SHLD » Topics » Pension Benefits

This excerpt taken from the SHLD DEF 14A filed Apr 4, 2007.

Pension Benefits

As discussed under “Retirement Plans” in the Compensation Discussion and Analysis beginning on page 12 of this proxy statement, future benefit accruals for both the Sears and Kmart Pension Plans have been eliminated. Details regarding both the Sears and Kmart Pension Plans follow below.

Sears Pension Plans

 

   

The accrual of benefits under Sears’ pension plans, which include one qualified pension plan (“Sears Pension Plan”) and two non-qualified plans, was eliminated effective December 31, 2005. Therefore, service after December 31, 2005 is not recognized for benefit accumulation purposes, but is recognized for vesting and early retirement subsidy purposes.

 

   

Through December 31, 1999, annual retirement benefits under the Sears pension plans were based upon credited years of service and the average annual cash compensation of the associate’s highest five successive calendar years of earnings out of the ten years immediately preceding termination of employment (“final average annual compensation”). Benefits earned through December 31, 1988 are reduced by a portion of the participant’s estimated social security benefits.

 

   

Effective January 1, 2000 through December 31, 2005, retirement benefits under the Sears pension plans were based on the individual’s cash compensation each year instead of his or her final average annual compensation. “Cash compensation” for pension plan purposes generally consists of salary and annual bonus.

 

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Kmart Pension Plan

 

   

The accrual of benefits under Kmart’s qualified pension plan (“Kmart Pension Plan”) was eliminated as of January 31, 1996. Therefore, service after January 31, 1996 is not recognized for benefit accumulation purposes, but is recognized for vesting and early retirement subsidy purposes.

 

   

Annual retirements benefits were based on the “final average compensation formula.” The formula was 1.50% of the average of the officer’s best five compensation years prior to January 31, 1996 multiplied by years of service after age 21 and prior to January 31, 1996 up to 35 years minus 2% of the applicable Social Security benefit for each year of services up to 30 years at age 65.

The table below shows information with respect to each plan that provides for payments or other benefits at, following, or in connection with retirement of the named executive officers eligible to receive benefits. The years of credited service under the pension plans are as of February 3, 2007, rounded to the nearest whole number. The present value of accumulated benefit uses mortality and interest rate assumptions consistent with those used in the Company’s financial statements. See footnote (b) for assumptions used for the present value of accumulated benefit calculation. The only named executive officers eligible for pension benefits are Ms. Austin and Mr. Lacy. Messrs. Lewis, Monaghan, Johnson, Crowley and Ms. McGuire are not eligible to receive pension benefits.

 

Name

   Plan Name   

Number
of Years
Credited
Service

(a)

  

Present
Value of
Accumulated
Benefit

(b)

  

Payments
During Last
Fiscal Year

(c)

Karen A. Austin

   Kmart Pension Plan    11    $ 74,939    $ 0

Alan J. Lacy

   Sears pension plans    10    $ 376,869    $ 1,037,251

(a) The number of years of credited serviced is the number of years in the plan from the first anniversary of the participant’s hire date to the date his or her benefits ceased to accrue.

 

(b) The amounts represent the present value of accumulated benefit using the Sears Holdings’ pension measurement date of December 31, 2006. The following assumptions were used in the present value calculation.

 

   

Election and commencement of benefits at earliest possible retirement age without any benefit reduction due to age. For Sears Pension Plan participants this means age 65, and for Kmart Pension Plan participants this means the 90 points date. Under the terms of the Kmart Pension Plan, points equal the participant’s age plus service with full pension benefit eligibility attained after earning 90 points.

 

   

Form of payment under the Sears Pension Plan is 90% of plan participants electing lump sums, 10% annuities.

 

   

Form of payment under the Kmart Pension Plan is 100% of participants electing annuities.

 

   

Sears pension plans Mortality for Annuity Benefits: RP 2000 table projected 10 years for males and females.

 

   

Sears pension plans Mortality for Lump Sum Benefits: RR 2001-62 table required by IRS.

 

   

Kmart Pension Plan Mortality for Annuity Benefits: RP 2000 table projected 10 years for males and females, male ages set forward three years, female ages set forward two years.

 

   

For the Sears pension plans, an interest rate of 5.15% for qualified lump sum payments and an interest rate of 60% of the qualified plan basis for non-qualified lump sum payments.

 

   

Discount rate of 5.9% as of December 31, 2006.

 

   

No pre-retirement decrements.

 

(c) In accordance with his termination, Mr. Lacy was paid a lump sum of $885,944 from the non-qualified plan on August 21, 2006. Also, in accordance with 409A of the Internal Revenue Code, an additional lump sum benefit from the non-qualified plan of $151,307 was delayed six months and paid out on January, 29 2007. While Mr. Lacy’s second payment occurred after the pension measurement date it is included in this column as it occurred during the 2006 fiscal year.
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