The Pension Benefit Guaranty Corp. would cover "the vast majority" of benefits earned by participants in two defined benefit plans sponsored by Sears Holding Corp., which entered bankruptcy Monday, if those plans wind up being terminated.
In a statement Monday, PBGC officials said that the agency "has been working with Sears for several years to improve the funding of the company's two defined benefit pension plans" that are underfunded by an estimated $1.5 billion. "If circumstances require, we are prepared to step in and provide PBGC-guaranteed benefits," the agency said.
The company's bankruptcy filing does not automatically terminate the pension plans, which remain ongoing as Sears' responsibility. "While underfunded pension plans often terminate during bankruptcy proceedings, a company's bankruptcy filing by itself does not terminate a pension plan," the PBGC statement said.
As of Nov. 30, 2017, the most recent Form 5500 filings, Sears Holdings Pension Plan 1 has assets of $1.84 billion and Sears Holdings Pension Plan 2 had assets of $778.7 million. The plans together cover 90,000 pension plan participants.
If either plan is terminated and transferred to the PBGC, the agency said it will notify participants, and those already receiving a pension will be paid without interruption. Future retirees will be paid when they become eligible and apply to PBGC to begin payments. Future benefit accruals would stop when the plan terminates or possibly as of the bankruptcy filing date, the PBGC said in a question-and-answer web page for Sears participants.
Benefit accruals in both Sears plans were frozen in 1996 for former Kmart participants and in 2005 for Sears participants. Active participants continue to earn service after the freeze date toward vesting and eligibility for early retirement and certain forms of payment. Payments on annuities purchased by Sears for many participants will continue to be paid by the insurer.
