The Pension Benefit Guaranty Corp. is preparing to "assume responsibility" for Sears Holdings Corp.'s two defined benefit plans, following the company's bankruptcy filing in October.
The 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," the agency said in a news release Friday.
The PBGC is seeking to terminate the plans as of Jan. 31. The agency will become responsible for the pension plans when Hoffman Estates, Ill.-based Sears agrees to, or a court orders plan termination. Until that time, the pension plans remain Sears' responsibility.
The PBGC estimates Sears' pension plans, which cover about 90,000 participants, are underfunded by $1.4 billion, leaving them 64% funded. 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.
When 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 can apply for benefits as soon as they are eligible, the PBGC said in a Q&A page for Sears participants on its website.
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.