Sears' benefits dispute with workers a sign of the times, says industry veteran

by David Keelaghan12 Jul 2017
Sears Canada will appear before the Ontario Superior Court of Justice tomorrow for a follow up hearing after filing for creditor protection in June. Key to the proceedings is the retailer’s request to suspend its employee pension plan and other retirement benefits. The move has been fiercely opposed by former Sears employees, with the dispute placing workplace benefits and workers’ rights firmly under the microscope.
 
Ken MacCoy of RitePartner Financial Services has worked in the insurance industry since the 1970s and has witnessed firsthand had how benefit plans have evolved over the years. With a decade of low interest rates limiting the investment return on pension plans, and the cost of drugs making health plans hugely expensive, employers have moved to limit coverage for their workers. Sears Canada is now receiving the lion’s share of the attention, but it’s a trend that extends across all industries in Canada, reveals MacCoy.
 
“More and more companies are hiring part-time workers and normally if they don’t work a minimum of 24 hours per week, they don’t qualify for group benefits,” he says. “The trend is to wait for people to retire, then replace them with two part-time workers, which is less expensive because they are paid less and don’t normally qualify for group benefits.”
 
For those that qualify for benefits, the income generating capabilities of pension plans are not what they once were. Sears Canada moved from defined-benefit to defined-contribution plans years ago, but shortfalls in funding meant it has been paying $3.7 million per month to address the deficit. Those payments are a major reason the company has now sought recourse in the courtroom.
 
“This isn’t just retail, this is a general trend across all industries,” says MacCoy. “With defined benefits you know what you are going to get on retirement, while it is unknown with defined contribution. A lot of companies are now switching to defined contribution as it reduces their liability. It could be Sears; it could be Canadian Tire; it could be TD Bank.”
 
Looking at the current impasse between Sears and its one-time employees, MacCoy realizes the firm finds itself in a difficult situation. The company has been hemorrhaging money for years as consumers have flocked to online retailers. If the plan is indeed to restructure and rebuild, a lengthy legal battle over unpaid pensions and health and life benefits will be damaging to Sears’ reputation, which is something that needs to be considered, believes MacCoy.
 
“I fully understand why Sears is looking to restructure, but the problem is that it will be to the detriment of the retirees that have worked for them for years and were promised pensions and health benefits,” he says. “The bottom line is, what is Sears’ word worth?”


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Weakness in defined-benefit pension plans exposed in Sears Canada case
Sears Canada seeks to suspend life and health benefit payments