(Bloomberg)—Workers who retired after years of folding shirts and selling refrigerators for Sears Holdings Corp. banded together earlier this year to complain when the retailer’s bankrupt shell terminated their life insurance plan.
Those benefits were potentially worth thousands of dollars to heirs of the former employees. Now the Sears estate has responded with a proposal that would pay them about $135 each.
It’s another blow to workers who’ve seen livelihoods disappear as the department store chain, once the biggest in the U.S., slid toward bankruptcy. Sears filed for court protection last year and sold its stores and most of its assets to a unit of Eddie Lampert’s ESL Investments Inc. in January. The deal left behind the Sears estate, which is responsible for settling old debts, including the life insurance plan.
The retiree plan provided policies to about 29,000 former workers with death benefits between $5,000 and $14,500, according to a new court filing that lays out the estate’s proposal. A smaller group of a dozen retired senior executives had policies with death benefits between about $356,000 and $2.7 million.
Limited Funds
The proposal to modify the plan would terminate the plan and award eligible Sears retirees an unsecured claim of $5,000. But given the estate’s limited resources, holders of unsecured claims will receive estimated payouts of 2.3% to 2.7%, according to the filing -- or about $115 to $135.
“The new plan is totally unacceptable to the retirees,” said Ronald Olbrysh, chairman of the National Association of Retired Sears Employees. He added that many Sears retirees aren’t able to obtain new life insurance policies now because they’re too old. “It’s totally unfair, what Sears is attempting to do,” he said.
Retirees who died after the plan was terminated but before the proposal is approved would receive an administrative claim of $5,000. That type of claim gets greater priority for payment, which means their heirs would likely receive the full amount.
The estate terminated the retiree plan in March, though participants had the opportunity to convert the coverage to individual life insurance policies at their own cost.
Lawyers for the retirees objected to the termination and in June the federal judge overseeing the bankruptcy approved the formation of a committee to represent the interests of retired workers.
Failure to terminate the retiree plan would make it more difficult for the estate to confirm its bankruptcy plan, which could lead to liquidation of the estate and much lower recoveries for all creditors including the retirees, according to the filing. Sears estate lawyer Ray Schrock said in a court hearing last month that they tried to make ESL assume the retiree benefits, but were unsuccessful.
A hearing on the proposed order is slated for Aug. 12.
The case is Sears Holdings Corp., 18-23538, U.S. Bankruptcy Court, Southern District of New York (White Plains).
To contact the reporter on this story: Josh Saul in New York at [email protected].
To contact the editors responsible for this story: Rick Green at [email protected]
Nicole Bullock
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