Breaking News: PBGC To Take Over Sears Pensions

Per a press release this morning:

The Pension Benefit Guaranty Corporation [PBGC] is taking steps to assume responsibility for Sears Holdings Corporation’s two defined benefit pension plans, which cover about 90,000 people. The national retail chain headquartered in Hoffman Estates, Illinois, operates through its subsidiaries, which include Sears, Roebuck and Co. and Kmart Corporation.

Sears filed for Chapter 11 protection on October 15, 2018. PBGC is stepping in to become responsible for the company’s two pension plans because it is clear that Sears’ continuation of the plans is no longer possible.

PBGC has worked with Sears for several years to improve funding for the company’s plans. PBGC estimates that the Sears’ plans are underfunded by $1.4 billion leaving them 64 percent funded.

PBGC is seeking to terminate the plans as of January 31, 2019. The agency will become responsible for the pension plans when Sears agrees or a court orders plan termination.

This is the distress termination we were expecting:

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).


17 responses to this post.

  1. DISPARITY OR DISCRIMINATION ?? PBGC Multi Employer MAX benefit protection amount for a 30year $36,000 annual pension is $12,870 ……While the PBGC Single Payer protection amount for a 65 year old is $67,295.40 “Over “5” Times the Multii amount of funding to finance the living of retired lives. It gets better a person retiring at age “70” is $111,710.40…..over “EIGHT” times more that what a Multi Employer amount would be. Does this Gov’t insurance really created to protect the funding of retired lives ??? I’ll defer to the Experts here…


    • Posted by stanley on January 18, 2019 at 2:39 pm

      Not an expert by any stretch, but I believe you left out a big part of the story, that is the level of pension being protected. The pensions of truck drivers and dock workers probably run in the neighborhood of $30K, $40K or maybe a little more. Over in the single employer side some pensions for executives might run much higher. In addition, the employers in the single employer side probably paid more into PBGC.

      At any rate Mr Anderson, there is a huge boatload of boomers joining the ranks of the retired and we need to exercise some consideration for others and those still rowing the boart. OK, buddy?


      • Posted by bruce paterson on January 18, 2019 at 6:31 pm

        unsure what dockworkers you are referring to. Around this area, just their salaries normally start at $150,000 without overtime so we can assume their pensions are well above the 30-40k annual number you note.


    • Posted by Tough Love on January 18, 2019 at 9:07 pm

      John C. Anderson,

      Seems like you are AGAIN trying to hoodwink the readers………..

      Yes the PBGC’s single employer maximum ANNUAL payout for Plan terminations in 2019 is $67,295.40 at age 65 and $111,710.40 at age 70, BOTH applicable to SINGLE life annuities only. Those maximums are just about 10% LOWER for Joint and Survivor annuities (which MOST people elect).

      But WHY did you go UP in age (from 65 to 70) …… simply so you could show a HIGHER multiple? Isn’t it MORE appropriate to go DOWN in age because MOST Union plans have 30-and-out provisions, meaning that MANY Union MEP participants retire around age 55, with some even at age 50 ?

      I’d bet that you DID know that at age 55 The PBGC single employer maximum is only $30,282.96, and at age 50 it’s only $23,553.26 ……….yielding MUCH smaller multiples (than the over 5x and 8x noted in your above comment) …… but knowing that they wouldn’t support your extremely biased agenda, you chose not to show them and chose to hoodwink the readers instead.

      Sorry buddy, it’s isn’t working …………… and a “loan” that has a negligible probability of being paid off in full …………….. is a BAILOUT.


  2. “As of 1/1/16 there were 191,507 participants with total liabilities (HATFA) of $4.46 billion and assets of $3.35 billion.”

    That’s 75 percent funded, and given the more realistic rate of return assumptions used in the private sector.

    Is there ANY public employee pension that well funded?


  3. Posted by Tough Love on January 24, 2019 at 2:14 am

    John C. Anderson,

    I’m sure you will hate THIS (below linked) article, being written by a professor of finance at the Stanford Graduate School of Business (with a PHD in Economics from MIT). Not surprisingly he too finds the proposed MEP “loans” to be a BAILOUT …. and a VERY bad idea.


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