Sears Canada paid billions in dividends to investors at the same time as sales and profits were dropping and the pension plan was going into deficit, say pensioners. (Nathan Denette/The Canadian Press/file)

Sears pensioners go to court to recover money

For years, employees of the retail company Sears Canada warned that their pension plan was underfunded at the same time as the company was paying huge dividends to shareholders. Now that the company has gone bankrupt, the pensioners are going to court to try to get some of the dividend money back.

The pension plan is underfunded by almost $270 million and 16,000 pensioners are faced with reduced retirement income. There is also an estimated $400 million in unpaid health and life-insurance benefits.

Dividend payments of $2.9 billion

The pensioners want to recover some of the $2.9 billion dividend payments made between 2005 and 2013, much of it from the sale of Sears Canada assets including prime real estate. They say dividends were paid at the same time as sales and profits were dropping and the pension plan was starting to show a shortfall.

When a company declares insolvency in Canada, employees are not guaranteed they will get money owed to them.

Historian Christo Aivalis says this court case draws attention to the increasing number of underfunded pension plans.

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“In cases like this, the company goes bankrupt but there are people in line in front of pensioners—investors of various kinds,” says Christo Aivalis, a post-doctoral fellow specializing in labour and political history at the University of Toronto.

“And in other cases like with Stelco—a steel company in Hamilton, Ontario—they didn’t go bankrupt in the sense that they closed but they did enter a restructuring and were able…to kind of sidestep partially their obligations to retirees and workers on things like benefits and pensions. And that’s something that we’ve been seeing happen in recent years in Canada.”

Opposition calls for better pension protection

An opposition member of Parliament, NDP Pensions Critic Scott Duvall wants the government to change the law to better protect employees. Before he was elected prime minister, Justin Trudeau campaigned on a promise to provide more protection for workers’ pensions. But Aivalis is not optimistic he will follow through.

“From a historical perspective, the government of the Liberal variety tends to run (for office) more progressively than they govern. And I don’t see an indication coming from the current government that they’re willing to make such a move—at least right now.”

About 16,000 former employees of Sears Canada fear they will have reduced pensions. (CBC/file)

Government more inclined to protect investors, says historian

“The government is more of the mindset that protecting investors is more important than protecting workers because not protecting investors kind of undermines economic confidence,” says Aivalis.

“Whereas the New Democratic Party has argued that workers deserve more protection because a pension is really a deferred wage. You’re giving a portion of your…paycheck to your employer and when they take part or all of your money in a bankruptcy, effectively they’re stealing some of the wages you earned kind of over your career.”

A good time to ask for change

This is one of the arguments pensioners’ lawyers will make in court. Even if they win the effort to claw back some of the millions paid out in dividends, it’s not clear how much would come back to them and how much would go to other creditors.

But, Aivalis says the case does serve to keep the issue in the public eye and he advises pensioners to call their members of Parliament to ask for legal changes to better protect them.

The non-profit Canadian Centre for Policy Alternatives recently reported that in 2016 many of Canada’s largest companies had pension plans that were in a deficit position.

With files from CBC.

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