Nortel US files motion to cease retiree medical benefits

As reported in the News & Observer blog, Raleigh, by john Murawski on 06/22/2010

Nortel Networks, which is winding down its bankruptcy proceedings, has asked a federal court to terminate insurance coverage for more than 4,000 retirees and their dependents.

The company told the court in Delaware that's overseeing the bankruptcy proceedings that the retiree benefits are costing $2 million a month. The company wants to discontinue subsidizing coverage for the retirees on Aug. 31.

"While the Debtors recognize the importance of the benefits provided under the Retiree Medical Plan to their retired employees, the Debtors have determined that it is necessary to terminate the plan at this state of the restructuring," the company told the court.

Nortel wants to cut off supplemental medical coverage, prescription drug coverage, longer term disability and life insurance.

"If you wish to replace such coverage or to supplement Medicare coverage ... you will need to purchase and pay for an individual insurance plan of your choice," the company said in a letter to retirees. "There will be no Nortel subsidy."

Nortel, which used to employ as many as 10,000 in Research Triangle Park, filed for Chapter 11 bankruptcy protection in January 2009.

The company, once North America's leading maker of switches and other telecom gear, has sold of most of its business assets as it winds down the proceedings. To date Nortel has sold off its assets to Radware, Telefonaktiebolaget LM Ericsson, Hitachi, Avaya, Ciena Corp. and Genband.

However, the company has arranged for its 4,019 retirees and dependents to buy coverage from UnitedHealthcare that is specially tailored to Nortel retirees and not available on the open market.

The UnitedHealthcare portfolio of policies do not require a medical exam and will not take into account current illness, tobacco use or medical history in setting rates.

Nortel said in its June 14 letter to retirees that they "will have the right o purchase one of these products at a rate which does not factor in medical history or tobacco use, with timely enrollment."

Insuring Nortel's 2,592 retirees and 1,490 spouses and children are costing the company $1 million a month. Covering 280 participants on long term disability is costing another $1 million a month.