Sears Canada seeking to suspend special payments as pension found to be 81% funded

Facing a monthly obligation to put $3.7 million a month into its pension plan to make up for a funding shortfall, Sears Canada Inc. is planning to ask the court to relieve it of its special payments while it restructures.

“Sears Canada cannot afford to make these payments as it attempts to restructure under the [Companies’ Creditors Arrangement Act] and the cash forecasts do not contemplate that they will be made beyond June 2017,” a court document filed by the company on Thursday stated.

The document noted that as of the most recent actuarial valuation as of Dec. 31, 2015, the defined benefit pension plan had a windup ratio of 81 per cent. Further information posted on the website of the monitor for the restructuring, FTI Consulting Inc., showed the plan had a going-concern surplus of $28.9 million and a deficit on a windup basis of $266.8 million as of the 2015 valuation.

Read: Sears faces $300M retirement benefit shortfall as retailer seeks CCAA protection

As of Jan. 31, 2017, Sears Canada had liabilities under its post-retirement benefit plan of $196 million, the court documents noted.

Sears had long ago closed its defined benefit pension plan to new entrants and maintains a defined contribution arrangement that provides for 50 per cent matching of employee contributions ranging from one to seven per cent of earnings. In 2016, the company made contributions of $4.8 million to the defined contribution component of its pension plan, according to the court documents.

The company’s most recent annual report put the combined shortfall in the company’s defined benefit pension plan and health and welfare trust at about $300 million. The challenges in its retirement benefits programs come as Sears has announced plans to close 59 stores across Canada as it attempts to restructure. Sears’ U.S. operations are also in trouble. According to The Associated Press, Sears Holdings Corp. announced plans today to close 18 Sears and two Kmart stores in the United States.