New Update: Healthcare Costs Increasing by Over 60% in Some States. Will you be impacted?

Understanding Rule 72(t) for Sears Holdings Employees

Healthcare Provider Update: Healthcare Provider for Sears Holdings Sears Holdings typically provides healthcare benefits to its employees through various insurance plans, often with national insurers such as Aetna, UnitedHealthcare, or Anthem Blue Cross Blue Shield being among the health carriers they have partnered with. The specific providers can vary by location and employee selection during open enrollment periods. Potential Healthcare Cost Increases in 2026 As we progress into 2026, the healthcare landscape is expected to face significant challenges, particularly for employees of Sears Holdings. Forecasts indicate steep premium hikes, with some states imposing increases of over 60%, largely influenced by rising medical costs and the potential expiration of enhanced ACA premium subsidies. The Kaiser Family Foundation highlights that without congressional intervention, millions of marketplace enrollees could see their out-of-pocket costs surge by more than 75%. This convergence of factors threatens to impose a substantial financial burden on both individuals and employers, necessitating proactive strategies to mitigate rising expenses. Click here to learn more

'Sears Holdings employees considering a 72(t) strategy should take time to understand how long-term withdrawal commitments fit into their broader retirement goals,' — Wesley Boudreaux, a representative of The Retirement Group, a division of Wealth Enhancement.

'Sears Holdings employees weighing a 72(t) withdrawal schedule should carefully assess how a long-term income commitment fits into their overall retirement strategy before getting started,' — Patrick Ray, a representative of The Retirement Group, a division of Wealth Enhancement.

In this article, we will discuss:

How Rule 72(t) works for early withdrawals.
The IRS-approved methods used to calculate substantially equal periodic payments (SEPPs).
Key considerations, benefits, and limitations of using a SEPP plan.

Early Withdrawals With Substantially Equal Periodic Payments (SEPPs)

Sears Holdings employees preparing for retirement may benefit from understanding IRS Rule 72(t). This rule allows individuals to access retirement accounts before age 59½ without the standard 10% early withdrawal penalty. This exemption applies when withdrawals follow the Substantially Equal Periodic Payments (SEPP) structure outlined in IRS regulations. These payments must continue for at least five years or until the account holder reaches age 59½, whichever occurs later.

The IRS typically imposes a “recapture” of the 10% penalty on all previous SEPP distributions—along with interest—if a plan is stopped or modified too early. Adjustments can only be made under limited circumstances, such as death, disability, qualified public safety distributions, full account depletion, or a one-time permitted calculation change. ¹

The major benefits and limitations of Rule 72(t), as well as the IRS-approved calculation methods, are summarized below for Sears Holdings employees.

What Is Rule 72(t)?

Under Rule 72(t), individuals who withdraw funds from IRAs or employer-sponsored retirement plans such as 401(k)s before age 59½ through a SEPP schedule can bypass the 10% early withdrawal penalty. Even though the penalty is waived, SEPP withdrawals are still treated as taxable ordinary income.

Each SEPP plan must apply to a single retirement account; anyone wanting to withdraw from multiple accounts must establish a separate SEPP plan for each one.

How SEPP Plans Work

Before a SEPP plan is initiated, you must select one of three IRS-approved methods to calculate the annual withdrawal amount:

1. Required Minimum Distribution (RMD) Method

Annual payments change based on the account balance and IRS life expectancy factors. Using this method generally results in lower withdrawals than the other methods.
2. Fixed Amortization Method

Annual payments remain the same each year and are calculated using an IRS-approved interest rate, the account balance, and IRS life expectancy formulas.

3. Fixed Annuitization Method

Annual payments remain consistent throughout the SEPP period and are calculated using an IRS-approved interest rate along with an annuity factor from IRS mortality tables.
All three methods rely on IRS life expectancy or mortality tables, with the choice determined by whether the calculation uses a single life or joint lifetimes.

The IRS may retroactively impose the 10% penalty if a SEPP schedule is altered before the required commitment is fulfilled.

Benefits of Using the 72(t)/SEPP Rule

10% Early Withdrawal Penalty Is Eliminated

A SEPP schedule removes the 10% early withdrawal penalty that typically applies. For example, bypassing the penalty on a $30,000 annual withdrawal may prevent a $3,000 tax cost.

Creates a Consistent Income Stream

SEPP withdrawals follow a structured pattern, offering a stable source of income before traditional retirement ages.

Flexibility in Calculation Method Selection

Individuals can choose among IRS-approved methods to align withdrawal amounts with their goals.

Drawbacks of Using the 72(t)/SEPP Rule

Reduces Future Retirement Savings

Withdrawing funds early means less money remains invested for later years.

The SEPP Schedule Is Difficult to Change

Except for rare exceptions, altering or stopping SEPP payments before the required period results in penalties and retroactive fees.

No Additional Withdrawals Allowed

Any withdrawal beyond the scheduled SEPP amount may trigger the 10% penalty.

Other Penalty-Free Withdrawal Alternatives

Sears Holdings employees may want to review these alternatives before committing to a SEPP plan:

- Certain IRA withdrawals related to medical expenses, education expenses, disability, or health insurance premiums while still working
- 401(k) loans, depending on vested balances and loan limits
- The IRS Rule of 55, which allows penalty-free 401(k) withdrawals for those who leave an employer in or after the year they turn 55.

Each option has distinct rules, so it is important to compare them before choosing the approach that works best for you.

Who Might Consider a 72(t)/SEPP Plan?

A SEPP plan may appeal to individuals—including Sears Holdings employees—who:

- Plan to retire early
- Need income before pensions or Social Security begin
- Have sufficient retirement savings
- Face financial challenges, such as medical needs or major expenses

However, because SEPP plans are rigid and long-lasting, they require careful planning.

How The Retirement Group Can Help

Navigating a SEPP plan can be complicated, and errors can create costly IRS penalties. The Retirement Group can help you evaluate whether a 72(t)/SEPP plan aligns with your retirement goals and guide you through the process.

If you have questions about early retirement planning or evaluating SEPP options, you can contact The Retirement Group at (800) 900-5867 for assistance.

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Sources:

1. Internal Revenue Service. Substantially equal periodic payments . 26 Aug. 2025.

2. Kagan, Julia. “Understanding the 72(t) Rule: Penalty-Free IRA Withdrawals Explained.” Investopedia , 20 Sept. 2025, www.investopedia.com/terms/r/rule72t.asp .

3. “What Is 72(t) Rule? How Does SEPP Work?” Fidelity Viewpoints , 6 Oct. 2025, www.fidelity.com/learning-center/personal-finance/72t-rule .

4. Schroeder, Jacob. “Retire Before 59.5: The IRS Rule to Unlock Your IRA or 401(k) Cash Penalty-Free.” Kiplinger , 15 Oct. 2025, www.kiplinger.com/retirement/how-sepp-72-t-can-help-you-retire-early-and-dodge-penalties .

5. Adams, Hayden. “When Can You Withdraw? 401(k)s and the Rule of 55.” Charles Schwab , 1 Apr. 2025, www.schwab.com/learn/story/retiring-early-5-key-points-about-rule-55 .

How does the Sears Holdings Pension Plan differentiate between normal retirement, early retirement, and late retirement options for Kmart participants? In what ways do these options influence the retirement planning process for employees of Sears Holdings, and what specific considerations should Kmart employees be aware of when choosing one of these retirement paths, particularly in relation to their vested status?

Differentiation of Retirement Options: The Sears Holdings Pension Plan offers distinct options for normal, early, and late retirement. Normal retirement is available at age 65 or after five years of plan participation, whichever is later. Early retirement can be taken from age 55 but before 65, provided the employee is vested, with benefits subject to actuarial reduction unless certain conditions are met (like having at least 90 points, which is a sum of age and years of credited service). Late retirement pertains to any retirement after the normal retirement age, with pensions recalculated to reflect the delay in benefit commencement.

Considering the frozen status of the Sears Holdings Pension Plan, how does this impact the benefits eligibility for Kmart employees, and what implications does it have for their retirement savings strategies? In what ways should current employees factor in this frozen status when evaluating their overall retirement readiness and potential alternatives outside of the company plan?

Impact of Frozen Status: The freezing of the Sears Holdings Pension Plan on January 31, 1996, means that there have been no new accruals of benefits or participants since that date. For Kmart employees, this impacts their benefits eligibility by capping the pension benefits at levels earned up to the freeze date. Employees need to consider this stagnation in benefits when planning for retirement, potentially seeking additional retirement savings avenues to bridge any shortfall.

What are the essential calculations involved in determining the retirement benefits under the Sears Holdings Pension Plan for Kmart employees? Specifically, how do the Career Average Pay and Final Average Pay formulas come into play, and what factors should employees consider when estimating their future retirement payouts?

Essential Calculations for Retirement Benefits: Pension benefits for Kmart employees under the Sears Holdings Pension Plan are calculated using either the Career Average Pay or the Final Average Pay formulas. These calculations take into account an employee's years of credited service and compensation up to the freeze date. Factors like estimated Social Security benefits and specific formulas (such as a deduction based on Social Security benefits under the Final Average Pay formula) play crucial roles in determining the final pension payout.

How can Sears Holdings employees best navigate the process of applying for benefits under the Pension Plan? What specific steps should participants take to ensure their applications are processed correctly, and what important deadlines should they be aware of to avoid any negative consequences on their retirement benefits?

Navigating the Benefits Application Process: To apply for pension benefits, employees must submit a formal application, ideally 30 to 90 days before the intended commencement date. It is crucial to ensure all personal information, including marital status and spouse details, is up-to-date to avoid delays or inaccuracies in benefit processing. Missing application deadlines can lead to postponed benefit payments or unwanted default options.

In what situations can Kmart employees expect to receive a Deferred Vested Pension, and how is the calculation for this pension affected by their previous employment and vesting service? Employees should be aware of the important factors influencing their eligibility and the steps necessary to maintain their retirement benefits after leaving the company.

Eligibility and Calculation for Deferred Vested Pension: A Deferred Vested Pension is available to employees who leave the company after becoming vested but prior to qualifying for retirement. The calculation mirrors that of a normal retirement pension, with possible early commencement reductions. Understanding the timing of benefit commencement and the potential reductions for early start is vital for planning.

How does the Sears Holdings Pension Plan address tax considerations for employees receiving both monthly payments and lump sum payments upon retirement? What tax implications should Kmart participants be aware of, particularly in relation to IRS rules for distributions and potential penalties for early withdrawal?

Tax Implications of Pension Receipt: Pension payments, whether monthly or lump sum, are subject to federal taxes. Monthly benefits are taxed as ordinary income, while lump sums might be eligible for special tax treatments or rollover options to defer taxes. It’s important for Kmart employees to consider these implications and possibly consult with a tax advisor to optimize tax liability.

What are the rights and protections afforded to Kmart participants under the Employee Retirement Income Security Act (ERISA) as they navigate their retirement benefits with the Sears Holdings Pension Plan? How can employees leverage these rights to ensure they are receiving all the benefits to which they are entitled?

ERISA Rights and Protections: Under ERISA, Kmart employees are entitled to certain rights including the ability to appeal denied benefits, access to plan information, and assurances of fair and equitable treatment of their benefits. Leveraging these protections ensures that employees receive all due benefits.

What steps should Kmart employees take to update their personal information to ensure they continue receiving their benefits without interruption, especially in the context of missing participants or uncashed checks? What resources and contacts at Sears Holdings are available to assist with these updates?

Updating Personal Information: Maintaining accurate personal information with the pension plan is crucial for uninterrupted benefit payments. Employees should promptly update changes such as address, marital status, or beneficiaries to prevent issues with benefit distributions or lost checks.

How does the process of transferring between affiliated employers impact pension benefits for Kmart employees under the Sears Holdings Pension Plan? What considerations should be taken into account concerning Credited Service and Vesting Service during such transfers, and how can employees ensure they do not lose any entitled benefits?

Impact of Transfers Between Affiliated Employers: Transferring between Sears Holdings’ affiliated employers can affect pension benefits differently depending on whether the employer participates in the pension plan. It's essential to understand how such transfers impact credited and vesting service accruals.

For Kmart employees seeking more information about their benefits under the Sears Holdings Pension Plan, what is the best way to contact company representatives? How can they effectively communicate their questions or concerns to ensure they receive accurate and timely information regarding their retirement benefits?

Contacting Plan Representatives: Kmart employees seeking clarity on their pension benefits should contact the Sears Holdings Pension Service Center. Effective communication, including prepared questions and necessary documentation, will aid in obtaining accurate and comprehensive information.

With the current political climate we are in it is important to keep up with current news and remain knowledgeable about your benefits.

Sears Holdings Corporation's pension plans were taken over by the Pension Benefit Guaranty Corporation (PBGC) following the company's bankruptcy. The two defined benefit pension plans have been frozen since 2005, meaning no new benefit accruals are added. The plans are underfunded by approximately $1.4 billion, with PBGC assuming responsibility to ensure pension payments continue. These plans cover about 90,000 participants who worked for Sears, Roebuck and Co., and Kmart Corporation. Despite the underfunding, PBGC is expected to cover the vast majority of pension benefits owed under these plans. Participants can manage their benefits and verify information through PBGC's online platform or service center.

Bankruptcy and Store Closures: Sears Holdings emerged from bankruptcy with significant store closures, reducing from nearly 700 stores to less than 25. The company has been liquidating its remaining assets and recently announced more store closures in 2024. The focus is on resolving bankruptcy-related issues and managing the liquidation process effectively (Sources: The Layoff, Yahoo Finance).

Sears Holdings offered both RSUs and stock options before its bankruptcy. RSUs vested over time, providing shares, while stock options allowed employees to buy shares at a fixed price.

Sears Holdings, now part of Transformco, has faced numerous challenges in recent years, impacting its ability to provide comprehensive employee healthcare benefits. The strategic transformations initiated since 2017 aimed to improve operational performance and liquidity, which included measures such as obtaining additional loan proceeds and real estate sales. However, the company's financial struggles and store closures have also led to significant changes in employee benefits, including healthcare. As part of its efforts to stabilize and restructure, Sears has focused on reducing outstanding debt and pension obligations, contributing almost $4 billion to its pension plan since 2005 due to prolonged low interest rates. In 2023, Transformco continued to navigate its financial challenges, which have influenced its healthcare benefits offerings. The company has aimed to maintain basic healthcare coverage for its employees despite ongoing restructuring efforts. This includes providing access to medical, dental, and vision plans, although the specifics of these benefits and any enhancements over the past years have been less prominently highlighted compared to the broader financial strategies and operational changes. The focus on financial stability and cost reduction remains critical for Transformco as it seeks to ensure the viability of its employee benefits programs amid economic uncertainties.

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For more information you can reach the plan administrator for Sears Holdings at 3333 beverly road Hoffman Estates, IL 60179; or by calling them at 1-800-697-3277.

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