”
The company’s defined benefit plans, known as Sears Holdings Pension Plan 1 and Sears Holdings Pension Plan 2, remain ongoing and under the responsibility of Sears. Although underfunded pension plans often terminate during bankruptcy proceedings, a company’s bankruptcy filing alone does not terminate a pension plan.
Sears said it expects to move through the restructuring process as “expeditiously as possible,” and is pursuing a reorganization plan that it hopes to initiate “in the very near term.”
The company has received commitments for $300 million in senior priming debtor-in-possession financing from its senior secured asset-based revolving lenders, and is negotiating a $300 million subordinated debtor-in-possession financing with ESL Investments, Inc., which is Sears’ largest shareholder and creditor.
Last year, Sears annuitized $515 million of its pension liabilities with MetLife, transferring responsibility for paying future pension benefits for 51,000 Sears retirees to the insurance firm. The company said the potential termination of the pension plans would not affect those purchased annuities.
“Over the last several years, we have worked hard to transform our business and unlock the value of our assets,” Edward Lampert, chairman of Sears Holdings, said in a release. “While we have made progress, the plan has yet to deliver the results we have desired, and addressing the company’s immediate liquidity needs has impacted our efforts to become a profitable and more competitive retailer.”