J.C. Penney was known for its lucrative retirement benefits, but now thousands of retirees are worried that their income could vanish in the retailer’s bankruptcy.
As a bankruptcy judge considers $47.7 million in retention bonuses to 4,243 J.C. Penney employees during a hearing on Monday, thousands of Penney retirees still don’t know how some of their retirement income will be handled by the court-led reorganization.
Penney is asking U.S. Bankruptcy Judge David Jones to pay half of the retention bonuses, or $24.2 million, to the large group of Penney employees on Friday and a second lump sum in November.
Penney declined to comment on the plight of an unknown number of retirees. Some have filed claims in the case, but as one retiree said in a letter to the judge, many older retirees may not even realize they need to file a claim.
Penney’s defined benefit plan is fully funded and as a qualified plan is insured by the Pension Benefit Guaranty Corp. Those benefits to more than 52,000 current and future retirees vested in the plan are not at risk.
But Penney’s additional retirement benefits on top of the regular pension plan and 401k program are now unsecured claims in Penney’s bankruptcy.
Penney retirees have written letters to the judge outlining worries about their loss of income from these unqualified plans that they were promised.
Those benefits, under names such as the Mirror Savings Plan, the Supplement Retirement Plan and the Benefit Restoration Plan, rewarded career employees for their loyalty. Some benefits allowed people to retire at 60 and gave them bridge benefits until Social Security kicked in. Other plans allowed Penney employees to put more money into the Mirror plan if they wanted to save more than the government-mandated maximums allowed into 401k accounts.
Some benefits sweetened voluntary early retirement plans.
In February 2017, Penney made such an early retirement offer to about 6,000 eligible associates. It took a charge in that quarter of about $120 million related to the VERP. Charges included $112 million related to special retirement benefits for the approximately 2,800 associates who accepted the offer.
Edward Casey Hardy III said in a letter to the judge that he took the 2017 offer that included a retirement supplement after 38.5 years with Penney. He has filed two claims that total $1,241,352. Hardy deferred a part of his income through payroll deductions for 20 years into the Mirror plan to be used in his retirement.
The loss of both of those retirement benefits “would present an extreme hardship for me and my family as well as numerous other retired J.C. Penney associates,” Hardy wrote.
Thomas Clarke worked for Penney for 39 years and retired in 2004 said in a letter to the judge that there are many retirees in their 70s and 80s who don’t even understand that their benefits are in jeopardy. He asked the judge to make them aware that they must file a claim.
Paul Lemmon, who filed two claims that totaled $357,014, said in his letter to the judge that he worked for Penney for 38 years and stayed with the company because of its retirement package.
“I wonder what the difference is now with JCP wanting to use over $47 million to give an incentive to high priority non-insiders to stay with the J.C. Penney Company,” Lemmon wrote. “Big difference is they get paid now…we had to wait until after we retired.”
Lemmon said that 89% of the Mirror account balance “was from my pocket” with the remaining from company match and investment results.
“Don’t let huge senior management bonuses or other retention offers take possible funds away from us, a great many [of whom] can no longer replace these lost monies.”
A page on J.C. Penney’s website about its restructuring includes a link for retirees that says their deferred compensation Mirror non-qualified plan assets are subject to creditor’s claims through the court-supervised proceedings.
“J.C. Penney will not be permitted to make payments under the Mirror Plan during the … court-supervised process because all current and future payments will be suspended during that process. It will not be known until the end of the court-supervised process if the Mirror Plan will continue or be terminated,” the restructuring link notice said.
In Penney’s most recent annual report, the company said it expected to make $112 million in non-qualified supplemental retirement plan payments through 2029.
It’s not clear how many people are depending on the court to decide their future retirement income, but retirees interviewed believe the number is in the thousands and that it’s not reflected in the list of claims.
Those public filings in the bankruptcy list sums that would be hard to replace.
There are several pages of individuals who have filed claims for retirement benefits, including some former high-level executives. The benefits were also available to employees in corporate jobs in Plano and district and store level employees nationwide. Tara Bina, a store cashier, lists a $260,000 claim. Travis Julian, a former district and regional vice president, has claimed $649,808.
Some former top executives listed include Ed Record, former chief financial officer, who claimed $246,778; former chief merchant John Tighe, who claimed $521,376, Kathleen Mertz, a former division vice president who claimed $373,775; and Michael Porter, a former vice president and treasurer who claimed $877,510.
The week before Penney filed for bankruptcy, the board approved $9.9 million in new cash awards for chief executive Jill Soltau and other members of the C-suite, including executive vice presidents. Those awards and the proposed broader incentives must be returned if employees leave before Jan. 31.
Penney has asked the judge to seal the list of 4,243 Penney employees on the bonus list, but they would include senior vice presidents and other corporate staff, district and store managers.
They were identified by salary ranges: 224 have salaries of more than $180,000; 110 have salaries of $140,000 to $180,000; 23 have salaries of under $140,000 but historically were part of the annual and long-term incentive programs. Salary ranges for the remaining 3,886 employees in the retention plan were part of an annual incentive program and are likely corporate professionals and store level managers.
Before Penney filed for bankruptcy in May, it routinely used incentive and retention-based plans to drive performance of the business and retain employees.
“Now, more than ever, the Debtors (Penney) believe the retention of certain key employees is vital to the success of their reorganization, Penney said in its filing. “These talented, hard-working individuals positioned” Penney on an “upwards trajectory” before the pandemic and will be essential to preserving Penney’s ability to exit Chapter 11 as a going concern.
The argument presented continued that since these employees have “no assurance of long-term employment” by Penney, it’s appropriate to retain employees who have “an intimate understanding of business operations that would be difficult to replace.”
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