Just when I thought things couldn't get much worse, along comes the IRS to file a huge $3Billion claim against Nortel. If the judge allows this claim it would wipe out most of any assets left to divide among the rest of the creditors including those with non-qualified pension plan claims and severance claims. It's unclear why the IRS would have such a large claim since Nortel has been losing money over the last decade.
Could this have anything to do with Zafirovski's hurried departure from Nortel? I wonder.
The projected ratio of cash assets to claims with the sale of Nortel's business was estimated to be 50% or less worldwide before this bombshell so it looks like the return will be a lot less and will impact US claimants directly.
The details of the claim are uncertain but it is speculated that the claim stems from transactions between Nortel units in multiple countries and dates back to 1998 when Nortel was riding high on the internet wave. If this claim is upheld it will have a devastating impact on all other claimants.
Unfortunately there is no legal representation of ex-employees on the creditor's committee to fight the claim on our behalf (other than the PBGC), so once again we are at the mercy of the court in examining the validity of the claim to make sure that it truly represents what is owed.
The IRS has made large claims in many other bankruptcy proceedings and some of them have been reduced after negotiation and careful deliberation. Maybe the PBGC will step up to challenge the claim. Maybe not. In any event you can be sure we are once again being held over a barrel. First by Nortel, then the courts, and now by the IRS.
Showing posts with label IRS. Show all posts
Showing posts with label IRS. Show all posts
Monday, August 31, 2009
Thursday, June 25, 2009
Non- Qualified Defined Pensions
When Nortel declared Chapter 11 in January 2009, I was very upset that they would take that step and put thousands of people through a living hell. I was a bit relieved when my Canadian pension check arrived in January, but that turned to anger when my US pension check failed to arrive in February and subsequent months.
I called Mercer, the company that manages pension payments for Nortel, and although the people were polite they basically told me I was out of luck and all non-qualified pension payments were stopped. They were kind enough to give me the telephone number of Epiq Systems, a company that was keeping the records for the bankruptcy court. When I called them, they told me the same thing and advised me to go to their website and fill in a proof of claim form and submit it so that the money owed to me could be officially registered. They also told me that I would be considered an unsecured creditor along with many thousands of others and that we would all be treated the same. In other words, defined pension commitments would not have any priority.
I also called the Pension Benefit Guaranty Corporation, and they were very sympathetic but said they couldn’t help since my NQ pension was not covered by the insurance they provided. They told me that this was a familiar story with a number of bankrupt companies including the Delta pilots. I checked with ERISA and using the FreeErisa website I found Nortel’s pension plan clearly registered there as a defined plan. Nowhere was there discussion of the non qualified portion.
Then I dug out the old pension plan documents. I had obtained a copy when I retired, and in fact I had a copy of the detailed plan as well as the summary. I couldn’t find any mention of non-qualified anywhere in the plan document. I did find an obscure reference to payments being subject to an IRS limit but it wasn’t made clear up front in any of the documents. The calculation sheet that I received when I applied for pension did show that a portion would be treated as non-qualified, but there was little explanation attached.
Since then I have learned that the IRS imposes a limit on the salary that can be used to calculate the commuted value of a pension. The salary limit when I retired was $160K and since then it has gone up to $200K. Any pension payment that is calculated from salary over and above that limit is considered non-qualified and has to be paid by the company out of general funds as opposed to the pension trust fund. This seems like a reasonable approach if the company is healthy and the approach protects the pension trust fund from being diluted. Of course it also means that the company is not obligated to put those monies aside in the trust fund, and so they are basically gambling with people’s pensions.
Some honorable companies establish third party annuities to make sure that the non-qualified pensions continue even if the company goes away. I think this is pretty rare however, and Nortel did not establish any protection to cover these pensions.
In my case I tried to withdraw my entire commuted US pension as a lump sum, but I was not allowed to do so by Nortel, and in fact they required that I take the non-qualified portion over a 15 year period as a monthly pension. I had no say in that matter whatsoever.
So beware the defined pension plan trap when your service and position in the company may mean your salary exceeds the limit. It’s clear that this form of control needs to be modified and companies should be required to purchase annuities for their retirees so that there is stability and clarity of income for pensioners.
I called Mercer, the company that manages pension payments for Nortel, and although the people were polite they basically told me I was out of luck and all non-qualified pension payments were stopped. They were kind enough to give me the telephone number of Epiq Systems, a company that was keeping the records for the bankruptcy court. When I called them, they told me the same thing and advised me to go to their website and fill in a proof of claim form and submit it so that the money owed to me could be officially registered. They also told me that I would be considered an unsecured creditor along with many thousands of others and that we would all be treated the same. In other words, defined pension commitments would not have any priority.
I also called the Pension Benefit Guaranty Corporation, and they were very sympathetic but said they couldn’t help since my NQ pension was not covered by the insurance they provided. They told me that this was a familiar story with a number of bankrupt companies including the Delta pilots. I checked with ERISA and using the FreeErisa website I found Nortel’s pension plan clearly registered there as a defined plan. Nowhere was there discussion of the non qualified portion.
Then I dug out the old pension plan documents. I had obtained a copy when I retired, and in fact I had a copy of the detailed plan as well as the summary. I couldn’t find any mention of non-qualified anywhere in the plan document. I did find an obscure reference to payments being subject to an IRS limit but it wasn’t made clear up front in any of the documents. The calculation sheet that I received when I applied for pension did show that a portion would be treated as non-qualified, but there was little explanation attached.
Since then I have learned that the IRS imposes a limit on the salary that can be used to calculate the commuted value of a pension. The salary limit when I retired was $160K and since then it has gone up to $200K. Any pension payment that is calculated from salary over and above that limit is considered non-qualified and has to be paid by the company out of general funds as opposed to the pension trust fund. This seems like a reasonable approach if the company is healthy and the approach protects the pension trust fund from being diluted. Of course it also means that the company is not obligated to put those monies aside in the trust fund, and so they are basically gambling with people’s pensions.
Some honorable companies establish third party annuities to make sure that the non-qualified pensions continue even if the company goes away. I think this is pretty rare however, and Nortel did not establish any protection to cover these pensions.
In my case I tried to withdraw my entire commuted US pension as a lump sum, but I was not allowed to do so by Nortel, and in fact they required that I take the non-qualified portion over a 15 year period as a monthly pension. I had no say in that matter whatsoever.
So beware the defined pension plan trap when your service and position in the company may mean your salary exceeds the limit. It’s clear that this form of control needs to be modified and companies should be required to purchase annuities for their retirees so that there is stability and clarity of income for pensioners.
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