Saturday, February 27, 2010

US Non-Qualified pension Claims

Earlier I wrote about the idea that we should claim the loss of our non-qualified pensions as losses on future year tax filings. I also started thinking about the possibility of rolling over any payment we receive on our claims into an IRA or other tax deferred vehicle.

The reason we had to take part of our defined benefits pension as non-qualified is the IRS code rule under section 415 (a), (17). The limit was $170,000 when I retired in 2001 and has since increased to $245,000. That means that if I had retired this yea, I probably could have rolled over all my commuted pension into an IRA. So I have composed a letter which I am sending to the Tax Advocate Service in Atlanta. You can send letters on this topic to the tax Advocate Service in your own states if you wish. The following site will lead you to the address and phone number in your state:,,id=150972,00.html

Here's a copy of the letter I sent along with form 911 which I filled out and sent as well, since the IRS will need a completed form 911 to initiate your case.

Dear Sir or Madam:

I have a couple of tax questions but am unsure as to where to direct them. I would appreciate either a definitive response, or a name and address, or email to which I can direct my questions. The following is the situation I am facing.

I retired in 2002 from Nortel Networks with a defined pension. I took the majority of my pension as a lump sum and rolled it over into my 401K, and subsequently to an IRA. The remainder of my pension was considered non-qualified by the IRS due to the compensation limits applicable in 2002 for rolling over commuted pension values.

Because of Nortel’s internal rules, the non-qualified pension was paid over a 15 year period in monthly amounts. This pension was termed a 15 year certain restoration plan.

In January 2009 Nortel Networks filed for bankruptcy protection under chapter 11. At that time they stopped paying the non qualified pension, and I was informed that I should place a claim on the Nortel Estate for the remainder of the pension. I placed a claim against Nortel based on calculations by an actuarial company which used data from Nortel, and the same factors that Nortel used in determining the amount owed to me.

Under chapter 11 protection, Nortel has sold off most of the assets of the company, and it is probable that they will liquidate later this year or early next year. When that happens, I will be treated as an unsecured creditor. My claim will be considered in court along with all other unsecured creditors. Depending on the value of Nortel’s remaining assets, all unsecured creditors will be paid a percentage of their claims. This payment will be in the form of a lump sum.

The first question I have is whether I can take that lump sum payout and roll it over to a tax deferred vehicle? Since 2002, when I retired, the IRS has increased the compensation limits on qualified roll-overs to IRAs from a base of $170,000 to $245,000. (IRS code 401(a), (17)). Had this new limit been in effect in 2002, I would have been able to roll over almost my entire commuted pension. Hence I think there is a case for arguing that the future payments against my claim could be considered part of a qualified pension payment and could be rolled over tax exempt.

A second question I have is related to the percentage of my remaining commuted value that I will lose. Can I consider that a loss under the tax code, and claim it against the taxes I might owe during the year or previous years?

Since I retired my income has been much lower than when I was working. My original plan was to use the restoration payment to carry me through until I reached 75, at which time I planned to replace that income from my IRA. Now however, I have had to start making withdrawals from my IRA earlier than anticipated. Coupled with the decline in the market, this has had an impact on the principal in my IRA, and will reduce the amount I can withdraw each year. Losing part of the claim as well as any the taxes I may have to pay, will have a large impact on my standard of living.

I would appreciate any guidance you could provide to me on this matter and the questions I have raised in this letter.

Wednesday, February 24, 2010

Nortel's timing for handing over control of the Canadian Pension

For Canadian retirees and ex-employees. Nortel has indicated in a letter to the Financial Services Commission of Ontario, and the Pension Benefits Guarantee Fund of Ontario, that they intend to hand over all documents related to the Pension starting March 31st 2010 and will no longer administer the plan after September 31st 2010.

The letter may be found at the Monitor's site (Ernst & Young) at

Look under Employee Settlement Document Package, then under additional documents and select Motion Record Settlement Agreement. Schedule C of this document is the letter signed by Nortel's representatives John Doolittle and Anna Ventreska regarding their intentions for the pension trust fund and plan administration during 2010.

The letter, dated Feb 8th 2010, is directed to K. David Gordon, Deputy Superintendent, Pensions at the PBGF (Ontario).

So this should dispell any doubts about what's going to happen to the pension this year. It will be wound up.

Nortel's plan is to be out of the Pension responsibility by Oct 1st 2010 and they will hand over records and documents to the administrator starting March 31st 2010. Nortel indicates that they will not initiate wind up until the Sept 30th date providing the employee settlement agreement is approved on March 3rd. If that doesn't happen, it is likely they will advance the wind up, probably to March 31st. (my opinion)

During the period up to Sept 30th, Nortel will continue to administer the plan and will bear the costs of that activity.

Tuesday, February 23, 2010

Webinar with the NRPC and Koskie Minsky

The webinar held on Feb 23 2010 provided some detailed information about the Settlement Agreement between the NRPC and Nortel which will be examined by the Canadian court on March 3.

Much of the Webinar detail has been covered in my posts or on the NRPC web site or in the 39th Monitor report on the Epiq website and on Koskie Minsky's web site. There are also FAQs on the Koskie Minsky site.

I picked up a few items which were new to me and which I will share here.

Per Koskie Minsky, Nortel will cease to exist this year. There will be a skeleton crew of about 475 people continuing into 2011 providing central HQ services and transition services for the purchasers of the parts of Nortel. All benefits as we know them will cease being handled and paid for by Nortel during the year.

If the settlement had not been proposed, and does not get approval from the court the pension fund and all other benefits will likely end on March 31st 2010.

Out of the CFA agreement for $190.8M to be paid by NNI to NNL, the agreement provides $57m to ensure the pension continues until Sept 30th 2010, and that LTD and medical benefits continue in Canada until Dec 31st 2010. There is no mention of what will happen in the USA regarding health benefits.

If the settlement is agreed to by the Canadian court I am hoping that it will influence what happens to health benefits in the US and extend them to December also. At this point there is no information on the US health benefits from Nortel or the court or anyone else.

The settlement means that people on disability will be paid out of the $57M settlement agreement and so the Health and Welfare trust fund will not be depleted further this year by their payments. Some other benefits such as Life Insurance will come out of the HWT however.

Assuming the settlement is approved, pensions will be paid at 100% until Sept 30,2010. After that a private administrator will be appointed and will immediately reduce the ongoing pension payments by the trust fund deficit ratio. KM and the representative from Segal stated that that is approx 30% but there will be an evaluation carried out on wind up to determine the exact percentage reduction. After purchase of annuities they also expect that the pensions will continue on at the reduced percentage or about 70% of what we are getting normally.

The difference in pension will become a claim against the Nortel estate and at some point we might actually see that augment our pensions.

KM stated that there is some opposition to the settlement agreement by the bond holders in Canada and the creditor's committee in the USA. They will express that opposition at the court hearing on March 3rd and it will be up to the judge to decide if the agreement should proceed.

AS part of the settlement, terminated employees can look for a payment of $3000 as an advance on their severance claim. It is not expected to have that worked out until the summer.

The webinar pus the slides will be available on the NRPC web site. I hope they also provide the questions and answers to them on the site as well.

Canada's shame.

Many of you who are Canadian retirees know that in October we will suffer a reduction in our pension payments, and that we may be even further impacted later when the trust fund is turned into annuities. This is shameful, and places Canada on a list of counries like Egypt, Tunisia, United Arab Emirates, Malaysia, Latvia amongst others.

I urge you to write to the PM of Canada to express your anger, and demand that he alter the bankruptcy act to support us and also put in place pension protection like other civilized countries such as the USA and the UK. Here's a letter I just sent. Feel free to use any or all of it:

Right Honorable Stephen Harper,

In 2007, your government implemented changes to the BIA (Bankruptcy and Insolvency Act) to favour junk bond holders. You gave junk bond holders a higher priority over pensioners, long term disabled (LTD), and people who were laid off without a severance. Apparently you support the banks over the ordinary citizens of your country, whom you were elected to represent.

Not only do they have your support, junk bond holders also have their money insured and collect damages upon bankruptcy protection declaration. Then, upon full bankruptcy, they will again get paid; double dipping at the expense of pensioners and other ex-employees. What a nice little set up you have established for them.

In the meantime,due to your archaic bankruptcy laws favouring banks and large corporations,hard working Canadians are seeing their pensions reduce or disappear altogether. As a Nortel; pensioner, I know the potential impact of that all too well!

In a study of 54 countries by the OECD and the World Bank, 34 have either super priority or preferred status in their bankruptcy laws for their employee claims. Canada is not on that list. How proud are you of that?

Some of the countries that do not have preferred status, or insured pensions include: Egypt, Tunisia, United Arab Emirates, Malaysia, Latvia, and Canada. Through your complacent attitude to the plight of pensioners you have placed Canada on that shameful list. No doubt you are very pleased with that accomplishment.

In the realm of truly civilized countries, there are 13 that have public pension benefit guarantee insurance to protect their pensioners in bankruptcies; once again, Canada is not included on this list.

Mr. Harper, this is your record and legacy. What do you really stand for; the people of Canada or your business buddies?

Act now to change the BIA in favour of the people, and to initiate long term protection for your senior citizens. The country is calling for that. Are you listening?

Monday, February 22, 2010

Canadian Settlement Agreement

Tomorrow there will be a web seminar from 3pm to 5pm organized by the NRPC and Koskie Minsky to discuss the 2010 settlement agreement between the NRPC the CAW and Nortel. Details of the agreement can by found in the 39th report by the monitor Ernst& Young, and may be viewed on their web site. See link in right hand column.

You can find out the details for the seminar on the NRPC web site at:

By the posts that I have seen on the Yahoo Groups site, there is a lot of controversy about this settlement. The group of Canadian disabled workers (400 people plus survivors) are very unhappy because this settlement basically cuts them loose as of the end of 2010, and the trust fund for the disabled people is maybe only 20% funded, so they face a major impact.

The settlement provides for the pension payments from the Nortel trust fund to continue until Sept 30 2010 at which time Nortel will cease to administer it and will hand if off to an Ontario government appointed administrator. Nortel will continue paying into the trust fund approximately $2.6M per month until March 31st 2010 and then it will reduce the payment to $380K per month. These amounts are far short of what is needed to make up for the deficit in the trust fund.

In paragraph 82 of the monitor's report they state that the administrators of the pension trust fund filed claims against Nortel in respect of the defined pension plan and the defined contribution plan of $1.1B. I presume that amount includes the Unionized and Salary plan deficits, so I am not sure if it indicates a change to the funding ratio of the plans from the 69% quoted in mid 2009. I have asked for clarification of that from the NRPC and from Koskie Minksy. We'll see if I get a response.

In all the agreement will mean that Nortel has to pay $57M during 2010 to fund the Health and Welfare, the pension plans, and the advance on the severance payments. The breakdown of those payments is:

Pensioner Medical and Dental (M&D): $24.4M
Long term disabled M&D & Life ins.: $3.0M
Survivor Transition benefits : $2.8M
LTD Income : $12.2M
Survivor Income Benefits : $1.4M
Pension Payments to the Trust Fund: $8.9M
Termination Fund : $4.3M
Total : $57.0M

Regular Pension Payments come out of the Trust Fund and are completely separate from this agreement.

In the end this is Nortel's last payment to us and as of October 1st 2010 we are parting ways for ever. Nortel wanted to get rid of the pension and welfare burden on it's back, and this is what they are doing. They are making a token offer to appease the masses, however it is going to hurt badly come October for the pensioners, and very very badly for the disabled employees in January 2011. In the meantime, Nortel is setting aside millions in bonuses and perks for it's current employees and it is planning to exit the CCAA in a smaller, leaner,profitable state with the pensioners and creditors off it's back.

At least in the US and UK there is some semblance of concern as the PBGC and the PPF step in to provide payments to the US and UK retirees. Canada on the other hand has thumbed it's nose at pensioners and disabled people, and is leaving them out in the cold to wither away. As Canada puts on a great show to the world with the Olympics,and Canadians swell with pride, I wonder how many of them really know what their country is doing to their older generation?

For shame!!

Sunday, February 21, 2010

NRPC / Koskie Minsky Webinar Feb 23

For those of you interested in the Canadian situation there will be another web seminar on Feb 23rd from 3PM to 5PM. The topic is basically the Canadian agreement made between the NRPC, representing us, and Nortel and covers the pension, disabled employees, health and welfare, life insurance, and severance. You can find the details on the Canadian Pensioners' website which also has the information on registering. You can also check the details of the agreement and frequently asked questions file at Koskie Minsky's site:

The FAQ File provides clear information on the impact of the settlement on us. I urge all of you to read it. There are a number of different FAQ files listed, the first one on the list (benefits funding settlement agreement)contains all the information offered.

So basically for us pensioners, the payments will continue until September this year. At that time Nortel will stop administering the fund. That means they are out of the picture as of October 1st and we are on our own dealing with the administrator appointed by the Ontario government. Nortel will continue to pay the special payments ($2.2M per month) to help fund the deficit until March 31st 2010. After that they will only pay the general monthly amounts ($357K per month) until September. Slim Pickings!

I think this has been their plan all along. First they got rid of the US pension by handing it over to the PBGC. Now they are cutting the Canadian pensioners loose in September. Having washed their hands of us, they can continue on as a much smaller company without the heavy burden of the pensions.

That way they probably won't enter the BIA process. So even if the lackadaisical Canadian Government enacts some precedence for Pension Trust Funds as priority creditors, we won't be able to gain from it, since Nortel will be continuing on, and won't be entering the BIA process.

Then to add insult to injury, Nortel ran an "end run" around us by getting agreement that we wouldn't sue them for incompetent handling of the fund, and allowing them to pay all the bonuses and perks they have put forward.

So we are facing the end of an era; now we know the date. What we don't know is how much our pensions are going to be impacted, and how much we may be able to recoup from the claim process. I only know that this isn't the Nortel I once knew, many years ago. It's not a Nortel I like.

Thursday, February 18, 2010

US and Canadian courts to hear motion on stay against UK Pension claim.

The UK Pension Protection Fund organization has filed a claim against Nortel in Canada and the USA for between $2B and $3B. (multiple submissions) Both the USA and Canada courts have provided rights that preclude such a claim. It is argued that the claim should only be filed against the UK company. Various motions have been made to the US and Canadian courts to uphold the stay on the UK claim and will be heard at an upcoming session in the US court on Feb 26th 2010. See docket #2449 on the Epiq web site.

In comparison the PBGC has filed a claim for $593M for the US pensioners due to the shortfall in the US pension fund. The Canadian claim for pensioners has not been filed yet because the value of the trust fund, as calculated from the latest review in Dec 2009, has not yet been officially recorded by Nortel. Also the claim process for pensioners has not yet been defined, since in the case of the Canadian retirees they are being represented, en masse, by the Koskie Minsky Law Firm which will file the aggregate claim on behalf of the pensioners.

Tuesday, February 16, 2010

Independent Financial Analysis of the Feb 8th Nortel agreement.

Diane Urquhart, an independent financial analyst in Ontario has carried out an in-depth analysis of the agreement struck with Nortel on Feb 8th, and which will be presented to the court on March 3. You can see her complete report at: Analysis of the Feb 8th Agreement.pdf

Her main conclusion is that this Feb. 8th agreement is offering life to the long term disabled employees in the short term of 2010, provided they agree to live in poverty for the rest of their lives and agree to not oppose the Nortel executives and key employees getting the additional incentive payments that were announced on Feb. 8, 2010. John Doolittle, Corporate Leader of Nortel, is providing scraps off the table for the LTD employees, while protecting his own $1.7 million compensation for each year of 2010 and 2011. The 418 LTD employees are having their lives and quality of life sacrificed by the acceptance of this Feb. 8th agreement for the benefit of the 17,749 Nortel Canadian pensioners, the Nortel executives and key current employees, the U.S. junk bond owners and other large unsecured creditors.

The reasons for her conclusions are set out in the new report.

Diane plans to make additional communications about the steps that dissenting LTD employees will be undertaking in order to correct the mistakes that have been made in this Feb. 8th agreement affecting them before this matter comes to court on March 3rd. Fortunately, there is a process for the LTD employees who decide to oppose this Feb. 8th agreement to do so by filing a Notice of Appearance by 10:30 a.m. Eastern Time on March 1st. The LTD employees are now forced to hire independent legal counsel at their own expense, and many LTD employees are not well enough and cannot afford to send independent legal counsel to be heard in court on March 3rd.

You can communicate with Diane by email at:

Sunday, February 14, 2010


A few people have sent me notes asking about the NRPC US. I contacted one of the members of the NRPC-US executive committee and the following information is a rough summary of where things stand. It is not an official statement from the NRPC-US, It's just my take on the situation.

Earlier last year,the court in the US did not approve the NRPC-US to sit on the creditor committee because of the low numbers of members and the fact that the PBGC is the representative for the majority of defined pensioners. As a result, the NRPC-US turned its attention to the most pressing issue of its membership; US Claims. The NRPC-US engaged Segal to help determine the claims for the members of the NRPC-US, who then submitted the claims per the approved process. Since then there has been little activity.

Part of the fee paid by a number of people to the NRPC-US was used in the early stages to obtain legal representation, but when the request to sit on the committee was denied by the court, the agreement with the law firm was terminated.

The remainder of the fee for those members who had US claims,was used to engage Segal to work with Nortel to determine the specific personal claims based on Nortel's records for the individual,the interest rates, and actuarial data that Nortel was also using. That activity ensured that claims submitted would be using the same factors as Nortel.

The difference in Federal Pension Insurance between the US and Canada helps explain the heavy activity of the NRPC-Canada and the inability of the NRPC-US to gather large numbers of members. In the US, the PBGC guarantees the defined pensions for retirees and as such most people did not feel there was a need to pursue the matter personally. In Canada however,since retirees have no real protection for their pensions, there was a major need to organize and obtain legal representation to fight for the promised pensions.

In addition, in Canada, once the retirees organize and hire a law firm to represent them, the court will most likely recognize that group and will rule that the legal fees be paid by the company (Nortel).

In the US there is no such situation since the court automatically recognizes the PBGC as the representative, and there is no guarantee that the legal fees would be paid by the company( Nortel . So retirees in the US would have had to foot a very hefty legal bill in order to have organized legal representation. Finally the court decides who sits on the creditor committee and, unless there are thousands of retirees in the group, such as a union like the Delta pilots group, the chance of that is small.

There may be a situation arising shortly however that will need the efforts of an organized group in the US. The health care benefits have been continued to date, but it is unlikely that they will continue too much longer. When Nortel declares that they intend to stop the health care benefits, they will have to seek approval from the court. At that point the judge may rule that there needs to be a 1114 committee established to examine the effects of stopping the health care on the ex-employees.

A representative for the ex-employees is required on the 1114 committee and the judge has the right to appoint one. If a group such as the NRPC-US is considered large enough to represent the ex-employees then it is possible that the judge would recognize the NRPC in that capacity. At that point a law firm could be obtained, and paid for by Nortel, to fight for the rights of ex-employees in terms of their health care benefits.

Friday, February 12, 2010

Nortel pension agreement filed in docket 2405

The 36th report of the court appointed Monitor for Nortel's bankruptcy has been filed in the Canadian court. It is contained in docket 2405 on the Epiq web site and may be accessed at

The report contains the agreement between Nortel and the NRPC and CAW in terms of the LTD,Medical and Dental, and Pension payments. It is detailed and provides all the information along with the conditions.

Basically in terms of the pension the payments will continue until Sept 30th at 11:59pm and Nortel and the Monitor assure us that there will be no wind up before that date.

However on Oct 1st, Nortel will no longer have any responsibility for the administration or payment of the pension. The responsibility will be handed over to an administrator appointed by the Ontario Government.

This means that wind up will occur then or shortly after if there is no action by the Ontario Government to take over the pension.

Nortel is also granted relief in that they will only make the special payments to the trust fund through March 31st and then will only make the normal monthly payments through Sept 30th. The special payments are approx. $2.2M per month, and the normal payments are $378 K per month. So Nortel is essentially cutting us loose after Sept 30th, and eliminating top up payments after March 31st.

Medical,Dental,life Insurance, and LTD will continue until the end of the year.

As part of the deal, the NRPC and Caw had to make some concessions. One is that all claims of pensioners under the CCAA process will be considered as having the same priority as any of the unsecured creditors. However that does not stop us from gaining priority under the BIA process if the Federal Government enacts an amendment to the BIA to give pensioners priority, and if Nortel enters the BIA process.

The deal also includes agreements not to sue plan administrators or Nortel executives regarding the administration of the trust fund.

The deal also ensures that any further retention plans by Nortel to keep employees and executives are not opposed by the NRPC.

Funny thing is that the next report entered by the Monitor is exactly that; a special retention bonus plan to keep employees through the end of 2011. See docket # 2406.

So it seems Nortel will be rid of the pension plan burden by September 2010, rid of the Medical and Dental, LTD, and Life Insurance costs by end of the year 2010, and will continue operations until at least the end of 2011. Who knows perhaps they will continue for ever and never enter BIA in which case the pension claim will be paid out at a negotiated percentage with all unsecured creditors. The percentage return will not be stellar given the state of the Nortel assets held in Canada.

So it looks like we may have gained some time, and can plan better, but Nortel is certainly not bending over backwards to help us.

Thursday, February 11, 2010

Ontario Pension Commission Recommendations

The Ontario Government commissioned a group of experts in 2006 to examine the situation on Pensions and to recommend new approaches given the fact that a number of pension funds fail and result in retirees losing benefits.

The recent activities by the NRPC to protect Nortel retiree benefits have included discussions with the government to implement the recommendations of the Pension Commission. One recommendation is that Ontario should create an Ontario Pension Agency (OPA) to handle pension plans of failed companies like Nortel. This would allow the Ontario Government to continue administering the plans. Reductions in payments may occur as in the case of Nortel, but the OPA may be able to minimize the impact by amalgamating the assets of many plans. Recommendation number 5-2 on the OPA is shown below.

Another recommendation ot the Commission is that the current Pension Benefit Guarantee Fund of Ontario increase the minimum amount paid from $1000 to $2500. See recommendation 6-17 below.

The full report of the Commission can be seen at:

Recommendation 5-2 — The Lieutenant Governor in Council should establish an Ontario Pension Agency to receive, pool, administer, invest and disburse stranded pensions in an efficient manner.

I explore the possible uses of the Ontario Pension Agency (OPA) later in this chapter and in Chapter Six. First, however, a word about its structure and general mandate. The OPA could be established as an arm’s-length Crown corporation, or operated under franchise by one or more private firms based in the pension industry or, indeed, through some form of public–private partnership — but there should be no long-term reliance on government funding. However organized, it should be able to sustain itself after an initial period by charging modest service fees to its “clients.” The OPA would provide pension beneficiaries and sponsors with the option of depositing the assets of stranded pension funds with the agency, which would, in turn, invest and actively manage them. Upon retirement, the beneficiary would receive not the pension originally contracted for, but an earnings-related target benefit pension, calculated in a fashion roughly comparable to that used by the Canada Pension Plan. Conceivably, though it is not an essential part of the scheme, beneficiaries might be able to augment their initial stranded pension by depositing additional sums with the OPA by way of contributions from either subsequent employers or themselves.

While a host of important aspects of its mandate, design and operation remain to be determined,
the OPA would:

provide both the sponsors and recipients of stranded pensions with options not now available to them;
ensure that beneficiaries can retain, augment and keep track of stranded pensions accumulated over their working lives;
enable sponsors — with the consent of active plan members and retirees — to protect their pension entitlements without having to annuitize them following a wind-up or partial wind-up;
relieve sponsors of the obligation to track former employees with deferred pensions;
achieve economies of scale in administration and be able to pursue investment strategies not available to small plans or individuals; and
relieve the plan administrator of some of the burdens now associated with plan wind-ups and partial wind-ups, including what to do with accruals for the benefit of former plan members who cannot be found.
These possibilities are explored in greater detail below.

Recommendation 6-17 — The level of monthly pension benefits eligible for protection by the Pension Benefits Guarantee Fund should be increased to a maximum of $2,500 to reflect the effect of inflation on the original maximum of $1,000.

Tuesday, February 9, 2010

Nortel Reaches agreement with NRPC on continuing benefits until Sept 2010

A press release today by the NRPC Canada provides details of an agreement reached with Nortel to continue benefits for pensioners and disabled employees. The agreement is still subject to court approval, and will be heard before the court on March 3, 2010 and if fully approved will provide pension funding at 100% until Sept 30th 2010 as well as long term disabled benefits, medical and life insurance benefits in Canada, and a payment up to $3000 for severed employees. The agreement was reached between the court appointed representatives for the pensioners and the employees on long term disability.

As part of the deal it was acknowledged that the claims of disabled, continuing and former employees, and pensioners of Nortel are unsecured claims and rank in equal priority with those of all other unsecured creditors.

This does not restrict the ability to argue for priority under the Bankruptcy and Insolvency Act, if Nortel and its creditors become subject to this act.

The following is from the press release:

The agreement requires payment by Nortel of an estimated $57 million through 2010.
This means:

* For pensioners and their survivors, the continuation of medical, dental and life insurance benefits through 2010;

* for all defined pension plan members, Nortel's continuation and current service funding of the pension plans until September 2010;

* for eligible employees terminated without severance pay, a lump sum payment of up to $3000 as an advance against their claims under the CCAA;

* for employees on long term disability, the continuation of disability income benefits and the continuation of medical, dental, and life insurance benefits through to the end of 2010; and

* for those receiving survivor income and survivor transition benefits, the continuation of those payments through 2010.

Sunday, February 7, 2010

Bailout for Nortel pensioners in Ontario

Doug Hempstead of the Ottawa Sun has reported that the Ontario finance minister Dwight Duncan is expected to announce a bailout package for Nortel pensioners.

The Ontario Government will pay into the Pension Benefits Guarantee Fund (PBGF) so that Nortel pensioners will receive up to $1,000 per month.

Currently Nortel's pension plan is about 30% underfunded, but the PBGF doesn't have enough money in it to cover the difference.

Minister Duncan is expected to announce that the Ontario government will top up the heavily used, 30-year-old PBGF so Nortel pensioners affected by the company's bankruptcy protection will still get some pension benefits.

Ontario is the only province with a PBGF, so the announcement is expected to only affect Nortel pensioners who were based in Ontario.

Saturday, February 6, 2010

Possible return on claims against Nortel

The following information is extracted from an excellent article in the Ottawa Citizen by James Bagnall. You can see the entire article by clicking on the following link:

I appreciate the attention that James Bagnall and the Ottawa Citizen are paying to the Nortel Pensioners, Long term Disabled, and severed employees of Nortel. His articles and stories have kept the focus on our plight and has increased the pressure on the Canadian government to waken up and do the right thing to help our situation. His article is entitled:

Much is riding on the signature of a Canadian judge, perhaps too much

By James Bagnall, The Ottawa Citizen January 30, 2010

Extracts from the article. (All figures U.S.)

The scale of Nortel's unravelling is breathtaking. By the time this is over,lawyers, accountants and other professionals will have submitted more than $250 million in bills, which are paid in full before creditors receive anything. Creditors in Canada alone are represented by more than 80 law firms.

The total value of claims submitted by U.S. and Canadian creditors approached $40 billion. In fact,the $40 billion in demands is a vastly inflated figure, pumped up by creditors who have filed the same claim in several Nortel subsidiaries to increase the odds of receiving something. A more realistic estimate is the one prepared by Nortel on the eve of its creditor protection filing a year ago, and updated in November 2009. Nortel reckoned it owed nearly $7 billion to creditors globally. The owners of Nortel's debt - which represents the lion's share of the company's liabilities - seem to believe it's about right.

The sum available to satisfy these claims will be about $5 billion from the sale of Nortel's various assets, combined with cash remaining on its books.

Nortel's bonds are trading between 70 and 73 cents on the dollar- roughly the same ratio implied by dividing $5 billion in projected proceeds by $7 billion worth of claims. Still unknown is how much Nortel will receive for the sale of its remaining patents, if it goes that route.

That's the global picture. However a 67/8-per-cent Nortel bond issued in 1993,(the only one secured against Nortel assets in Canada alone) is trading at roughly 30cents on the dollar. This points to strong pessimism about the amounts that will become available for Canada.

The situation is aggravated for Nortel's Canadian creditors because in the U.S. and Britain independent agencies have guaranteed the pensions of Nortel retirees directly, and then submitted claims to recover the amounts from the bankruptcy proceedings. In Canada, there are no white knights of this sort.

Pensioners and those owed severance or on long-term disability programs have had to hire independent lawyers to try to recover what they can directly. In theory, Canadian creditors should receive the same settlement as other Nortel creditors -60, 70 cents per dollar owed or whatever the final ratio proves to be. But only if the lawyers can establish that the spoils should be divided globally.

Depending on the result of talks over which country gets what, Canadian creditors could recover anywhere between 30 per cent and 70 per cent of what they're owed.

Canadian creditors can take some comfort from the fact that any settlement will require the signature of Geoffrey Morawetz of the Superior Court of Justice of Ontario. In key rulings to date, he has stressed that decisions involving the short-term movements of cash aimed at keeping Nortel's operations liquid should not necessarily be taken as indicators of how the final assets will be distributed.

For instance, he ruled on Jan. 21 that the IRS and related agreements should not prevent the court from granting "such relief as it considers appropriate'' to ensure pension, health and severance pay obligations are met.

What nortel owes ...
According to claims by its creditors: $39.3 billion
In $U.S. as of last autumn. Includes many duplicate claims.
According to Nortel: $6.92 billion
Nortel says the amount could be 'subject to future adjustments.'
Nortel's estimates of what it owes its creditors, in $U.S.:
- Long-term debt (bonds) $4.31 billion
- Pension obligations $1.04 billion
- Other post-retirement costs $599 million
- Owed to suppliers $334 million
- Other liabilities $633 million
... and how it will pay
Cash and asset sales: $5.01 billion*
Funds from the sale of Nortel units are in escrow, and could pay around 70 cents on the dollar if distributed equally. Proceeds from asset sales, in $U.S.:
- Hitachi $10 million
- Radware $18 million
- Ericsson/Kapsch $103 million
- Genband **$282 million
- Ciena $769 million
- Avaya $900 million
- Ericsson $1.13 billion
* Does not include future proceeds from sale of patents and Nortel's share of joint ventures.
** Initial bid only
Source: Nortel corporate reports and court documents.s
© Copyright (c) The Ottawa Citizen

Thursday, February 4, 2010

Canadian Pension Trust Fund Percentage.

After listening to the Koskie Minsky Webinar I checked back on the document that Mercer had sent regarding the Canadian Pension Trust Fund estimate.

They had calculated the estimate in May 2009 but using data from December 2008. They are in the process of calculating the value again, per the law, and Nortel has to file it by September 30th 2010.

In the estimate that Mercer made in May 2009 that resulted in the 69% number, they used an annuity interest rate of 4.85% for immediate and 4.45% for deferred annuities. These numbers are lower than the interest rates used in 2006 and 2004 valuations. In 2006 the interest rate was 5.75% and in 2004 it was 6.5%.

The 2006 report showed that on wind up the plan was 86% funded, so the current estimate by Mercer of 69% takes into account their estimate that the interest rate going forward is about 1% point lower than what was used in 2006. So it would appear that the 69% funding ratio has already built into it,( at least some of), the effect of lower annuity interest rates.

I don't claim to be expert on any of this. I hope that questions such as this are being reviewed carefully by Koskie Minsky and Segal to make sure we don't have our pensions cut deeper than is necesary?

Wednesday, February 3, 2010

Key points from Koskie Minsky webinar

The NRPC-Canada and Koskie Minksky held a webinar on Feb 2nd 2010.

They provided a lot of information on the current status but are still unable to answer a lot of questions that are in everyone’s minds. I made a note of what I thought were the key points. They are mainly for Canadian retirees and ex-employees but some of it may apply to ex-employees living in the US

Funding and continuing operations

Nortel has been granted an extension of the bankruptcy protection in both Canada and the US by the courts until April 23rd 2010. Given the status of the auctions and sales and unfinished business, such as the patents still held by NNL, K.M. thinks the stay will be extended until later in the year.

The Canadian Funding Agreement has been approved. The arrangement means that Nortel in Canada can continue for some time, and it also allows for payment into the various funds (Pension, Health & Welfare …) until March 31st. K.M. are working with the Canadian court to gain an extension to that date so that the funding could continue later into the year.

The CFA means that the US subsidiary NNI has now placed a claim against NNL in Canada for $2B and this claim will be part of the total unsecured creditors. This will have a huge impact on the division of assets in Canada.

Pension Trust Fund

The law requires Nortel to revalue the trust fund every 3 years. The last time was 2006 and so Mercer is working to determine the value of the trust fund. Mercer is looking at the actuarial implications of the current and future retirees to determine the value, and they also will be looking at the interest rate to be used going out into the future. Nortel has until September 31st 2010 to publish the results of that study. So at this point we still don’t know the value and the 69% figure is still being used to determine pension lump sum payouts.

Nortel has been paying into the pension trust fund at the rates set in the 2006 study. This latest review will most likely show that the rate of payment has to increase, and at that point Nortel may decide not to continue since they won’t be able to afford the new payments. The people at K.M. are trying to push that decision out as far as possible. Wind up of the pension fund will be very painful and costly, and so having it continue for as long as possible may help us in the long run.

The trust fund investment ratio was changed by the managers during 2009. They moved the fund into a 60/40 split (bonds & cash/equity) mid year, and then at the end of the year they again moved it into a 70/30 split. Their reasoning was based on the assumption that the plan is nearing wind up and that the value would be much clearer with those ratios.

Some input from me:-
Mercer’s estimate of 69% funded was published in May 2009, but used the data from Dec, 31st 2008 on plan membership to determine the estimate. They also used an interest rate of 4.85% at that time in contrast to the 6.5% rate that had been used earlier. The Market was around 8,700 in December 2008 and dropped to its low point on March 6th (DOW =6,626) and then climbed back to 8,700 in June. The market then gained a further 2,000 points between June and December, so 40% of the fund should have improved.

Impact of Nortel liquidation on the Pension trust fund.

The pension trust fund is completely separate from the assets of Nortel and in no way will it be considered in any of the creditor arrangements when Nortel finally liquidates. The fund is held in trust; however the amount of money in the fund is not adequate to continue paying pensions at the current rate along with the projected pensions for future retirees. However all retirees and ex-employees should be assured that the fund is operated as a totally separate entity from Nortel.

Hardship claims

The Canadian court has previously approved setting aside a sum of $750,000 to cover hardship cases: To date only $70,000 of that has been claimed. People in Canada who are experiencing extremely hard times as a result of Nortel’s stay of payments and healthcare should file a claim for this support. See Koskie Minky web site for details.

Claims Process

The compensation claims process for Canada has not yet been developed. Koskie Minsky will be handling all related calculations and discussions regarding the claims process for retirees, ex-employees, severed employees and those on disability. They are working with Seagal who will calculate each of our claims individually, send us a copy for review and correction. Each compensation claim will be filed by K.M. on our behalf as a combined claim. K.M. will deal with the court to make sure the returns on the claims are processed into the pension trust fund and other funds. K.M. is also working with the courts to try to mitigate any tax impacts that may result on claims such as severance etc.

Pension wind up

In the event of Nortel winding up the pension there will not be a gap in receiving the pension, however it will continue at a reduced rate. An administrator will be appointed and will determine the pay out ratio based on the fund wind up valuation. Then the administrator will work to obtain annuities to cover the pensions. That will probably take some time.

Political actions

With the government out of action until after the winter Olympics games, there will be no formal activity in Parliament however the NRPC is working to get the amendment to the Bankruptcy Act bill re introduced. There are many other activities underway to raise awareness and obtain support. See the NRPC web site for details.

Tuesday, February 2, 2010

Nortel Board of Directors

When C.E.O. Mike Z. fled the coop and left Nortel hanging by its fingernails, the board of directors decided to also flee, and left like rats from a sinking ship. The number of directors was reduced to 3. The three people are David Richardson, Jalynn Bennett, and John MacNaughton. Their qualifications, as written on Nortel's website, are shown below.

Interesting to note that John MacNaughton was the founding C.E.O. of the Canada Pension Plan Investment Board. Maybe some of the experience he had in running that,(and perhaps a guilty conscience), will give him a boost to help fix Nortel's pension plan deficit. Maybe he needs a few letters to get him thinking about the plight of the retirees facing major cuts in income from Nortel's Canadian registered defined pension plan.

Nortel Corporate Headquarters
195 The West Mall
Toronto, Ontario
M9C 5K1

Board of Directors


David I. Richardson is a corporate director. He is Chairman of the Board of Air Canada and a Director and Chair of the Audit Committee of ACE Aviation Holdings Inc. Mr. Richardson is the former Chairman of Ernst & Young Inc. (Canada) and a former Executive Partner of Ernst & Young LLP. Mr. Richardson was also a member of the Management and Executive Committees of Ernst & Young LLP, national managing partner of the firm's Corporate Finance practice and the senior partner in the corporate recovery and restructuring practice until his retirement from the partnership in 2002.


Jalynn H. Bennett is President of Jalynn H. Bennett and Associates Ltd., a consulting firm in strategic planning and organizational development in both the public and private sectors. Prior to establishing that firm, Mrs. Bennett was associated for nearly 25 years with The Manufacturers Life Insurance Company. Mrs. Bennett is currently a director of the Canadian Imperial Bank of Commerce, Cadillac Fairview Corporation Limited and Teck Cominco Ltd. She is also a director of The Hospital for Sick Children Foundation. She is a member of the Lawrence National Centre for Policy and Management Advisory Council, Richard Ivey School of Business; the Canada Millennium Scholarship Foundation; the Schulich School of Business and International Advisory Board, York University; the Toronto Society of Financial Analysts; the Toronto Association of Business Economists; the Governance Leadership Council of the Ontario Hospital Association; the National Advisory Board, Canada's Outstanding CEO of the Year and a Member of the Trinity College Endowment Campaign Cabinet. She is a fellow of the Institute of Corporate Directors in Canada, a past Commissioner of the Ontario Securities Commission and was a member of the Toronto Stock Exchange, Canadian Stock Exchange and the Canadian Institute of Chartered Accountants' Joint Committee on Corporate Governance (The Saucier Committee).


John Alan MacNaughton, C.M., served as the founding President and Chief Executive Officer of the Canada Pension Plan Investment Board, a Crown Corporation created by an Act of Parliament to invest the assets of the Canada Pension Plan, from 1999 until his retirement in 2005. He was President of Nesbitt Burns Inc., the investment banking arm of Bank of Montreal, from 1994 to 1999. Mr. MacNaughton is Chairman of Canadian Trading and Quotation System Inc. He is a Trustee of the University Health Network, an academic health science centre. He is a Governor of CCAF-FCVI Inc., a research and education foundation focused on governance, accountability, management and audit in the public sector. Mr. MacNaughton is Chairman of the Canadian Institute of International

Monday, February 1, 2010

Webcast with Koskie Minsky, Feb. 2, 2010

Details regarding the NRPC Webcast with Koskie Minsky, Tuesday, Feb. 2, 2010 3:00pm - 5:00pm(Eastern)

Don Sproule, NRPC National Committee Chair will host a Webcast with lawyers Mark Ziegler and Susan Philpott of Koskie Minsky LLC, our legal representatives. Koskie Minsky will be giving a short presentation followed by a Question & Answer session to give everyone an update on the status of the Nortel CCAA proceedings, an update of what they are doing on our behalf, and an opportunity for you to ask questions. The presentations will be given in English, but the attendees will be able to answer questions asked in French.

The following web link can be used to access the Webcast on Tuesday, February 2nd. It is suggested that you click on the link a few minutes before the 3:00pm (eastern) scheduled start time in order to ensure that your computer is configured properly for access.

The minimum hardware and software requirements for accessing the Webcast are as follows: Internet Browsers: IE 6.0+, Firefox 1.x+, Netscape Navigator 6.x+ Streaming Media Players: one of Windows Media Player (preferred), Real Player, Adobe Flash, Microsoft Silverlight Computer Settings: JavaScript Support, Screen Resolution 1024 x 768, Color Quality 16 bits(minimum)

For those of you unable to attend the Webcast, a recording of the session and will make be available on the NRPC website. (Link on right hand side column).