Sunday, September 20, 2009

Segal provides data for claims against Nortel

The NUSRPC and Segal have delivered on their promise to calculate claims for paying members. I received an email late Friday with details on their calculation for my own claim which is a non-qualified 15 year certain US pension that was stopped when Nortel declared chapter 11.

The details on my pension had been sent from Nortel to Segal who used the information as well as actuarial tables used by the PBGC to determine benefits in qualified pensions plans terminated in 1994. So there is a reduced level of Nortel rejecting the calculation when the claim is reviewed by the court.

At this point the next step is to transfer the information provided by Segal on to the bar coded form sent to me by Epiq Systems with a schedule number, and forward it along with the supporting Segal document to Epiq Systems.

In terms of the calculation, Segal used a discount rate of 6.02% for the next twenty years and 5.48% thereafter. These are the same numbers used by the PBGC. Given the fact that we have been in a period of zero or almost negative inflation, it is hard to swallow such a high discount rate. However using something different may cause a rejection of the claim and could result in no pay out whatsoever.

The total number calculated by Segal for the remainder of my 15 year certain pension is 17% less in terms of dollars as compared to simply taking the monthly amounts and multiplying by the number of months left in the 15 year term. This reflects the discounting to state the total value in today’s dollars. If a more reasonable discount rate of 3% had been used the reduction would only have been in the order of 7%. However it seems that no matter where we turn, we are going to be penalized for something we had no control over.

The penalizing story doesn’t end there either. In the event that there are any Nortel assets to be distributed to creditors, retirees will receive the same percentage as all other unsecured creditors. So the total value will be reduced by an even larger factor. Let’s say that Nortel’s assets are only 30% of all the claims in the US, I would only receive 30% of the total, which is already reduced by 17%. So that means I would only get 25% of the dollars as a lump sum, as compared to Nortel continuing to pay me for the remainder of my 15 years.

Then to add insult to injury, the lump sum can’t be rolled over into a tax deferred account so I will have to pay taxes on it at a much higher rate than if I had received it over the full period of the pension. That’s probably another 25% reduction using the difference in those tax rates.

So I will be lucky to get 18% of the dollars promised to me by Nortel when I retired. Where does the rest of that money go? To lawyers, executive bonuses, board of directors, tax men, and hangers on probably. What a great system we have to reward those who don’t deserve it, and stiff those who have worked hard for many years to earn it.

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