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Bankruptcy Filing Shifts Spotlight on Sears's Pension Plans



Sears Holdings Corp.
             's


SHLD -23.83%

decision to seek bankruptcy protection has brought new scrutiny to its underfunded pension plans.

Sears's bankruptcy includes a tangle of deals that put it on the back burner

Sears, which filed for chapter 11 bankruptcy protection on Monday, has two pension plans that held

For comparison, the typical pension was 87.6% funded at the end of 2017, according to to the Milliman 1

00 Pension Funding Index,

The Pension Benefit Guaranty Corp., the government's pe Insurances, said Monday it expects its guarantees would cover the vast majority of benefits under Sears's plans. The plans have been received for benefit accruals in 1996 for former Kmart participants and in 2005 for Sears's employees, the agency said. The PBGC, which acts as a backstop to corporate pension funds, receives no taxpayer funding and is instead paid by pension plans.

For now, though, Sears is still on the hook. Its bankruptcy filing did not terminate the plans, and the retailer retains responsibility for its retirees.

It made $ 343 million in contributions during the 26 weeks ended Aug. 4, according to regulatory filings.

Terminating the plans would make up for the company to invest in the business, and pension experts say the company may seek to do so.

Last month, Edward Lampert, who at the time was Sears's chief executive and chairman, blamed pension payments for holding back the company, which had almost $ 2 billion over his pension plan over the past five years. Mr. Lampert wrote: "Had the company been in a better position to compete with other large retail companies, many of which do not have large pension plans," Mr. Lampert wrote.

With the bankruptcy, Mr. Lampert stepped down as CEO, but remains the company's chairman.

To terminate the plans, Sears would need to demonstrate no longer afford them.

"The PBGC does not want to take over the pension plan because you want them," Peggy McDonald said senior vice president and actuary at Prudential Retirement.

The vast majority of people living with a pension plan are not expected to see their monthly benefits

"The agency has legal limits on how much it can be deducted from the plan."

"The Eric Hananel, UHY Advisors Inc. UHY Advisors Inc. Ordinary workers typically receive less than a haircut on benefits following a bankruptcy proceeding as higher-ranked executives who are due a larger pension payout.

Sears lists the PBGC as its largest unsecured creditor in court documents, with a claim as "unknown." Pension experts said the agency's claim is contingent

PBGC has additional levers to pull in a negotiation before assuming control over the pension plan. Sears had a pension plan protection and forbearance agreement with the PBGC in 2016 that granted the agency so-called "springing liens" on the intellectual property linked to Sears's Kenmore and DieHard brands.

PBGC can initiate an involuntary plan term, based on factors, as a failure to meet minimum statutory funding requirements or expectation the PBGC's long-run loss with respect to the plan will increase unreasonably. In this case, the case would be the best way forward for the beneficiaries.

will seek approval to terminate the pension plan.

Write to Tatyana Shumsky at tatyana.shumsky@wsj.com


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