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Sears’ court protection is in best interest of remaining workers



Cost of benefits alone could have hurt its chances of survival

By Howard Levitt

Original Source: National Post

Target, HMV, Danier Leather, the Jean Machine, now Sears. Mounting bricks-and-mortar casualties of online shopping. A stream that may become a flood.

Advocacy groups and talk show callers are outraged that Sears has applied to the courts to cease paying full pensions to their retirees and to not pay even basic minimum employment standards severance to their 2,900 newly laid off employees.

Specifically, Sears has asked to suspend $3.7 million worth of monthly payments toward their defined benefit pension plans and to cease pouring money into retirees’ health, dental and life insurance premiums, costing just over an additional $1 million per month. Terminated employees are receiving nothing and, based on the existing court order, have no entitlement to even minimal severance.

The fact that retirees’ hard-earned pensions and benefits can be precipitously removed after a lifetime of work, when they had counted on those monies and benefits to fund their retirements, is shocking to many.

But what are the options? Sears has applied to the courts for relief because the alternatives, for Sears, our economy and even Sears’ employees are dramatically worse. If its losses had continued without the courts providing creditor protection, the inevitable outcome would have been bankruptcy, the closing of all of its stores and the loss of employment for many thousands of additional Canadian workers.

That is the purpose of creditor protection legislation, to assist beleaguered companies to regroup before they lose everything and to allow them to continue in some form while preserving some, if not all, jobs. If the court, after hearing all the evidence, decides there are sufficient assets to afford some, if reduced, severance for their displaced employees or to fund some portion of the retiree benefits, then that will be ordered. But I would not count on that.

It might be that the best prospect for Sears and its employees is to find a buyer, surely the best way to preserve jobs. But no buyer would ever agree to purchase Sears if it had to take on all the retiree benefits and pension payments. This is another reason court protection is in the interest of the remaining employees.

With or without court protection, internet retail — without the encumbrances of wages, property costs and equipment — is decimating conventional retail. Its generally low-paid workers will be laid off in increasing numbers. This will now be exacerbated by the higher $15 minimum wage being passed in Ontario, B.C. and Alberta (compared with, for example, the current $11.40 in Ontario) and the remaining draconian labour legislation being proposed by Ontario’s Wynne government, which will shut businesses down and force others to leave the province. Given its high percentage of labour costs, these legislative changes on top of the online landscape, will accelerate the shutdown of Canadian retail as we know it.

This court application by Sears also raises the issue of defined benefit plans and their impact on many companies’ ability to survive. Such plans require guaranteed payments to retirees for life, based upon employees’ length of service and average final salaries. With low inflation and increasing lifespans, they have become unaffordable. Most private sector employers, which used to have such pension plans, have terminated them, as they create massive, generally unfunded, liability. Those employees who still have the benefit of those plans are at risk of their employers being unable to sustain them at some unknown future point in their retirement. Most remaining defined benefit pension plans reside in the public sector which, in Canada, too often simply prints money and runs deficits.

The public sector / private sector dichotomy has had an interesting development. Even 20 years ago, there was still the historic tradeoff. Public sector employees earned less than others but in return, they had more job security and better pensions. Now they earn higher incomes, but still have more job security and dramatically better benefits and pensions. The auto and steel manufacturing jobs of old, which blue-collar employees vied for, have been replaced by the desire to get a secure job with the government. It is not as if the government can afford defined benefit pension plans any more than the private sector companies that have abandoned them. These pension plans are, of course, funded by our taxpayers, adding ultimately to our municipal, provincial and federal deficits and more-impoverished next generations.



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