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.

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