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J.C. Penney’s new owners won’t assume its pension plan and other retiree benefits

Mall owners Simon and Brookfield will turn over Penney’s fully funded defined pension plan to the PBGC, while other retiree benefits will end.

J.C. Penney filed drafts of its sale agreements Tuesday, saying it had made significant progress toward its planned exit from Chapter 11 bankruptcy in late November.

The Plano-based company also disclosed for the first time that the new owners of the 118-year-old department store chain will turn over Penney’s defined benefit pension plan to the federal program that insures it. Other retiree medical and life insurance benefits were also rejected under the sale agreement.

The move affects more than 52,000 current and future retirees who are vested in the plan.

At the end of last year, the plan had $3.467 billion in assets, and its accumulated benefit obligation was $3.2 billion. Penney’s defined benefit plan is fully funded and is insured by the Pension Benefit Guaranty Corp., which will assume the plan’s assets and the responsibility for paying benefits to retirees.

The PBGC has caps on monthly pension payouts, but it’s not clear based on various formulas how the Penney monthly pension will be affected. Some formerly highly paid executives could see a reduction in their monthly pension checks. The PBGC said in an emailed response Wednesday that it had no comment and noted that the Penney pension plan is ongoing.

The plan rejection was not a huge surprise, but it’s one more area of concern for Penney retirees and employees. Penney had lucrative retirement benefits, including supplemental plans that aren’t insured by the PBGC. Current and former employees have filed claims with the bankruptcy court over those uninsured retirement funds.

The Penney operating company is being sold to Simon Property Group and Brookfield Asset Management for cash and the assumption of debt.

Separately, 160 stores and six distribution centers that Penney owns are going to its secured lenders led by H/2 Capital. Another group of debt-holders led by Aurelius Capital Management also may be making a bid for those real estate assets.

Penney had said it would file its disclosure statement and plan of reorganization on Monday. Instead its lawyers submitted drafts. “Most business issues have been resolved,” said Penney’s lawyer Josh Sussberg of Kirkland & Ellis, but the master lease agreement that’s part of the real estate sale is still being negotiated.

Penney will lease back the 160 stores and six distribution centers in what the U.S. Bankruptcy Judge David Jones referred to as “one of the longest, most complex lease agreements known to man.”

The court has scheduled a confirmation hearing for two days before Thanksgiving on Nov. 24, with objections due to be filed by Nov. 17.

Updated at 8:40 a.m. on Wednesday with a response from the PBGC.

Twitter: @MariaHalkias

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Maria Halkias, Staff writer. Maria Halkias has covered the retail scene for The Dallas Morning News since 1993.

mhalkias@dallasnews.com /maria.halkias @MariaHalkias Instagram Iconmariahalkias LinkedIn Iconhttps://www.linkedin.com/in/MariaHalkias
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