While filing the largest retail bankruptcy case ever, Kmart assured employees that its pension and savings plans are still intact, adding that its 401(k) participants are not overloaded in company stock.
The company included the following statement in its court documents:
“The Company’s pension plan and savings plans are maintained independently of the Company and are protected under federal law. The Company will continue to administer the plans as usual. Other retiree benefits are also expected to continue without disruption.
“The Company also said that approximately 3.5% of its total 401(k) savings plan assets consist of Kmart shares purchased by its employees and approximately 10.5% of the assets consist of shares provided by the Company to match employee investments. Total Kmart share holdings in its 401(k) savings plan represent about 6% of Kmart’s total outstanding common shares.”
One of the many allegations now being leveled at Enron is that 401(k) participants were encouraged to buy Enron stock even when the company began its financial self-destruction.
Enron employees, with all or much of their lifesavings
invested in Enron stock, claimed they were then kept from
selling the shares even when their value started
Retail observers, who had expected bankruptcy filing for
some time, said the company had a dismal holiday season
last year and that competition from fellow discounters
Wal-Mart and Target Corp. ate up Kmart’s cash reserve,
according to a Reuters report.
Kmart said its decision to seek bankruptcy protection was based on:
- a rapid decline in its liquidity,
- the evaporation of the surety bond market (surety bonds are insurance policies that pay out when a company fails to meet a financial obligation), and
- an erosion of supplier confidence.
Kmart said its 2,114 stores remain open for now, but it will review their future by the end of April. Wall Street analysts have said Kmart needs to close around 300 to 400 underperforming locations.