When Keith Lovell left Sears Canada Inc. in 1998 after 30 years with the retailer, he knew his retirement years would not be easy.

Money was tight in the Lovell household. As a food services supervisor and, later, a sales manager in Fredericton, he had always earned a relatively modest salary. His wife, Beverly, suffered from fibromyalgia and depression and required medications to help battle her ailments.

At the very least, the couple had a nest egg they believed they could count on. For decades, Mr. Lovell had paid into a mandatory company pension plan and – crucially – was entitled to health benefits in retirement. The Sears pension and benefits package was the core of their financial plan. He had no reason to think his employer would not follow through on its end of the deal.

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Since the retailer's stunning collapse into bankruptcy this year, however, Mr. Lovell's life has been turned on its head.

By October, Sears had stopped paying benefits to him and other retirees, including prescription, dental and life insurance coverage for him and his wife. And because the company had left its defined-benefit pension underfunded by $266.8-million upon windup, Mr. Lovell could face a reduction of 20 per cent or so in his $585 monthly pension – once a raft of legal issues are resolved about who gets the money from the company's liquidation.

What infuriates Mr. Lovell and other retirees is that over nine of the past 13 years, Sears Canada's board of directors approved paying shareholders billions of dollars in special dividends from the proceeds of asset sales – even while the retailer struggled and, for many of those years, the pension plan remained underfunded.

"I think it's disgusting," said Mr. Lovell, 74, who lives with his wife and mother-in-law just outside of Fredericton. "For me, it's going to be tight. We get the bills paid – and that's pretty well it."

He's not alone feeling the squeeze among the company's 18,000 retirees and 16,000 employees, who by early next year will all be laid off without severance when the retailer closes for good.

They're angry that Sears was run down to the point that, by early this year, it was rapidly burning through cash and was forced to borrow $300-million under a new strategy and leader, who had been a close associate of Edward Lampert, the founder and chief executive officer of the U.S. hedge fund that was Sears Canada's biggest shareholder. Mr. Lampert is also CEO and controlling shareholder of Sears Holdings Corp. of Hoffman Estates, Ill., which controlled Sears Canada until 2014.

In a campaign that began after Mr. Lampert took control, Sears Canada sold off valuable assets such as its credit card division and prime store leases, raising almost $3.8-billion. Between 2005 and 2013, it returned almost $3.5-billion to shareholders through special dividends and share buybacks, according to court documents. Entities controlled by Mr. Lampert were significant beneficiaries of those payouts.

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Retirees such as Mr. Lovell see a direct link between the long-term sell-off of the company's best assets and its failure to survive. And many others believe the Sears example exposes, once again, big gaps in the regulation of pension funds in Canada. How, they ask, can a company sell assets worth billions of dollars yet still not be able to meet promises to former employees about pensions and medical costs?

"It is very sad and unfortunate that the Sears board didn't raise the types of questions that the employees are now raising," said Richard Leblanc, a York University law professor who specializes in corporate-governance issues. "The board potentially breached its fiduciary duty because it gave primacy to shareholders."

Edward Lampert, left, is the founder and CEO of the U.S. hedge fund that was Sears Canada's biggest shareholder. He is also CEO and controlling shareholder of Sears Holdings Corp. GREGORY BULL/AP

The situation is especially tough for retirees who had banked on their Sears pensions because many of them forfeited opportunities to contribute to other retirement savings plans.


"People have certain expectations. They live their lifestyle based on those expectations," said Keith Ambachtsheer, director emeritus of the International Centre for Pension Management at the University of Toronto's Rotman School of Management. "And, boom, the world changes."

Mr. Lampert says public companies typically distribute cash to shareholders through dividends and share repurchases, "especially when there is cash available significantly in excess of the company's operating needs."

In October, he told The Globe and Mail he had not supported Sears Canada's most recent strategy and had raised concerns, particularly about the "risky and unwise" borrow