Ottawa Citizen Article- a view from Canada

The following article appeared in the Ottawa Citizen yesterday. There are a few comments that don't tell the whole story on such things as the PBGC pension payments, and the 80% tax credit, but overall it gives a summary of the different approaches in the USA and Canada, to pensioners whose companies go bankrupt.

Nortel's Canadian, U.S. creditors face different experiences

By Bert Hill, The Ottawa Citizen July 21, 2010

Canadian courts have proved to be a friend of Nortel Networks in fending off bids by pensioners for a bigger piece of $7 billion in assets in the collapse of the one-time giant. But the U.S. courts are proving a tougher nut to crack, forcing Nortel to revise its strategy in order to wriggle out of previous obligations.

The U.S. Court of Appeal has just put a big roadblock in Nortel plans to cut off drug, dental, eye care and life insurance coverage of 4,000 Nortel pensioners and the income support of 280 long-term disability recipients as soon as the end of August. As a result of a decision July 13 in a related case, Nortel now must negotiate with the vulnerable groups before it modifies their benefit coverage.

The decision means that it will likely have to pay $2 million monthly in benefits for several more months. Nortel had thrown gasoline on the fire in late June by declaring that the benefits must go because the group now provides no benefit to the company but former U.S. pensioners flooded the court with more than 330 pleas in less than three weeks.

The pensioner backlash was a remarkable change of mood by the previously passive groups.

Because U.S. pension plan guarantees and social security benefits are significantly stronger than in most Canadian jurisdictions, the U.S. employees did not hire lawyers to fight their case early on. Another factor was the high cost of U.S. litigation.

In Canada, the Nortel pensioners and related groups were much more aggressive because they had to be.

The social safety network in bankruptcies is full of holes. The federal government, including all Ottawa Conservative MPs, is quite happy to cite Nortel as an example of the need for reform in conjunction with provincial changes -- but is not actually to do anything now. The cabinet and most backbenchers voted against bankruptcy law changes which got approval in principle recently.

The Canadian pensioners earlier this year were successful in negotiating an extension of medical and life insurance as well as income protection for long-term disability recipients to the end of December.

But they paid a heavy price: giving up the right to sue Nortel directors and officers for underfunded health and welfare plans. They also had to effectively drop hopes to benefit from changes to bankruptcy legislation still kicking around Parliament Hill, though the dream lives on.

The blunt Nortel plan inflamed the U.S. group. They were given just 15 days to register complaints and another 10 days to prepare for a court hearing.
Lynette Seymour, a disability recipient in Austin, Texas, told the court she got her first warning four days after the deadline for complaining.

While the vast volume of the complaints show the signs of a well-organized campaign -- they now have lawyers and a pensioner protection committee -- they also speak forcibly to the dilemmas that many Canadian Nortel people are also facing. Many were not aware that their benefits were in danger, believing that they were protected despite the bankruptcy proceedings. Canadian Nortel pension leaders say they continue to discover people, some very elderly, who also thought the benefits were guaranteed.

The U.S. trustee, an independent umpire in bankruptcy proceedings, urged the court to ignore Nortel claims that it cannot afford the cost of the benefits. It said Nortel was "granted authority to pay in excess of $50 million to members of senior management and now claim they are unable to afford $2 million per month for the cost of these plans.''

The U.S. groups slammed Nortel for treating their Canadian counterparts better. Pensioners in Texas, North Carolina, West Virginia, Florida and California say they are being double disadvantaged. Not only could the Canadians get coverage for up to four months longer, but the money will also come from U.S. Nortel operations and reduce their eventual share of claims against U.S. assets.

The complaint is true as far as it goes. But it does not reflect other factors like the huge $3 billion U.S. tax claim against modest Canadian assets which will hit all Canadians claimants. The U.S. pensioners also have some real benefits that Canadians can only dream about. Many are already receiving pension benefit protection of up $60,000 annually from a U.S. pension benefit guarantee corporation. Canadian pensioners who worked in Ontario will get only the first $12,000 of annual benefits protected and others who worked elsewhere will get nothing.

The Ontario group is also working feverishly with the provincial government to take over the under-funded plan in October to avoid an immediate sharp reduction to their benefits. The Quebec government has promised similar action but it is unclear whether Nortel pensioners who worked in other provinces will be as lucky. The 400 Canadian long-term disability recipients appear headed for huge cuts to average annual income support payments of $30,000 as well as to their medical benefits coverage.

The Canada Pension Plan disability and provincial emergency drug benefit plans will take big hits. The U.S Nortel pensioners also get immediate benefits that Canadians do not. They will get 80 per cent of their life and medical benefits premiums covered by a U.S. tax credit, a big help in finding affordable coverage. The U.S. pensioner protection committee says they believe they can find new private coverage by December.