Friday, July 31, 2009

Petition to Canadian Parliament for pensioners

The Canadian bankruptcy system treats retirees of bankrupt companies as unsecured creditors with no priority. This means that under funded pension plans take a back seat to banks and suppliers and other secured creditors. Pensioners stand to lose a lot of their defined benefits if the bankrupt company liquidates. The return may be zero or cents on the dollar.

The Canadian government has done nothing to protect retirees from this dire situation. Unlike the USA and the UK, where government agencies step in to protect retiree's rights, Canada lets its pensioners fall into poverty.

The Nortel Retiree Protection Committee has initiated a petition to fix the process in Canada so that pension trust funds take priority over other creditors. This first step will help many thousands of people who today face the prospects of losing 40% or more of their pension income.

I urge all my readers to download the petition, sign it, and send it in to the NRPC.

The Canadian treatment of pensioners is deplorable. Taking this action may help bring the Canadian government to its senses and approve a bill to correct this shameful situation.

The petition may be found at this web site:

Thursday, July 30, 2009

Pay Check Surprise for Nortel Canada Pensioners

After Nortel declared bankruptcy and entered chapter 11 protection in the US, and CCAA in Canada, retirees in the traditional defined pension plan continued to receive their pension checks. In Canada the same applied to retirees who were part of the registered pension plan. At first there was a lot of trepidation as pensioners considered the possible loss of pension, and in fact many who had company paid non-qualified pensions, or retirement allowances were impacted when these payments stopped without any notice.

As time wore on the pension checks kept coming and a false sense of security was built up in the minds of many who were not paying close attention to the situation. For those of us who knew that the trust funds were in a disgraceful state of underfunding, it was only a matter of time before those pensions would be impacted also.

In July the PBGC took action and went to court to take over the Nortel US defined pension plan trust fund. In the UK a similar action occurred with the PPF taking control. In Canada however, there is no equivalent of the PBGC or the PPF. What a shameful reflection on the Canadian government that in spite of taxing people to the hilt and declaring themselves as a socially conscious country, there is no safety net for pensioners if their company declares bankruptcy and folds. To add to that appalling Canadian situation, pension trust funds do not have priority in the courts and are treated as unsecured creditors like everyone else.

In the mean time the company has kept pensioners out of the loop. There has been no explanation or communications from Nortel directly to their retirees until this month when they slipped a notice into everyone’s pension check which says the following.

“Nortel is under court protection from its creditors. Former employees are represented by court-appointed counsel, Koskie Minsky LLP, in respect of claims resulting from Nortel’s insolvency. Your pension plan is underfunded, which may result in claim against Nortel. You may contact KM at NOTEL@KMLAW.CA or 1.866.777.6344. Please visit WWW.NORTELPENSIONERS.CA or WWW.KMLAW.CA “

Note that the spelling mistake is theirs, not mine. Perhaps this is a Freudian slip and a message to us all that shortly there will be No Nortel.

In all the years I spent at Nortel, we took pride in keeping everyone informed. We had town halls, general information sessions, reviews, team meetings, parties, external functions, web sites, notices and all forms of media to make sure that employees, their families, shareholders, customers, suppliers and retirees were aware of what was happening. Those days are long gone, and the current management team has destroyed any vestige of that old Nortel. Shame on them, and shame on Canada for its neglect and disgraceful treatment of pensioners.

Wednesday, July 22, 2009

Pension Reform - Social Security

Companies in the USA have almost completely moved away from the traditional defined benefit plan, to schemes that require employees to contribute part of their salaries into a tax exempt fund. This tactic has reduced costs for companies and has essentially been a salary cut. Older workers who were part of the traditional plans received benefits as part of their remuneration package and it was built in to the company budgeting process. That way the workers did not have to worry about their retirement since the company would look after them. Additionally, with the establishment of the Pension Board Guaranty Corporation in 1974 the pensions were protected if the company went bankrupt.

This security blanket is quickly disappearing. Defined benefit plans will be completely replaced over the careers of the latest generation of workers. Then it will be up to the individual to make sure that they are adequately covered for retirement. This is not an easy task for anyone, and in fact since the effective salary has been reduced by eliminating those benefits, there is little extra income to build the retirement fund.

The events of 2008 and early 2009 have shown us that relying on the markets to build wealth can be extremely uncertain as millions of people lost heavily on their 401K plans and IRAs. To assume that individuals can manage these tricky investments properly to grow their retirement funds is risky. With the current state of the social security fund, it will fall on the taxpayer to support those who have inadequate funds to survive in retirement. It’s clear that there needs to be a rational debate on pension reform. What should we do as a caring nation to ensure that the elderly are adequately provided for in the autumn of their lives?

We can start by looking carefully at social security and how the money flows into and out of that fund. Today there is a cap applied so that extremely rich people end up paying a much smaller percentage that the ordinary worker, yet they are provided with the maximum pension when they reach retirement age. By removing that cap the funding issue for social security would disappear and the impact would hardly be felt by the super rich. It seems however that politics always gets in the way of solving problems in a straightforward manner, and there has been a campaign to discredit such a move by casting it as a tax increase that would impact jobs and the economy.

Personally I see it as a perk that rich people have had long enough, and I hope that the cap is removed so that at least one part of retirement security can be protected for future generations.

Tuesday, July 21, 2009

Pension Benefit Guaranty Corporation rules

The Pension Benefit Guaranty Corporation (PBGC) protects the retirement incomes of American workers in private-sector defined benefit pension plans. A defined benefit plan provides a specified monthly benefit at retirement, often based on a combination of salary and years of service.

PBGC is not funded by general tax revenues. PBGC collects insurance premiums from employers that sponsor insured pension plans, earns money from investments and receives funds from pension plans it takes over.

PBGC pays monthly retirement benefits, up to a guaranteed maximum.

The maximum pension benefit guaranteed by PBGC is set by law and adjusted yearly. For plans ended in 2009, workers who retire at age 65 can receive up to $4,500 a month ($54,000 a year). The guarantee is lower for those who retire early or when there is a benefit for a survivor. The guarantee is increased for those who retire after age 65.

PBGC is headed by a Director who reports to a Board of Directors consisting of the Secretaries of Labor, Commerce and Treasury, with the Secretary of Labor as Chair.

Available benefit choices .
• a straight-life annuity;
• 5-year, 10-year or 15-year certain-and-continuous annuity;
• joint-and-survivor annuity; joint-and-50% survivor "pop-up" annuity;
• automatic" form of benefit offered to you under your plan

You select the form of annuity you want at the time you file your application to begin receiving your pension benefits.

PBGC must receive your application no more than 90 days before the date you requested that your benefits begin.

To find out what your benefit amount would be under the optional forms of annuity call PBGC's Customer Service Center toll-free at 1-800-400-7242 and request a benefit application package.

PBGC will send you the application and the exact benefit calculations to show the amount of your benefit under all of your annuity form options. If you are married, the calculations will also show the amount of your spouse's benefit.
PBGC Guarantee

PBGC guarantees "basic benefits" earned before your plan’s termination date (or the date your employer’s bankruptcy proceeding began, if applicable), which include:
• Pension benefits at normal retirement age
• Most early retirement benefits
• Annuity benefits for survivors of plan participants
• Disability benefits (see exception below)

PBGC does not guarantee:
• Health and welfare benefits
• Vacation pay
• Severance benefits
• Lump-sum death benefits for a death that occurs after the date the plan ended
• Disability benefits for a disability that occurs after the plan’s termination date (or the date your employer’s bankruptcy proceeding began, if applicable)

Legal Limits on PBGC's guarantees
• Generally, PBGC does not guarantee any monthly pension amount that is greater than the monthly benefit your plan would have provided if you had retired at your normal retirement age.
• Higher limits may apply for people who met their plan’s requirements for a disability pension before the plan’s termination date.
• PBGC may not fully guarantee your benefits if your plan was created or amended to increase benefits within five years before its termination date.
• If the plan terminated while your employer was in a bankruptcy proceeding that began on or after September 16, 2006, guarantees are determined as of the date your employer’s bankruptcy proceeding began.

The following are PBGC Maximum Monthly Guarantees for 2009 (assuming participant and spouse are same age), for Life Annuity (L.A) and Joint and 50% Survivor (J&S)

At age 65 L.A. = $4,500.oo, and J&S = $4,050.00
At age 64 L.A. = $4,185.00, and J&S = $3,766.50
At age 63 L.A. = $3,870.00, and J&S = $3,483.00
At age 62 L.A. = $3,555.00, and J&S = $3,199.50
At age 61 L.A. = $3,240.00, and J&S = $2,916.00
At age 60 L.A. = $2,925.00, and J&S = $2,632.50
At age 59 L.A. = $2,745.00, and J&S = $2,470.50
At age 58 L.A. = $2,565.00, and J&S = $2,308.50
At age 57 L.A. = $2,385.00, and J&S = $2,146.50
At age 56 L.A. = $2,205.00, and J&S = $1,984.50
At age 55 L.A. = $2,025.00, and J&S = $1,822.50

All the above and further information can be obtained by clicking on the PBGC link on this page or entering into your browser.

Sunday, July 19, 2009

Pension Victims

People who are members of a defined benefit pension plan generally think that when they retire they will receive all the benefits promised them. As I found out when I retired some of those benefits are paid out of the company funds and as a result they are fully dependent on the company’s continuing health. When Nortel went into chapter 11 protection, I and many others lost a part of that promised benefit.

Many retirees will have to face the prospect of dealing with the bankruptcy court to claim lost benefits. This procedure is not simple, and the lack of communications from Nortel and the bankruptcy-solutions company supporting the court has not helped the situation. Many people are lost as to what to do.

Fortunately many retirees and ex-Nortel employees have set up informal and formal networks to ensure that everyone knows what is going on and are helping one another in terms of the process. Others however are unaware of the potential impact.

Particularly badly hit are the widows and widowers of retirees. Many have been out of touch with the company for a long time, with their only contact being their pension checks or the health care plan. Some are only finding out about the situation when their checks stop and others are unaware of the potential impacts on them. Coupled with that, the need to access a web site and search for information is not an easy task for many.

I raise this point because there may be people you know who need some assistance. I urge all of my readers to check up on your old friends and colleagues from Nortel to make sure they know what to do to protect their interests. Since I became involved in this I have received many emails and phone calls and I know that there are people out there who need your help. Let’s use the spirit of the old Nortel in helping our friends as they face the new age and new persona at Nortel.

Friday, July 17, 2009

Proof of Claim forms for Nortel US creditors

When Nortel entered Chapter 11 many of us became unsecured creditors. This happened when Nortel ceased to pay non-qualified pensions,and severance, and prevented access to deferred compensation, plus other categories.

In order to have our claims recognized and considered in the final court settlements it is essential that all creditors lodge their proof of claim with the company responsible for the court dockets:- Epiqsystems.

Over the last six months many people have completed proof of claim forms and submitted them to Epiqsystems. Many of us have been waiting for decisions to be made in terms of the method of calculation and also the reference bar code needed for the forms.

Nortel has petitioned the court to hear their case on August 4th regarding the deadline for submitting the proof of claims forms. If the court agrees with the proposed bar date of September 30th, Epiqsystems will start sending out forms with the official barcode on them to all creditors on their list.

I confirmed this information today by phoning Epiqsystems and they think it will be in the first or second week of August that they will send out the forms. This still gives us at least a month to complete the forms and send them back in. Check the EpiqSystem website at for the address to send the claims form.

In the meantime you need to get prepared to calculate your claim and gather up all the supporting documentation to go with it. The NRPC steering committee will be giving an update through the web site as soon as they hear from Segal as to how the claims will be calculated. Please check that site to look for updates and as soon as I hear I will publish it here also.

PBGC Takeover of Nortel Pension Plan. More-Info

The following provides more information on the takeover by PBGC of the Nortel Pension plan. It is the basic text of an email sent out today to Nortel US employees.

Earlier today, the Pension Benefit Guaranty Corporation (PBGC) made an announcement with respect to Nortel's U.S. Retirement Income Plan -- also known as the U.S. Defined Benefit Pension Plan. The PBCG will be assuming responsibility to administer and pay benefits under the plan in accordance with the plan documents and applicable law.

The PBGC, a federal agency, was created to protect the benefits of private sector employees participating in defined benefit pension plans. It’s not uncommon for the organization to assume responsibility for plans when companies are in Chapter 11 proceedings.

Although the action announced by the PBGC is technically referred to as a “termination,” it is important to note that when the PBGC terminates a pension plan and becomes its trustee, the PBGC takes over administration of the plan. As a result, Nortel will no longer be the administrator of the plan, and the plan will be considered “terminated,” although your benefits will not cease.
No action is required on the part of plan members. Your records will be transferred to the PBGC and the agency will take over administration of the plan, and the PBGC will communicate directly with plan members on how to get more information.
This announcement does not affect the Defined Contribution Plan (i.e. 401(k) plan), Retirement Income Plan Restoration Plan, Long-Term Investment Plan Restoration Plan and Supplementary Executive Retirement Plan. The pension plans for other countries including Canada are also not affected by this announcement.

I encourage you to listen to last week’s pension GIS for more information on Nortel’s US pension funds and the role of the PBGC. You can also click here for a Frequently Asked Questions document that provides more details on this matter, or you can visit the PBGC website for more information and their full contact details. They’re ready to take your calls and questions.

Frequently Asked Questions

-What is the PBGC and what is its role?
The Pension Benefit Guaranty Corporation (PBGC) is a federal agency created by the Employee Retirement Income Security Act of 1974 (ERISA) to protect the benefits of private sector. Employees participating in defined benefit pension plans. The PBGC ensures that participants in these pension plans will continue to receive their benefits up to a certain limit set by law. It is not unusual for the PBGC to take over a pension plan when the plan sponsor is engaged in a chapter 11 bankruptcy proceeding.

-Is the Nortel Networks Inc. defined benefit plan insured by the PBGC?

- What is the process used when the PBGC terminates a pension plan?
When the PBGC terminates a pension plan and becomes its trustee, the PBGC takes over administration of the plan. As a result, Nortel will no longer be the administrator of the plan, and the plan will be considered “terminated,” although your benefits will not cease.

- What happens if the PBGC take over as trustee of our plans?
When the PBGC takes over the plan, it is usually a smooth transition, with the PBGC continuing to administer the plan in accordance with the plan documents.
If you are already receiving your pension, your payments will continue without interruption but is considered an estimated amount. For some, however, it may initially be lower than the amount you are currently receiving. After PBGC completes their review, they will provide you with a true-up if the actual amount is greater than the estimate. Note the final amount will be limited by the guaranteed limit set by law.If you have not yet retired, the PBGC will pay your benefit when you become eligible and apply to the PBGC to begin payment.

- Will I lose my benefits if the PBGC takes over the plan?
No. As a general matter, the PBGC will continue to administer the plan in accordance with the plan document. You will be entitled to receive your benefits, up to the limit set by law.

-What do I need to do to ensure my pension is covered by the PBGC?
No action is required on the employee’s part. It is an automatic process. All plan members will be informed by the PBGC in a timely manner regarding how to contact the administrator to apply for benefits and other processes. If you have questions in the interim, please contact the PBGC at 1-800-400-7242.

-What benefits does the PBGC guarantee?
The PBGC guarantees “basic pension benefits” subject to the legal limit. “Basic pension benefits” include: pension benefits at normal retirement age, most early retirement benefits, disability benefits, and annuity benefits for survivors of plan participants. Exactly what pension benefits the PBGC pays depends on the provisions of the plan, the legal limits, the form of the benefit and your age when payments begin.

-What is the maximum amount that the PBGC can guarantee by law?
The maximum guaranteed benefit is set each year under the provisions of ERISA. For a plan terminated in 2009, the maximum guarantee is $54,000 per year for participants who begin receiving payments at age 65. The maximum guarantee is lower if you begin receiving payments before age 65 or if your pension includes benefits for a survivor or other beneficiary. Please visit the PBGC’s website at for more information on the level of insured benefits.

-What is the earliest age that I can begin receiving payments from the PBGC?
Plan member may begin receiving benefit payments at age 55.

-Do I have to leave Nortel in order to begin receiving a benefit payment from the PBGC?
Yes, benefit payments are made only after you cease to be employed by the company.

-Are both the Cash Balance Plan and the Pension Service Plan going to be administered by the PBGC?
Yes, the Cash Balance plan and the Pension Service Plan are both part of the Nortel Networks Retirement Income Plan and both are going to be administered by the PBGC.

-Does the PBGC pay survivor benefits?
Yes. The PBGC will pay benefits to your surviving beneficiary if you elect this option.

-Can I choose the form of my benefit from the PBGC?
Yes, if you begin receiving benefits after the plan has terminated and the PBGC begins administering the plan, you will have a choice in the form of your benefit.

-Can I receive my benefit from the PBGC in the form of a lump sum?
The PBGC pays benefits in monthly payments for life rather than in a lump sum, unless the total value of your benefit is $5,000 or less.

-Will the PBGC adjust my pension annually for inflation?
No. There is no cost of living adjustment under the law.

-Will the PBGC honor the 6% interest accrual on my pension benefit?
The 6% annual interest accrual is part of the plan document’s benefits formula for the plan, which is usually continued by the PBGC when they assume a plan. The PBGC would make the final decision on this.

-What will happen to retiree medical and life insurance?
Retiree medical benefits, life insurance and long-term care insurance benefits are provided under benefits plans that are separate from the pension plan. No decisions have been made with respect to the future of Nortel’s North American retiree medical benefits, life insurance and long term care insurance benefits. However, Nortel retains the right to amend or terminate such benefits at any time. Until any such decisions are made, benefits under those plans for retirees and beneficiaries in North America will continue.

PBGC takes over Nortel Defined Pension Plan

The PBGC announced today in a number of media sources that it will take over the Nortel Defined pension plan. Here is the notice as seen in the Atlanta Journal Constitution.

Attention All Participants, Retirees and Beneficiaries of:
Nortel Networks Retirement Plan

The Pension Benefit Guaranty Corporation (PBGC), a United States government agency, has determined under provisions of the Employee Retirement Income Security Act of 1974 (ERISA) that the above pension plan must terminate effective July 17,2009 and that the PBGC should become statutory trustee of the pension plan.

As of July 17,2009, participants cannot earn additional benefits under the plan. PBGC will seek to take over the plan assets and assume responsibility for paying benefits. In the interim, Nortel Networks Inc. remains responsible for payments of plan benefits.

PBGC will guarantee benefits, according to plan provisions, up to the maximum amounts allowed by ERISA. Current retirees will experience no interruption in benefit payments. As participants become eligible for retirement under the plan and complete the required forms, PBGC will begin to pay their pension benefits. PBGC currently pay benefits to around 640,000 individuals in 3,860 pension plans it has previously taken over. The maximum guarantee for workers in plans that terminate in 2009 is $4,500.00 a month (or $54,000.00 a year) for persons retiring at age 65. Maximum guarantees are adjusted for retirees at other ages or those who elect survivor benefits.

Press Release at

Thursday, July 16, 2009

Nortel US Bankruptcy. Proof of claims date hearing.

Nortel is petitioning the US bankruptcy court on August 4th to set September 30th 2009 as the deadline for filing proof of claims forms. See Docket #1084 at EPIQSYSTEMS at the following URL.

Filing a proof of claim is essential to make sure that you are recognized as a creditor. You can find the proof of claims form at the EPIQSYSTEMS website above.

The NRPC-US is working with Segal Company to help determine the value of claims. If you are not a paid up member of the NRPC-US and wish to join so that you can get assistance from them and from Segal please check where the pertinent information for joining the NRPC is contained.

Impacts on pension claims of bankrupt global corporations.

Nortel Networks was a huge global corporation when it went into bankruptcy protection in January 2009. That meant it had to declare bankruptcy in multiple countries under the rules of each country. Some countries work with others to coordinate the processes and in fact there is some recognition between the US and Canada of the court processes. This has implications for retirees since the assets of the company are spread around the globe.

Details on the assets were discussed at a webinar held recently for Canadian retirees and attended by more than a thousand pensioners in Canada and the US. A major point of the discussion was the erosion of cash in Canada as payments were made from the Canadian assets to cover the costs of the Bankruptcy proceedings and other costs that were global in nature.

The following data by region (obtained from the Webinar charts) shows that the available cash balance in Nortel Canada has fallen dramatically whilst the balances in the other regions have remained steady or grown.

Canada ---------January $260M,by June was $120M, drop of $120M.
US ---------------January $480M,by June was $750M,increase of $280M.
UK/EMEA -----January $620M,by June was $710M,increase of $100M
Asia ------------- January $360M,by June was $400M, increase of $20M
Latin America--January $40M,by June was $90M, increase of $50M

Canada's estate started the bankruptcy protection process on Jan. 14th with only US$260 million or 15% of the global available cash. And since then it has declined to less than 7% of the overall global balance.

As stated in the Webinar, it is up to each creditor group to identify and seek intervention from the court in their region on any transactions that they perceive to treat them unfairly and unreasonably not only within the context of the creditors in their own region, but also within the context of creditors in one region versus another.

The outlook is very bleak for getting full settlement of Nortel's Canadian pension, health and long term disability plan deficits and severance paid in the court room, since Nortel is expecting to liquidate and not be an ongoing concern. Under the Bankruptcy and Insolvency Act (BIA) pension, health and long term disability plan deficits and unpaid severance are treated the same as the unsecured debt holders and suppliers owed money.

As a result the Nortel Canadian Retirees Protection Committee, with the help of Diane A. Urquhart, an independent Financial Analyst has initiated a campaign to change the Canadian pension act. The intention is to make pensioners, ex-employees, and those on disability a priority set of creditors so that the trust funds and other funding mechanisms following liquidation will settle with them first before paying other creditors. You can find out more at: .

The representatives have also requested that the Canadian Federal Government use its authority to set conditions under the Investment Canada Act for a significant proportion of the proceeds from the foreign purchases of Nortel businesses to fund Nortel's Canadian legacy pension, health and long term disability plan deficits and severance.

Tuesday, July 14, 2009

Bankruptcy impact on disability payments.

When I worked at Nortel during their healthy years, I was pretty happy with the benefits package offered. It was very comforting to know that if you were sick you could go to the doctor and take a few days off to recover without losing income. Even if you became seriously ill and needed a lot of time to recover there was a long term disability benefit which provided income.

During my career at Nortel I heard of a number of people who fell ill or were injured so badly that they couldn’t return to work, but at least they were covered by the long term disability benefit and could survive without falling into poverty.

When Nortel declared chapter 11 and entered bankruptcy protection I was more concerned with continued pension payments and the loss of other pension or severance related income. However, at the recent webinar held by the Canadian NRPC group and hosted by Diane A. Urquhart, Independent Financial Analyst, Mississauga, Ontario, I was astounded to find out that the long term disability payments are in jeopardy. You can watch the video of this webinar at

The disability payments made by Nortel had been funnelled through Sunlife Insurance Company. However it was not an insurance policy. Nortel had self funded the plan and were simply using Sunlife as their agent for disability payments. Disabled former employees face income losses of up to 90%. It is shocking that Nortel self-funded its long term disability benefits rather than through an insurance company.

At this point the payments are being made since Nortel is still operating. If it sells off all its assets and liquidates, the trust fund is woefully underfunded and will not support continued payments. It was estimated by the Canadian NRPC that there is only enough money to fund about 10% of the promised payments. This is disgraceful! People on disability have no opportunity to go back to work and recoup their losses. Those receiving LTD will become unsecured creditors with no priority.

It would seem reasonable that a case could be made that the directors are liable for misrepresentation on the security of the long term disability income, and that they failed to ensure there were no omissions or misrepresentations in Nortel's and its Administrative Services Organization Sunlife's long term disability plan literature.

A group representing ex-Nortel employees on Long Term Disability exists in Canada. Sue Kennedy a representative of that group spoke at the Webinar on July 8th and may be contacted at

Monday, July 13, 2009

Excerpts from the NRPC-US update on 07-10-2009. Includes claims and medical info.

This post is for the benefit of all ex-Nortel employees and retirees and provides excerpts from information that has been sent out by the NRPC-US steering committee to the paying membership of the group. Anyone wishing to join the NRPC-US group and receive the information and support directly can find the pertinent information at

Chronology of events last 4 weeks.

June 19 Nortel announced that it has entered into an agreement with Nokia Siemens Networks to sell its wireless network infrastructure business assets for US $650 million. Nortel also announced that it was advancing in discussions with external parties to sell its other businesses.

June 26 certain creditors and suppliers of Nortel Networks filed a series of objections to the proposed sale of a business unit to Nokia Siemens Networks.

June 26 the U.S. Pension Benefit Guarantee Board objected to certain provisions of the proposed sale set forth by Nortel and asked the court that they be modified.

June 28 Koskie Minsky, the Canadian law firm appointed by the Canadian court to represent all current and former Canadian employees published a weekly news bulletin which may be found at

This bulletin is significant for U.S. pensioners because both the U.S. and the Canadian NRPC groups have retained Segal Co. to assist in calculating and filing claims with the court(s). Koskie Minsky has already received an initial set of Canadian claims information from Nortel and this newsletter contains a good description of how the claims process will proceed. In the U.S. we intend to follow the same or a similar process.

July 6 U.S. private equity firm MatlinPatterson Global Advisors confirmed that it plans to put forward a comprehensive proposal to reorganize the businesses of bankrupt Canadian telecom equipment maker Nortel Networks.

It stated that it “does not believe that the current proposed transaction with Nokia Siemens Networks maximizes value for Nortel stakeholders." and “MatlinPatterson believes Nortel is a solid company with a valuable brand, talented employees and innovative technologies. It is interested in retaining, for current investors, the inherent value of the company rather than merely accepting a 'fire sale' of its core asset followed by the wholesale liquidation of the remaining businesses". A rescue bid would require a debt-for-equity swap and would need to be put forward by July 24, the date set by the bankruptcy courts to consider the $650 million "stalking horse" bid by Nokia Siemens for most of Nortel's core and profitable wireless equipment operations.

July 3 Nortel announced that it was close to a deal to sell one of its key businesses to rival Avaya Inc. The enterprise Business unit was responsible for 20 per cent of Nortel's business last year. The sales would mean that over the course of a single week Nortel had agreed to sell off assets responsible for nearly half its revenue.

July 8 Koskie Minsky published another bulletin containing updates on the Canadian and U.S. court proceedings. (Also available at the site listed above)


No Bar Date (the date by which our claims must be filed) has been established. Current estimate is still late September. Should Nortel receive court approval to discontinue any employee benefits after the bar date the court would establish another later bar date for the filing of claims resulting from lost benefits. These claims will be more difficult to estimate and calculate than are the pension claims for the initial bar date. Fortunately Segal Co. is also willing and able to help us should this be necessary.

Medical Benefits

Questions continually arise regarding the outlook for our US medical benefits. Although there are no clear answers yet, the process to be followed is becoming clearer.

First, Nortel has an obligation to file a business plan with the court, which must then be approved by the court. Nortel has not done this. Only after the plan is filed and approved may Nortel petition the court to drop medical benefits on the basis that such costs are too burdensome for Nortel to sustain if it is to achieve its business plan.

Should this happen the court must then decide whether to allow Nortel to drop medical benefits after an employee notification period or whether Nortel must first enter into a negotiation with former employees (called a Section 1114 Process). Whether or not the Court will require a Section 1114 process is dependent on the wording of our various pension plans. No one has yet examined the wording regarding benefit cancellations in the various pension plans because copies of all of the plans have not yet been received by the court.

Should the court order a Section 1114 process Nortel would be required to negotiate with a committee of former employees. This negotiation may result in an agreement between Nortel and former employees to allow Nortel to alter reduce or discontinue benefits in exchange for something of value.

If a Section 1114 process occurs, Segal Co. has considerable expertise in advising employee committees on how to obtain the most value from the process. Segal’s fees for assisting us in the Section 1114 Process would be borne by Nortel. Segal has more experience working with former employee groups on Section 1114 Committees than any other firm in North America and has been successful at helping such groups to set up their own comprehensive and affordable health plans.

Another question which arises is about the likelihood of availability of COBRA should Nortel medical coverage end. Nortel is obliged to offer COBRA to all former employees as long as it has any current employees and continues to offer them medical benefits. While COBRA is more expensive than our existing medical coverage, it does provide insurance for an interim period while former employees explore other medical coverage options.

Friday, July 10, 2009

Retirees communications.

It seems like once you are retired you no longer exist in the eyes of your old company; out of sight-out of mind. After I retired I managed to keep up correspondence with some of my friends and colleagues at Nortel, but over time that diminished and settled down to a small number of people whom I was close to at work. Information from the company was generally one way. I received my pension check, albeit from Nortel’s outsourced administration arm, and I also received annual renewals of the medical plan and the company’s annual report. I wrote officially a few times to the company and received one response in the early years after I retired. Since then it has been a deafening silence.

I watched from afar as Nortel faltered in the early part of the new century, and although there were furious discussions internally I was not involved in any way. Nor were any of my fellow retirees. I thought that strange, after all when we worked at Nortel we were always having communications sessions. We were a communications company after all, and prided ourselves on the information flow up and down the ladder. Maybe it wasn’t flowing quite as well as we thought at the time.

I wrote to various presidents and CEOs offering to help, for free. I suggested that the retiree population would be only too glad to help where they could to reduce costs and bring the wisdom and experience of many years to help the company back onto its feet. No answer. No form letter. Nothing! What a shame. I was disappointed and dismayed. I know that many retirees would have volunteered to assist and take some of the load and cost of the shoulders of the company but it fell on deaf ears.

Since Nortel went into chapter 11 the level of communications inter-retiree has increased exponentially. There have always been some people who, like me, were worried about Nortel’s health and future, and we belonged to a group established on Yahoo: Once the bankruptcy was declared, people flocked to that group and out of it emerged the group in Canada that is representing the pensioners in their case against Nortel. The Nortel Retirees Benefits Protection Committee (NRPC) in Canada quickly gained membership and became a major force in protecting retiree’s rights in Canada. Their web site at provides a wealth of data and information. This group has filled in the huge void that existed in communications between ex-Nortel employees and retirees. Also by virtue of their efforts to engage legal representation using the firm of Koskie Minsky,, they have forced Nortel to start talking to the retirees and providing information.

In the US a similar committee was formed and also provided a central place that shared information with retirees and ex-employees: As discussed in earlier posts, the situation in the US is different to that in Canada and as a result the demand to obtain and use legal representation has not been as large. As more people realize the true impact bearing down on them, that may change.

During all this activity by the ex-employees and retirees, Nortel has avoided informing us about the situation and the possible impacts on us. There have been a variety of internal information sessions at which the senior management has attempted to soothe the inner turmoil and calm the waters. The story has altered as time moved along and more people were laid off. From exhortations to the remaining employees to work hard to help restructure the company, the message has moved to one of selling off the assets and liquidating. But none of this was communicated to retirees. It was only through the assistance of current employees who felt obligated to tell their friends outside that we found out what was being said.

The most recent events were two General Information Sessions held on July 6th 2009 to discuss Pensions. These events were made available to employees on a conference call, but no retirees were invited. Some people out side the company were able to dial in having obtained the access information from friends. I was given some feedback on the US session and I am including it here so that everyone can see it. Is this what is has come to, that such a great company as Nortel is too embarrassed or ashamed to invite the retirees to sessions that directly pertain to them? As it turned out there wasn’t a lot of information that we didn’t already know, except for the news that the Director of Pensions is jumping ship just before the hull settles under the water.

Here is the feedback I was given from the US session:
With respect to the U.S. pension plan. We’re still in a wait-and-see mode for the PBGC. From the tone of the comments it is clear that a PBGC takeover is inevitable.
The transfer to Northern Trust of $3.7M (the actuarially required contribution) will be made on July 15 as scheduled.
The U.S. plan was 74% funded as of January 1, 2009 with an asset allocation of about 50% equities, 50% bonds. (The 74% has no impact on payouts, by either Nortel or PBGC, although it could factor into continued restrictions on lump-sum distributions if Nortel should somehow emerge from bankruptcy intact.)
Employees in scope of business divestitures will generally be treated as terminated Nortel employees, with respect to the Nortel pension. Acquiring companies are NOT assuming liability for Nortel pensions.
Anyone with a non-qualified pension benefit should file a claim with the U.S. bankruptcy court.
If Nortel should cease to exist, retiree medical and COBRA are likely to stop. What would happen to the Hewitt contract for 401K administration is unclear, but there would be some kind of termination and distribution process for the 401K.
The Director of Pensions, is leaving the company next week. Leila Wong will take over administration of pensions.

Tuesday, July 7, 2009

Retirees and ex-employees claims against a bankrupt company.

When a company enters chapter 11, many forms of payment to ex-employees and pensioners cease. The people who were receiving these payments are then classified as unsecured creditors and can file claims against the company in bankruptcy court in order to seek repayment. It is unlikely that the claims will be paid in full unless the company emerges from chapter 11 and then prospers before it pays out on the claims. Most likely only a percentage will be returned to the creditor.

The unsecured creditors are required to file a proof of claim with the company that is handling the bankruptcy dockets for the court. In the case of Nortel that was Epiqsystems in the US. The record of proofs of claims is made public on their website and is required to properly assess the liabilities of the company in chapter 11. The information can be seen on the web at under the claims category.

For retirees and ex-employees there are a number of different claims that they may have on the company. For people who were receiving a non-qualified pension which ceased when the company entered chapter 11 that will be one of their claims. The non-qualified pension may be for a fixed period of time or it may be in the form of a lifetime annuity.

Calculating the claim is extremely important since it is possible that the company may dispute the claim. In this case it may require legal representation to argue the claim before the court. This is especially true where the claim is determined from a lifetime annuity since it involves actuarial factors and interest rate assumptions. The factors used by the company will no doubt be to their advantage and will probably result in a sum that is less than the claim put forward by the creditor. This is one reason that creditors who fall into this situation should band together and hire an actuarial/legal firm to work with them to determine the factors and to argue them on their behalf.

In the case of a fixed term non-qualified pension the sum owed to the creditor is basically the monthly payment times the number of months left in the term. There is a catch here however involving the cost of money. The company’s lawyers will no doubt argue that an inflation factor should be used to reduce the future cost of money that would be paid out in today’s dollars. This would result in a sum that is less than the simple arithmetic of multiplying the number of months left times the monthly payment.

Once again, professional actuarial support to determine and apply that interest rate is advantageous and will assist in reaching agreement with the company on the actual amount of the claim in today’s dollars.

Once agreement has been reached on the values of the unsecured creditor’s claims a ruling can be determined as to the percentage that the company can offer to settle those claims. If that percentage is agreed to by the creditor’s committee then it will be applied to all unsecured creditor’s claims equally. So if the court rules that 30% for example is what creditors would get back on their claims, that is the percentage that every unsecured creditor would receive.
To complicate matters, rulings of this nature would be paid out as lump sums and subject to income tax as if they were regular earnings. As far as I know at this point, it is not possible for the amount to be moved into a tax sheltered annuity, so the creditor will be hit with a triple whammy. (1) a reduced amount of claim due to future cost of money, (2) a percentage reduction as ruled by the court, (3) a tax payment that will probably be in the upper range of tax percentages.

Other payments that are outside the normal defined pension paid from the trust fund will be subject to the same situation. For example senior executive retirement pensions paid to the top level management retirees will fall into this category. Retirement Transition Payments made directly from the company funds will stop. Severance payments made to laid off employees will stop. Deferred compensation is generally maintained in a fund external to the pension trust fund and as such will no longer be accessible by employees whether still working, laid off, or retired. Each of these categories become claims against the company and calculating the value accurately is important in order to maximize what the creditor gets back.

Nortel also offers health care, long term care, and life insurance benefits to their employees and retirees. In the case where these plans are terminated the retirees may have a claim against the company for the amount that these lifetime plans represent. Most of these plans have a clause indicating that if the retiree does not pay the monthly premium after a grace period of 30 days they are removed from the plan and if that happens there is no claim. So it’s important to maintain the premium payments to keep active in the plan and ensure that you have a claim if the plan is stopped.

At this point Nortel’s US health plan is still continuing, but the writing is on the wall and at a recent information session by Nortel the employees were told that it is possible that the health plan will cease.

Calculating the claims associated with health care, long term care, and insurance is very complicated and best left to professionals. Each person’s history and family status will come into play to determine the value of the claim, so it is probably a good reason to have a group approach that involves people who have experience in determining these claims.

We have such a group already formed in the US called Nortel US Retirees protection Committee. (NRPC-US) The group is in contact with an actuarial firm to determine what help they can provide but at this stage the only action we would suggest to everyone is to gather all the relevant information regarding your benefits and have it readily available so that it can be used to calculate the claim. There is more information on this group at

Monday, July 6, 2009

Retirement plans and organization to claim against a bankrupt company.

Organizing to have representation for claims against a bankrupt company may make sense in some situations. It depends on the type of claim that a retiree or ex-employee may have. In our case against Nortel we had a wide variety of claims which in some cases conflicted. People who had retired had a variety of plans that were providing retirement income, and many employees who had just been laid off or let go had unvested pensions as well as severance and deferred compensation as well as health and long term care benefits. In many cases these benefits stopped the moment Nortel entered chapter 11. The following provides some idea of the variety of claims.

The traditional defined pension plan. (US)

The plan is one that has been in general use for decades. In this plan the company puts money into a retirement trust fund and over the years the employee builds a value in the plan which is promised to be paid as a pension when he or she retires. The pension is determined by a combination of age, service in the company, and final average earnings. The factors are used to compute a commuted value. Then a variety of pension options are offered to the employee to chose from. These options take into account the projected lifetime of the employee and spouse if a joint pension is selected. Many plans also provide for withdrawal as a lump sum which can then be rolled over into a tax protected IRA.

The payments fall into Qualified and Non-Qualified categories. A Qualified Pension is one which falls within the guidelines set up by the IRS to limit the calculations on final average salary below a number which is currently around $200K. Most people will fall into this category and their pension will be considered Qualified. All Qualified pensions from Defined Pension Plans are protected by the US Pension Benefit Guaranty Corporation; ( This organization has been set up to take over a pension trust fund in the event that a company goes bankrupt. It has some limits and rules on what it will pay out as a pension so there could be an impact on the pension paid by them. However in general they will pay the same pension that a retiree has been receiving from their company before bankruptcy.

The PBGC represents the retirees who have a Qualified benefit from a Defined Pension Plan, so in that case the retiree would not need any further legal representation since the PBGC automatically has a seat on the creditor’s committee and defends the rights of the pensioners to the trust fund.

Retirees who have an additional Non-Qualified payment however, are not protected by the PBGC. These payments can be in the form of a life time annuity, either single or joint, or they can be over a fixed period of time as defined by the company. The payments are not paid out of the trust fund and come directly from the company’s cash. When a company enters chapter 11 these payments normally stop. At that point the retiree is considered an unsecured creditor and will have to place a claim on the company to try to get back the money owed to them. Since there are usually thousands of different creditors it becomes useful for the people who fall into this category to consider banding together to obtain legal advice and support to file their claims against the company. A claim can also be filed individually but there may be less chance of defending the calculation used in the claim during the court proceedings if it is not supported by professionals who understand the actuarial factors and the interest rates used to determine payments.

In our case we found that the number of people receiving Non-Qualified benefits was small compared to the number who had only PBGC protected pensions. As a result there were not enough people represented by the group to obtain a seat at the creditor’s committee and we decided not to use legal representation for that purpose.

However we did start working with an actuarial firm that has experience in determining the calculations needed to defend the Non-Qualified claims in court. We are still waiting for this to occur. The actuarial firm and the court appointed legal firm serving to represent all un-secured creditors have advised our group that Nortel will need to file a list of creditors with the amount of their claims. There should also be a form sent directly to us by Nortel with our claims identified using a special bar code that allows the court monitor to properly gather the information and aggregate the total. At this point there is no deadline for filing these claims ands we have not yet received any forms from Nortel.

In my next report I will provide some information on the other types of claims that people have against Nortel.