Sears retirees wait to learn fate of their pensions and wonder where the money went

Sears Canada retirees are still waiting to learn the fate of their pensions. Many are also still struggling to understand how it got to this point.

"I accepted it, but now I'm back in the anger stage again," said Gail McClelland, who worked in furniture sales in Calgary for most of her 33-year career with Sears.

The retailer closed its doors last month, leaving behind an underfunded pension plan. About 16,000 ex-employees are bracing for a reduction in their pensions sometime this year, estimated at 19 per cent by the Sears Canada Retiree Group (SCRG), a volunteer organization representing retirees.

"I'm just going to have to cut back and I mean, that's what you worked your life for, and now it's compromised," said McClelland, a 68-year-old widow.

Some retirees, like McClelland, blame much of their fate on Sears Canada's largest shareholder, Eddie Lampert, CEO of U.S. hedge fund, ESL Investments.

After Lampert took control of Sears Canada in 2005, billions were paid out in dividends to shareholders like himself, while the retailer struggled for survival.

"They couldn't afford to [top up the pension fund], but they could pay out dividends," McClelland said.

However, Lampert said the critics have it all wrong. In a lengthy statement to CBC News which he also posted in a blog, he said that Sears Canada met its demise not because of big dividend payments, but due to bad moves made by management.

Lampert also said the pension fund's deficit has been overestimated and anticipates that by the time it's wound up, there likely won't be a shortfall. 

"I wish he was right. Then I wouldn't have to be worried," Sears retiree and SCRG vice-president Ken Eady said.

He said according to Sears's own actuaries, the latest statistics from 2015 show that plan was more than $266 million short if it were to be paid out.

"The possibility of Sears meeting its [pension] obligations, I would say is close to nil."

$3.5B returned to shareholders

Eady said Sears Canada's pension plan has been underfunded since 2007.

According to court documents, since 2012, SCRG continually expressed concerns about the diminishing plan at a time when the retailer's sales and profits were declining and millions were being paid out to shareholders in special dividends.

"Sears didn't appear to be committed to investing in Sears's future," Eady said.

A 2014 letter sent to the retailer's legal counsel from lawyer Andrew Hatnay with Koskie Minsky, the law firm representing Sears retirees, also expressed concerns.

Hatnay wrote that "despite the deteriorating financial situation at Sears Canada," its board of directors continued to approve big payouts to shareholders following the sale of assets such as valuable real estate.

​He said that since 2005, when Lampert's ESL Investments acquired control of Sears Canada, the retailer had returned $3.5 billion to shareholders, largely through special dividends.

Hatnay also noted that as a major Sears shareholder, ESL Investments benefited significantly from the dividend payouts.

"It's not necessarily the [pension] shortfall that was the problem," Eady said. "It was about taking the money out of the company and allowing the company not to operate properly, thus leaving the pension plan high and dry."

'Payments had no impact whatsoever'

Sears Canada didn't respond to CBC News's request for comment.

But Lampert defended the dividend payouts, stating that a company needs to provide adequate returns to shareholders to stay viable.

He also said the payouts — which ceased in 2013 — didn't hurt the retailer because it continued to invest in the company at consistent levels, and meet its pension plan funding requirements.

"The [dividend] payments had no impact whatsoever on the Sears Canada pension plans," wrote Lampert who is also CEO of Sears Holdings in the U.S., which operates separately from Sears Canada.

• Read Eddie Lampert's full response

As for Sears Canada's demise, Lampert said it was primarily the result of a costly but unsuccessful restructuring strategy launched in 2016.

"I raised concerns about this strategy with management but the company decided to proceed," he said.

Regardless of who's to blame, according to SCRG, Sears employees now face diminished pensions.

"It's a big disappointment after working for a company for 27 years and you dedicate your life to them," said Gail Paul, who sold appliances for Sears in Corner Brook, N.L.

"I never thought I'd be in this situation," she said. "You figured your retirement was going to be set."

Meanwhile, SCRG has reached out to the Ontario government, asking for help. Its proposals include keeping the pension plan active and hopefully recouping some of the shortfall by either the government taking it over, or by amalgamating the fund with another pension plan.

"It's quite doable," Eady said.

The Ministry of Finance told CBC News it's currently reviewing the letter.

Some retirees also believe there's one other glimmer of hope. The court appointed monitor for Sears Canada's insolvency is reviewing $611 million the company paid in total in special dividends in 2012 and 2013.

"I'm holding out hope that something will happen, that somebody will get that money back for us," said retiree McClelland.

Lampert, however, said that there's nothing suspect about those dividend payments. The money was generated by real estate sales and he said Sears kept roughly half the proceeds to invest in the company.

"I too very much regret the failure of Sears Canada," he said. "Like all other stakeholders, ESL has suffered significant losses from the bankruptcy of this storied company."