Retail Giants’ Pension Plans Improve Despite Industry Travails

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By Carmen Castro-Pagan

Pension plans of the nation’s largest department stores saw an uptick in assets as the companies kept exploring ways to increase profits.

Assets in the pension plans of Sears Holdings Corp., Macy’s Inc. and Target Corp. increased by hundreds of millions of dollars in 2016, according to the companies’ latest financial filings.

J.C. Penney Co. was the exception to this trend. The retailer saw its pension plan assets decrease in 2016, due largely to the de-risking it did in 2015 by transferring more than $1.5 billion in assets to settle a portion of its pension liabilities.

The retail industry has been in a tailspin, leading many companies to close stores, lay off workers and offer early retirement packages. About 30,000 jobs were lost in the retail industry in March 2017, the Bureau of Labor Statistics said in its most recent jobs report. Employment in general merchandise stores declined by 35,000 in March and has declined by 89,000 since a recent high in October 2016, according to the report.

Asset Increase and Funded Levels

Over the past year, the funded levels of the major retailers’ pension plans saw little change. Macy’s, J.C. Penney and Target have almost fully funded plans at 97 percent, 99 percent and 100 percent, respectively.

Sears’ pension plan, on the other hand, is not funded as well as those of the other companies. The plan is 69 percent funded—which is actually an improvement from 2015, when the plan was slightly over 60 percent funded.

The pension plans of Sears, Macy’s and J.C. Penney have long been some of the largest plans in the U.S. in terms of assets, as compiled in the Milliman Corporate Pension Funding Study, an annual analysis of the 100 largest corporate defined benefit plans in the country. All three fell off Milliman’s list in 2016.

Falling off the the list doesn’t mean the plans are at risk, analysts from Milliman told Bloomberg BNA.

Cash Contributions

One factor boosting the retailers’ pension plans is the companies’ cash contributions.

Among the major retailers, Sears has been the most active in making cash contributions to its pension plan. Since fiscal year 2013, Sears has contributed more than $1.5 billion to its pension plan, according to company data on the Bloomberg Terminal.

In the past four years, Target made nearly $500 million in cash contributions.

Macy’s last contributed to its plan in 2013 ($150 million), but hasn’t contributed since. J.C. Penney has contributed $159 million in the past four years.

The amounts contributed by these retailers fall short of those made by other big companies. Last year, multiple companies made billion-dollar or more voluntary contributions to their pension plans, including United Parcel Services ($2.5 billion), General Motors ($2 billion), Wells Fargo ($1.3 billion) and Pfizer ($1 billion), according to a Goldman Sachs analysis. These companies have pension plans with assets that exceed $10 billion and funded levels that range from 75.84 percent to 88.74 percent.

Sears and PBGC

Despite the improvement in the funding and cash contributions it has made to its pension plan, Sears’ plan is far from safe. The company said in its latest 10-K filing that its financial situation is in such dire straights, the Pension Benefit Guaranty Corporation could at any moment initiate an involuntary termination of its pension plan. The PBGC—the federal agency that insures defined benefit plans—has a five-year agreement with Sears under which the agency has pledged to not initiate an involuntary termination of the plan unless Sears’ financial difficulties become extreme.

Earlier this year, the PBGC allowed Sears to sell its Craftsman tool brand to Stanley Black & Decker for $900 million. The cash component of this transaction—$250 million—will go to the PBGC. In addition, Sears anticipates contributing an additional $312 million to its plan.

Those boosts to Sears’ plan may do little to impact the plan’s funded levels. The extra $312 million won’t lower Sears’ pension liability, although the $250 million will, Noel Herbert, a Bloomberg Intelligence analyst for the retail industry, told Bloomberg BNA. Because of the plan’s level of funding shortfall, there’s not much Sears can do, because the company doesn’t have the financial capacity to adopt programs to de-risk, Herbert said.

To contact the reporter on this story: Carmen Castro-Pagan in Washington at ccastro-pagan@bna.com

To contact the editor responsible for this story: Jo-el J. Meyer at jmeyer@bna.com

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