The Pension Benefit Guaranty Corporation is alleging two Sears Holdings' pension plans are underfunded by roughly $1.4 billion. "Due to the impending Sale and/or liquidation, and the funding status of the Pension Plans, the Plans will not have assets available to pay benefits when due under their terms," according to a lawsuit filed Friday in the U.S. District Court for the Northern District of Illinois.
The agency is suing the big-box retailer to take over the pension plans. When an underfunded pension plan terminates, the agency typically becomes the statutory trustee of the plan and pays out the plan's unfunded benefits, according to its complaint.
On Jan. 17, the agency notified Sears that the pension plans would not be able to pay benefits when due and must be terminated by Jan. 31. Now it's asking the court to keep that date and transfer all related assets of the plans. Monday marks the first day of an anticipated two-day hearing on approval of ESL's proposed $5.2 billion bid to take over Sears.
The fate of pensions for retired Sears employees has been hanging in limbo ever since the iconic retailer filed for bankruptcy in October. When it became clear that Sears could not pay down its two pension plays, the pension agency last month began to take steps to assume the duty, which means covering about 90,000 people's retirement funds.
The pension agency also filed an objection with the U.S. Bankruptcy Court for the Southern District of New York in January, noting that Sears entered a five-year pension protection plan with it in 2016. The agreement gave the agency an interest in intellectual property of the Kenmore and DieHard brands in case Sears faltered financially. If the ESL deal to buy Sears is approved, that could weaken those protections.
The PBGC isn't the only third party to object to the sale. Last month, the Sears Creditors Committee filed an objection against the bid, arguing that years of "misconduct" by former Sears CEO Eddie Lampert and ESL are what landed Sears in financial disarray. In separate litigation, the creditors are asking the court to recharacterize ESL's debt as equity and to allow them to recover funds and value lost from ESL's and Lampert's past dealings with Sears, including the spin-off of Land's End and the transfer of real estate to Seritage Growth Properties.
As of Friday, at least 13 parties had filed limited objections to ESL's bid to buy Sears, and disputed amounts totaling at least $17.7 million, according to court documents analyzed by Retail Dive.
Lily Wang, deputy director for Organization United for Respect's Rise Up Retail campaign and workers rights advocate for Sears employees, told Retail Dive in an interview last week that the bankruptcy proceedings for Sears, Toys R Us and other major retailers signifies a larger problem with the relationship that companies have with private equity and workers rights projections.
"What we're hearing from workers all over the country from folks that are retired and are now seeing their pensions threatened, to folks that have been laid off since Eddie Lampert has taken over the helm of the company, and to folks that are still working in stores today and are not sure what will happen to them and their families in a month — I think there is a lot of anger, a lot of outrage and a lot of uncertainty that people are feeling right now," she said.