Sears & PBGC: Who’s Bankrupting Whom

How much will the Sears bankruptcy cost taxpayers? Let’s look at at some public information.

In a March 9, 2017 press release:

The Pension Benefit Guaranty Corporation and Sears Holdings Corporation have reached a new agreement that provides additional funding and security for the company’s two pension plans.

The additional funding and security for the company’s defined benefit pension plans is being provided in connection with the sale of Sears’ Craftsman brand to Stanley Black & Decker. Under the terms of the agreement with PBGC, the Sears pension plans will receive rights to a $250 million payment due to Sears in three years from Stanley Black & Decker and a 15-year income stream relating to future Stanley Black & Decker sales of Craftsman products. In addition, Sears will provide PBGC a lien on $100 million of real estate assets.

Who knows if that money is still coming and, if it is, who will be getting it.

But the real story here may be who bankrupted Sears and the answer might be the PBGC. And when PBGC goes bankrupt the answer then could will be Sears. Per their 5500 filings.

Sears Holding Pension Plan (20-1920798/001) 1/1/6 – 11/30/16:

Plan effective date: 1/1/1944

As of 1/1/16 there were 191,507 participants with total liabilities (HATFA) of $4.46 billion and assets of $3.35 billion. Payouts were 408 million to 115 thousand retirees. Deposits were $329 million and benefit accruals were frozen (code 1A in 8a) so there was a chance that, if Sears could come up with those contributions without providing any additional benefits, this plan might have been paid for in 7 years. But then we get to the PBGC. A plan with this level of underfunding using HATFA rates would be paying the maximum premium –  $564 per participant in 2016, or $108 million.

Sears is now off the hook for that half billion dollars annually (payable to their plan participants and increasingly to the PBGC), an amount that would have escalated over the years (both to plan participants as more retire and to PBGC as they keep raising premium rates), while the PBGC will get a one-time infusion of maybe $2.5 billion and be losing $100 million+ in premiums while having to pay hundreds of millions of dollars to Sears retirees as long as they are around (the PBGC, that is).

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PS: Sears may have tried a gambit to reduce those PBGC premiums by splitting into two plans – 1 & 2:

Sears Holding Pension Plan 1 (20-1920798/001) 12/1/6 – 11/30/17: with 37,150 participants at the beginning of the year

Sears Holding Pension Plan 2 (20-1920798/101) 12/1/6 – 11/30/17 effective 12/1/2016 with 147,300 participants at the beginning of the year and 62,178 at the end of the year.

From the Notes in the Accountant’s Opinion, to get people out of the plan so as not to pay PBGC premiums on them Sears did this:

10 responses to this post.

  1. Go BK, DUMP your out of control DB pensions on the PBGC, who does not come close to funding their expenses through their taxes on current private businesses. And private DB pensions are about 1/10th the cost of public DB pensions. Wait until public DB pensions start to fail in record numbers. This country has been in economic chaos for decades, going back to Ronnie Raygun in in 1982….Stars at the top and works it’s way down.

    Reply

    • Posted by El gaupo on October 18, 2018 at 8:48 am

      Yea. So tax those at the top more and it will work it’s way down. Like it did after WW 2 when were a TRUE POWERHOUSE.

      Reply

      • Posted by skip3house on October 18, 2018 at 10:17 am

        YES. … Until we stopped following Ike’s Logic of balanced budget before tax cuts https://www.forbes.com/sites/davidmarotta/2013/02/28/dwight-d-eisenhower-on-tax-cuts-and-a-balanced-budget/#3943e2005047

        Reply

      • Posted by Stanley on October 18, 2018 at 10:58 am

        “…tax those at the top more and it will work it’s way down.”

        Kind of like Robin Hood, right? Raise taxes on these $200K per year policemen? Off hand I would say that the wealthiest 5% are paying 95% of the tax now, not counting Social Security.

        Income tax rates were much higher during the ’40s and ’50s, but there were offsetting deductions, exclusions and so on, and the government’s take from the economy was probably no more and maybe less than at present. And, military spending was probably 5%-10% of GDP and it made up the lion’s share of U.S. Government spending.

        If you tax the most wealthy, I find it hard to believe that they will fly the Gulfstream less or dial back the thermostat in the home (or raise it in summer). No. More than likely they will have less for investment which means a smaller economy, less production and probably higher prices for the lower classes.

        Sorry, Constable, Clancy has to take a big pay cut and give the rest of us a chance to belly up to lunch counter.

        Reply

        • Posted by Stephen Douglas on October 18, 2018 at 11:31 am

          Constable Clancy the cookie thief?

          Reply

          • Posted by Stanley on October 18, 2018 at 11:52 am

            That’s a Colbert quality joke. Presently, there is a little truth in it. Big business has taken on mucho debt to buy back equity–which guns top mangement’s bonus checks. With all of the looting going on, perhaps they want to get their cut.

        • Posted by El gaupo on October 18, 2018 at 12:13 pm

          If you think that income inequality is the same as 2 generations ago and/or that it is good for the little guy, you are mistaken.

          Reply

          • Posted by Stanley on October 18, 2018 at 3:16 pm

            “…income inequality…:

            Too much is made of income equality. I would prefer to be a poor person in a rich country than a rich person in a poor country. In many cases, unions charged excessively for union labor and were a major factor in vanquishing much work to Japan, Germany, S Korea and so on. Moreover, following WWII much of the world was reduced to ashes and there wasn’t much production elsewhere.

            My parents paid about $400 for a TV in the mid 50s and adjusting for inflation that would be a little over 3700 today. It wasn’t a very good TV either.

            I don’t worry about who is richer than me. My concern is how prepared I am to deal with whatever goes down. I don’t believe that historically anyone has ever overcharged for his goods or services and made the overcharge last. Nuff said.

      • Posted by NJ2AZ on October 18, 2018 at 8:16 pm

        in the late 1940s/1950s, the population was 40% of what it is today and the rest of the industrialized world was a pile of rubble

        yes our current tax code can probably stand to be improved, but the idea that the post war boom was attributable to high marginal tax rates is pretty silly

        Reply

  2. Posted by skip3house on October 18, 2018 at 10:11 am

    As Sears goes/went, .. so goes our guaranteed protections…public and private. Only the well funded plans survive, rest victims of own low-ball contributions/expenses.

    Reply

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