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?
Yes.

- 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 www.pbgc.gov 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.