This past week, there was another in a continuing series of articles by a major publication that selectively uses certain facts (such as our 2014 pension plan return), ignores other facts (such as our asset allocation disclosures in our 10k) and adds speculation to the mix to find a negative interpretation for its conclusion. In this case, the article takes the fact that the SHC pension plan returned 1.5% in 2014 and speculates that it must be because of some sort of misplaced bet, such as exposure to oil or other commodity prices. This is false.
In fact, a review of our pension allocation over the past several years makes it clear that the primary source of our performance is that we have taken a much more conservative approach than many other pension plans. Two-thirds of our pension plan is invested in fixed income securities, with an average life of less than five years. We have chosen this allocation because we believe that our primary responsibility is to meet the plan’s obligations and not to gamble with our pensioners’ money.
Certainly, given the performance of equities over the past several years, any portfolio with a disproportionate exposure to equities or to longer term bonds, including many pension plans, would have had higher returns than our plan. That’s ok with us. Because we have been making such significant contributions to our plan annually, we want to minimize the risk of having to do it again, should equity markets falter or long term interest rates rise.
As we continue to contribute to our plan, bringing it to being fully funded over time, expect us to continue with this conservative posture. We will leave the comparative performance game to others.
Robert Schriesheim is EVP, Chief Financial Officer for Sears Holdings.