The dispute over the fate of the pensions of Sears Canada Inc. retirees and employees will be back on the agenda this week as lawyers go to court to seek the windup of the company’s defined benefit plan.
Last week, counsel for the employees and retirees filed a motion seeking a plan windup as they seek to secure their pension benefits as the proceedings under the Companies’ Creditors Arrangement Act continue amid a possible sale of the company. “In the circumstances of Sears Canada CCAA proceedings, it is a virtual certainty that the company will not continue in its current form, if at all, nor that a purchaser in the [sales process] will assume the liabilities of the Sears pension plan. As a result, the plan will need to be terminated, i.e., wound up,” wrote lawyers representing the retirees in a motion filed on Aug. 11.
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The motion will come before the Ontario Superior Court on Aug. 18 for scheduling. According to the motion, a section of each of Ontario’s Pension Benefits Act and the Personal Property Security Act create a deemed trust priority in favour of pension beneficiaries for the amount owing and not paid by an employer to plan upon windup. According to the most recent actuarial valuation as of the end of 2015, the Sears pension plan had a $267-million funding shortfall at that time. As a result, the company has been making special payments of $3.7 million per month. While it had been seeking to suspend the special payments in July, it reached it deal to continue them until the end of the September along with its retiree benefits plan.
“The windup of the plan gives rise to the requirement by the company to pay the full amount of the wind up deficit to the plan,” the lawyers said in the motion, suggesting it would also lead to a payment from Ontario’s pension benefits guarantee find in order to minimize any benefits reductions.
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The motion is seeking to an order to force Sears to terminate the plan or, in the alternative, direct the superintendent of financial services to wind it up. It notes the Store and Catalogue Retiree Group, which represents 6,000 retirees, has been asking the Financial Services Commission of Ontario to wind up the plan since 2014 amid the company’s deepening financial troubles.
Included with the motion materials was an affidavit by William Turner, a former president of merchandising, marketing and logistics at Sears who retired in 2002 after 36 years with the company. He’s also president of the retiree group. In his affidavit, he blamed much of the company’s troubles on sales of Sears Canada assets after U.S. hedge-fund manager Edward Lampert became a major shareholder in 2005. “This left the company insolvent with very few remaining assets,” wrote Turner, who also took issue with dividend payments and distributions to shareholders over the years.
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“Sears Canada has paid over $3.4 billion to shareholders since 2004, and in so doing, placed the security of retirees’ pension and health benefits at risk,” he added.
“In my opinion, I have no confidence that current management, without significant change, can reverse the situation,” he continued, expressing doubts about the outcome of the restructuring process. “Indeed, there is a high likelihood that it may not survive at all. In such circumstances, the windup of the Sears Canada plan is inevitable.”
When contacted by Benefits Canada, a spokesperson for Sears noted the company is aware of the development but said it would reserve its comments for the court proceeding. The motion filing included several exhibits showing the retiree group’s demands to wind up the Sears pension plan for several years, including letters sent just before the company’s CCAA filing in June. In a letter to counsel for the retirees on June 5 — before the company’s CCAA filing — a lawyer acting for Sears from Osler Hoskin & Harcourt LLP responded: “Any decision by the employer to wind up a pension plan impacts all plan members, not just retirees. The company is also conscious of the obligations of pension plan administrators to all pension plan members (including active plan members and retirees), whether the plan is an ongoing plan or a wound-up plan.”