Several hundred former J.C. Penney employees and retirees who counted on supplemental retirement benefits have to wait another year to find out whether they’re getting some cash from the company’s bankruptcy. But in this case, “some” means less than 1 cent on the dollar.
J.C. Penney department stores exited bankruptcy more than a year ago, and new owners say the company is doing well. The real estate trust created to repay lenders by selling Penney’s properties has done better than expected. But the unsecured creditors of the old J.C. Penney, which includes vendors and some long-term employees, are still waiting for their claims to be resolved.
“We’re lucky to get anything,” said James Knesek, 56, whose corporate job as a merchandise operation director was eliminated in 2020. He worked more than 32 years at Penney and filed a claim for the $340,642 in supplemental retirement benefits he’s losing, including some income he deferred over the years.
Knesek has been working with former colleagues to stay informed about complex bankruptcy documents.
“There’s been a huge vacuum of information,” he said. Some former employees are confused about what it means when their claim is accepted. It doesn’t mean they’re in the money, Knesek said. “The plan documents say 1% or less for unsecured claims.”
Penney’s defined pension plan, which was fully funded and taken over by Athene Holding, continues to provide monthly checks to 30,000 retirees, and the company’s employee 401(k)s were protected and not affected by the bankruptcy.
But there are a few thousand individuals who lost supplemental retirement benefits when Penney filed for bankruptcy in May 2020 after the pandemic closed its stores. Not all of them filed claims, but those who did are part of the company’s unsecured creditors.
Shirley Bard, 91, of Los Alamitos, Calif., retired in 1996 and wrote in a letter to the court that she’s “no longer able to work. I have no choice but to try to save the supplemental retirement benefit I am entitled to.”
In the letter to U.S. Bankruptcy Court Judge David Jones, Bard continued, “With all the stress, I wonder just how long J.C. Penney thinks my $397 payment will need to be paid?”
The Houston bankruptcy judge has shown some sympathy toward those claimants as he has explained the laws he’s required to enforce. Jones told Bard, who attended a hearing remotely last year, that years ago he was a lawyer who represented 166 Enron employees after they lost similar retirement benefits in the infamous bankruptcy.
“I lost 166 times,” Jones said.
Former employees who deferred their income into so-called top hat company-sponsored retirement plans and suppliers such as Columbia Sportswear and Coty beauty brand that sold Penney goods will receive the same payout of less than 1%, according to Penney’s reorganization plan.
There are 29,800 unsecured claims totaling $37.7 million that are outstanding in Penney’s bankruptcy. About 700 are from former employees and retirees who filed claims. Of the few thousand people who were eligible, only 700 filed claims. Many either declined to bother with the process or weren’t aware they needed to file an individual claim. A few had earned benefits from taking early retirement plans as recently as 2017 and 2020.
The court now says it may not resolve these claims until March 2023, and it’s not clear how much money is in the pool to pay the unsecured creditors.
Funds could be added to the unsecured-claim pool from Penney store sales, but that’s not looking likely. The Penney operating company was sold as part of the bankruptcy reorganization to mall owners Simon and Brookfield.
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Simon Property Group CEO David Simon said in November that Penney is “performing terrifically well.” He reiterated that in February on an earnings conference call when he said that “J.C. Penney’s results were impressive.” But the actual results aren’t released separately. The 650-store chain isn’t expected to meet thresholds that would force the new company to honor the retirement claims of its former employees by contributing funds to the bankruptcy’s wind-down.
Separately, the trust set up to sell real estate to pay off lenders has done very well, but that money won’t go to unsecured creditors.
Much of Penney’s real estate was put into a real estate investment trust that was transferred to a group led by H/2 Capital Partners as payment for $900 million in debt. That transfer included six distribution centers, 161 stores and a master lease to rent those properties back for about $156 million a year.
On March 16, Copper Property trust principal executive officer Neil Aaronson said on a call with investors that it had “a very good first year, and both operations and sales continue to go well.”
The worth of those properties was fiercely contested by both creditors and shareholders when the reorganization plan was being hammered out in 2020. Once the trust was formed, the stores and warehouses were originally valued at $1.9 billion for accounting purposes, giving Copper Property a 15.6% gain in its first year.
In 2021, the trust sold 13 stores and six distribution centers, generating just under $800 million in net proceeds and an overall gain of $109 million. In January, the trust sold another store for $21 million in net proceeds and a gain of $4 million.
“We feel very good about future sales,” Aaronson said.
The trust’s principal financial officer, Larry Finger, tempered expectations by saying that 90% of the $109 million in gains was from the six distribution centers and one store in San Bruno, Calif.
The six distribution centers included a 1.13 million-square-foot facility in Haslet at Alliance Airport that sold for $68 million.
The Penney store at Stonebriar Centre in Frisco was among the first to be sold a year ago, and it was purchased for $10.5 million by Brookfield. A few other Texas stores were sold later in 2021.
The Village at Fairview store was sold to Dallas-based MGHerring Group for $9.74 million. The Penney store in Flower Mound’s Robertson’s Creek was sold to Inland Real Estate for $4.43 million.
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It’s hard for older retirees to comprehend why the bankruptcy estate doesn’t have the assets to keep their benefits coming.
Edward T. Howard of Scottsdale, Ariz., a retiree since 2003 who worked for the company for 38 years, said during a hearing that he didn’t understand how Penney wasn’t able to pay. He said he turned down higher-paying offers from other retailers, including Walmart, over the years because he wanted to keep his retirement benefits, which he now claims are worth $2.5 million.
“No one likes the ultimate resolution of the J.C. Penney case, least of all me,” Jones told Howard at a hearing last August. “We did the best we could with what we had. I’m not insensitive to the fact that you gave a better part of your life to an enterprise that you had faith in and they’re not here at the end to take care of you.”
Related:J.C. Penney still doesn’t have a headquarters, but it’s making do at the mall
Many large companies offer executives and higher-paid staff these supplemental retirement plans, said Brandon McCormick, a consultant with Qualified Plan Advisors. Now he’s hearing more from small and midsize companies.
“It’s a growing trend in this labor market and has to do with recruiting and retention,” McCormick said. These plans allow higher-paid people to defer more of their income to their retirement years. This year the maximum individual contribution allowed by the IRS into a 401(k) is $20,500.
The top hat plans allow deferred income to grow tax-free, but the funds are not in a separate account accessible by the employee like with a 401(k) plan.
“At the end of the day, these funds are considered property of the employer,” McCormick said.
Twitter: @MariaHalkias
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Maria Halkias
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