Edward S. Lampert, hedge fund manager and chairman of Sears Holdings Corp., Hoffman Estates, Ill., lambasted the U.S. pension system, current and proposed pension laws and the PBGC in the company's shareholder letter, issued today.
Mr. Lampert said Sears Holdings and its predecessor companies - Sears Roebuck & Co. and Kmart - have not walked away from their pension obligations "like some other companies have." Sears Holdings closed the Sears and Kmart defined benefit plans to new employees but manages the total of $4.3 billion in the two plans "conservatively" to meet retirement obligations. The plans' collective unfunded liability is $1.8 billion, Mr. Lampert said. He added that Sears and Kmart contributed $1.4 billion to the plans over the last three years, and the company's strong cash position ensures Sears Holdings can meet its pension obligation.
"As a result of the current system, with its shortcomings, is that a company like Sears, which has been a responsible steward of its pension plan, is being burdened with a 60% increase in PBGC premiums, not in order to address any risk associated with Sears, but rather to make up for the difficulties of other companies. Meanwhile, our competitors that do not offer defined benefit plans do not share this burden, even though the problem is a broad and structural one," Mr. Lampert wrote.
"Accordingly, a company like Sears Holdings, with a large market capitalization and significant cash flow relative to its pension liability, is being forced to 'bail out' other companies that (for whatever combination of reasons) have not been as successful managing their pension obligations."
Mr. Lampert also explained the consequences of Congress allowing pension funding relief rules to expire despite a continued low interest-rate environment. "We, like many other companies, will be required to increase our pension contributions by hundreds of millions of dollars over the next few years. And we still don't know where the costs caused by legislative changes will ultimately end: A number of measures are pending in Congress, and each would have onerous consequences to companies with defined benefit plans," wrote Mr. Lampert.
Among other suggestions, Mr. Lampert's letter urged a full and open debate about pension issues before Congress makes any changes.
