Representation Status
Koskie Minsky has been recognized by the court as the legal counsel for most ex-employees. The estimate is about 19,000 Canadian ex-employee claimants. K.M. will be representing 9,900 non-negotiated pension plan members, 1000 severed and people on Long Term Disability. They have received info from Nortel with the address list of all retirees, but are missing about 15,000 email addresses. Make sure your friends know to check the Canadian website to be registered and keep up to date. Active employees will have separate representation, as will CAW employees and those who choose to opt out.
Asset sales.
In Canada the process calls for written offers for the assets. There are 1 or 2 rounds of submission. It is a closed court process. The submissions are reviewed by the Monitor who recommends and seeks court approval.
In US the assets are sold by auction. Prospective buyers are identified and made public. A so called “stalking horse” bid is made by the first party. An auction is then scheduled and held with other bidders. The sale goes to the highest bidder.
The assets are sold from the country with the most involvement. Hence Wireless and Enterprise were sold through the US process.
Lock Box
All cash realized by the sales will be held in a lock box under joint jurisdiction of the courts. The monitor administers and manages the account. To release the funds a negotiation process is needed to reach an equitable allocation. If a compromise is not reached it could lead to protected litigation which would not a good thing since it will involve long legal wrangling and will cost a lot. The NRPC and KM are fully engaged to make sure Canada gets a fair realization. At this stage, there is no clear process or methodology for allocation of sale of assets among the estates. There still remains a large amount of intellectual property which has not been included in the sales and which also will require a methodology for disposition and allocation.
Monitor & Company
The monitor has become more involved in the management of the company. This way they can better look after the creditors. In the US there is the creditor’s committee- like the monitor, and in the UK there is an administrator. All decisions need court approval and therefore one area can’t be swamped by other jurisdictions. The Company is in a holding pattern. (1) Ongoing operations in selling units and transferring the people involved to purchasers (2) status quo on remaining units trying to keep some business flowing. There are only 3 remaining directors on the board which makes it easier to get decisions made. They are being paid a bit more but it is a lot cheaper than 9 directors
Funding on Canadian side.
The Canadian entity is a net spender of cash mainly because of R&D. It is reimbursed by non-Canadian entities which needs court approval in all areas. $157M been agreed to flow into Canada to keep it operating. Further negotiations are needed to continue. The monitor is working that.
Claims process
To ascertain the value of the claims everyone has to make a claim. Ex-employees (non negotiated) in Canada do not have to make their own individual claims since K.M. will handle that in a separate process. The CAW will work the claims for their members. All others must make their own claims.
Is is very difficult to say what the value of a pension claim might be. The fund is in a state of flux as the market shifts. Data from the company will help determine the formulae and assumptions that will be used. It will take a long while to work out. There may be a phased distribution where dollars are given out in a series of steps. There will be challenges to claims. People who don’t have real claims will try to get in on the process. K.M. will fight all claims that don’t appear real or justified.
Individuals in the pension plan will not be required to compile their own claim. There will be an omnibus claim filed in one big claim based on common methods of calculation with factors used to give the best possible numbers. There will be a communications with individuals to make sure that their claim is correct and agreed to.
Canadian Pension Plan Funding
In March it was estimated to be 69%. It could be higher due to market changes. All assets in the pension plan will have to be evaluated to determine the shortfall. The shortfall cannot be determined until all pension details are worked out. Nortel is still paying something into the fund.
Pension payments
The pension payments will continue as normal for now. There is no wind-up yet. The superintendent of pensions is a party in the court proceedings. Quebec and Ontario will press the case for an orderly process. Some money is still coming in to pay for unfunded liabilities and the intent is to keep that going as long as possible.
Severance
The court refused to pay severance. An appeal is underway. If granted approval to appeal, the hearing will be held in the Sept-Oct time frame. Provincial law has statutes protecting those with severance.
Health and Welfare Trust
Only administered by Sunlife. The trust has some assets which were partially pre-funded by Nortel in the past. K.M. should obtain standing on this by December. There is no law regarding pre-funding.
Tax impacts of payout
When settlement is made the process is normally lump sum payment which could require tax payments. If possible K.M. will work to have any settlements for pension used to top up the pension fund.
BIA amendment.
A petition has been circulating and will be presented to the Parliament. It may be too late however for Nortel pensioners. The NRPC political action committee is lobbying Investment Canada to use parts of the sale of assets for Nortel ex-employees.
Annuities
When the plan winds up pensions will be calculated on the funding ratio of the trust fund and converted to annuities. The Quebec Government has enacted a law (rule 1) which will allow pensioners with Quebec service to opt to have the government hold their pensions for up to 5 years in order to let the market improve. This would allow the pensioner to determine when to convert it to an annuity in order to maximize payments.
Hardship Cases
A hardship protocol has been approved by the court. People who are suffering financial hardship due to the loss of severance or other Nortel payment can apply. Check the K.M. and Ernst & Young websites. This will be an advance on any ultimate claim made.
Retainers
Koskie Minsky are now being paid by Nortel in an arms length mode as ordered by the court. There is no connection between K.M. and Nortel other than their representation on our behalf. K.M. will be returning the $150C ($120US) within the next month to everyone who sent them in. K.M. will be representing all ex-Nortel employees except negotiated (CAW), those who opt out, and some high level ex-executives.
Showing posts with label pension. Show all posts
Showing posts with label pension. Show all posts
Monday, August 31, 2009
IRS files $3B claim against Nortel
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.
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.
Monday, August 17, 2009
Claims against Nortel Process
In an earlier post I stated that I had received 3 different bar-coded claim forms from Epiq last Friday. In discussions with an Epiq representative this morning (Aug 17th 2009) he told me that two of the three schedule numbers were actually just data base references and that I should file the claim with the schedule number that is listed on their docket 801. He didn’t know why I had received the additional forms but basically told me to forget about them and focus on the one that is recorded.
I took the opportunity to ask him about filing claims for health care and other benefits. He could not give me any specific direction on this, but said that if I thought that I had a claim against Nortel I should file it.
I then asked if there was a process to be followed if Nortel disputed a claim. He told me that Nortel would review all the claims and would then contact the claimant if they disagreed. I asked if any claims were ever rejected outright and he said there have been cases like that but generally the debtor (IE Nortel) would review the claim and contact the claimant if there was disagreement. Given Nortel’s lack of communications with us so far I’m not sure how that will happen.
Following my discussion with Epiq I spoke with a lawyer at Akin Gump, the court appointed legal firm representing all unsecured creditors. He said that he couldn’t give any legal advice but was willing to speak with me in an unofficial capacity and address non specific questions. I asked him about filing for health care, long term care, and insurance now, even though Nortel had not yet ceased those programs. He was not able to state directly what I should do but said that if I felt I had a claim against Nortel I should file it. I asked if Nortel would reject such claims at this point and he said that it would be up to Nortel but at least the claim would be on file.
I then asked it there had ever been a case where a new bar date had been set for different claims and he told me that he had seen that happen before. So it is possible that a different bar date would be established for claims relating to benefits other than pension, or specific compensation such as severance etc.
This chapter 11 process is intentionally vague, loose, and relaxed. Given all this lack of direct advice it seems that there is no clear process in order to keep the creditors in the dark and give the debtor an advantage. Bankruptcy is meant to help the bankrupt company not the creditor so don’t be surprised when Nortel and their lawyers present all sorts of arguments against your claim to try to avoid paying it.
I took the opportunity to ask him about filing claims for health care and other benefits. He could not give me any specific direction on this, but said that if I thought that I had a claim against Nortel I should file it.
I then asked if there was a process to be followed if Nortel disputed a claim. He told me that Nortel would review all the claims and would then contact the claimant if they disagreed. I asked if any claims were ever rejected outright and he said there have been cases like that but generally the debtor (IE Nortel) would review the claim and contact the claimant if there was disagreement. Given Nortel’s lack of communications with us so far I’m not sure how that will happen.
Following my discussion with Epiq I spoke with a lawyer at Akin Gump, the court appointed legal firm representing all unsecured creditors. He said that he couldn’t give any legal advice but was willing to speak with me in an unofficial capacity and address non specific questions. I asked him about filing for health care, long term care, and insurance now, even though Nortel had not yet ceased those programs. He was not able to state directly what I should do but said that if I felt I had a claim against Nortel I should file it. I asked if Nortel would reject such claims at this point and he said that it would be up to Nortel but at least the claim would be on file.
I then asked it there had ever been a case where a new bar date had been set for different claims and he told me that he had seen that happen before. So it is possible that a different bar date would be established for claims relating to benefits other than pension, or specific compensation such as severance etc.
This chapter 11 process is intentionally vague, loose, and relaxed. Given all this lack of direct advice it seems that there is no clear process in order to keep the creditors in the dark and give the debtor an advantage. Bankruptcy is meant to help the bankrupt company not the creditor so don’t be surprised when Nortel and their lawyers present all sorts of arguments against your claim to try to avoid paying it.
Wednesday, July 22, 2009
Pension Reform - Social Security
Companies in the USA have almost completely moved away from the traditional defined benefit plan, to schemes that require employees to contribute part of their salaries into a tax exempt fund. This tactic has reduced costs for companies and has essentially been a salary cut. Older workers who were part of the traditional plans received benefits as part of their remuneration package and it was built in to the company budgeting process. That way the workers did not have to worry about their retirement since the company would look after them. Additionally, with the establishment of the Pension Board Guaranty Corporation in 1974 the pensions were protected if the company went bankrupt.
This security blanket is quickly disappearing. Defined benefit plans will be completely replaced over the careers of the latest generation of workers. Then it will be up to the individual to make sure that they are adequately covered for retirement. This is not an easy task for anyone, and in fact since the effective salary has been reduced by eliminating those benefits, there is little extra income to build the retirement fund.
The events of 2008 and early 2009 have shown us that relying on the markets to build wealth can be extremely uncertain as millions of people lost heavily on their 401K plans and IRAs. To assume that individuals can manage these tricky investments properly to grow their retirement funds is risky. With the current state of the social security fund, it will fall on the taxpayer to support those who have inadequate funds to survive in retirement. It’s clear that there needs to be a rational debate on pension reform. What should we do as a caring nation to ensure that the elderly are adequately provided for in the autumn of their lives?
We can start by looking carefully at social security and how the money flows into and out of that fund. Today there is a cap applied so that extremely rich people end up paying a much smaller percentage that the ordinary worker, yet they are provided with the maximum pension when they reach retirement age. By removing that cap the funding issue for social security would disappear and the impact would hardly be felt by the super rich. It seems however that politics always gets in the way of solving problems in a straightforward manner, and there has been a campaign to discredit such a move by casting it as a tax increase that would impact jobs and the economy.
Personally I see it as a perk that rich people have had long enough, and I hope that the cap is removed so that at least one part of retirement security can be protected for future generations.
This security blanket is quickly disappearing. Defined benefit plans will be completely replaced over the careers of the latest generation of workers. Then it will be up to the individual to make sure that they are adequately covered for retirement. This is not an easy task for anyone, and in fact since the effective salary has been reduced by eliminating those benefits, there is little extra income to build the retirement fund.
The events of 2008 and early 2009 have shown us that relying on the markets to build wealth can be extremely uncertain as millions of people lost heavily on their 401K plans and IRAs. To assume that individuals can manage these tricky investments properly to grow their retirement funds is risky. With the current state of the social security fund, it will fall on the taxpayer to support those who have inadequate funds to survive in retirement. It’s clear that there needs to be a rational debate on pension reform. What should we do as a caring nation to ensure that the elderly are adequately provided for in the autumn of their lives?
We can start by looking carefully at social security and how the money flows into and out of that fund. Today there is a cap applied so that extremely rich people end up paying a much smaller percentage that the ordinary worker, yet they are provided with the maximum pension when they reach retirement age. By removing that cap the funding issue for social security would disappear and the impact would hardly be felt by the super rich. It seems however that politics always gets in the way of solving problems in a straightforward manner, and there has been a campaign to discredit such a move by casting it as a tax increase that would impact jobs and the economy.
Personally I see it as a perk that rich people have had long enough, and I hope that the cap is removed so that at least one part of retirement security can be protected for future generations.
Friday, July 17, 2009
Proof of Claim forms for Nortel US creditors
When Nortel entered Chapter 11 many of us became unsecured creditors. This happened when Nortel ceased to pay non-qualified pensions,and severance, and prevented access to deferred compensation, plus other categories.
In order to have our claims recognized and considered in the final court settlements it is essential that all creditors lodge their proof of claim with the company responsible for the court dockets:- Epiqsystems.
Over the last six months many people have completed proof of claim forms and submitted them to Epiqsystems. Many of us have been waiting for decisions to be made in terms of the method of calculation and also the reference bar code needed for the forms.
Nortel has petitioned the court to hear their case on August 4th regarding the deadline for submitting the proof of claims forms. If the court agrees with the proposed bar date of September 30th, Epiqsystems will start sending out forms with the official barcode on them to all creditors on their list.
I confirmed this information today by phoning Epiqsystems and they think it will be in the first or second week of August that they will send out the forms. This still gives us at least a month to complete the forms and send them back in. Check the EpiqSystem website at chapter11.epiqsystems.com/nortel for the address to send the claims form.
In the meantime you need to get prepared to calculate your claim and gather up all the supporting documentation to go with it. The NRPC steering committee will be giving an update through the web site www.nnra.org as soon as they hear from Segal as to how the claims will be calculated. Please check that site to look for updates and as soon as I hear I will publish it here also.
In order to have our claims recognized and considered in the final court settlements it is essential that all creditors lodge their proof of claim with the company responsible for the court dockets:- Epiqsystems.
Over the last six months many people have completed proof of claim forms and submitted them to Epiqsystems. Many of us have been waiting for decisions to be made in terms of the method of calculation and also the reference bar code needed for the forms.
Nortel has petitioned the court to hear their case on August 4th regarding the deadline for submitting the proof of claims forms. If the court agrees with the proposed bar date of September 30th, Epiqsystems will start sending out forms with the official barcode on them to all creditors on their list.
I confirmed this information today by phoning Epiqsystems and they think it will be in the first or second week of August that they will send out the forms. This still gives us at least a month to complete the forms and send them back in. Check the EpiqSystem website at chapter11.epiqsystems.com/nortel for the address to send the claims form.
In the meantime you need to get prepared to calculate your claim and gather up all the supporting documentation to go with it. The NRPC steering committee will be giving an update through the web site www.nnra.org as soon as they hear from Segal as to how the claims will be calculated. Please check that site to look for updates and as soon as I hear I will publish it here also.
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.
Monday, June 22, 2009
Bankruptcy impact on pension income
The usual thinking is that people can live on a pension if their income is about 80% of what they earned when they were working. This seems reasonable if the kids have grown up, the mortgage has been paid off, and other debts retired. At 80% income, people can make adjustments and live a lifestyle that is much like what they had before.
Since retiring 8 years ago, my income has been at or above the 80% level, and especially during the boom times as the stock market went up. My lifestyle was much as it was before retirement and it was a pleasant life. Then came the market meltdown and my investments took a nose dive. At least my pension income was still proceeding along at the same rate even if my investment returns were negative, and during 2008 it seemed like we would be OK and be able to weather the storm.
Then in January 2009, the company paying my defined pension declared bankruptcy and went into chapter 11. Immediately my income dropped 30%. We had to take stock and I reluctantly had to turn to the savings in my IRA to make up that difference. Luckily we have money in the IRA even though it too had been pounded by the market. As conservative investors we had managed to keep most of the capital but it had suffered close to a 20% drop which was a shock to our system.
After some calculation we went ahead with a new plan to withdraw funds from the IRA to replace the missing pension income. Our total income then returned to the level it was before the bankruptcy but we are prematurely eating into our IRA investments to maintain it.
Part of our other income was also at risk however. Since I had worked for the same firm for 35 years, part in Canada, and part in the US, I was receiving pension from those two subsidiaries. My US pension had ceased immediately since it was considered non-qualified, but my Canadian pension was ongoing. It was being paid out of the pension trust fund.
When the company, Nortel, declared bankruptcy they continued to manage the pension trust funds, however, in spite of government regulations on pension trusts, the funds were woefully under funded.
The best estimates of the pension trust fund showed it was probably only able to support about 60%- 70% of its long term obligations.
So now we face the prospect of another cut in pension income as Nortel liquidates and winds up the pension funds. For the US retirees who are receiving a qualified pension as part of the defined pension plan, there is protection by the PBGC. Unfortunately we don’t qualify for that.
The Canadian pension however, has no insurance protection whatsoever. There is no Canadian PBGC equivalent. As a result our Canadian pension will drop probably by 40% or maybe even as much as 50%. So my pension income in total will be reduced by 50%-60%. Hence I face the prospect of living on about 40% of what I expected as pension income plus the withdrawals from my IRA
This doesn’t seem reasonable at all. After spending so much time and energy helping to build a company and contributing many hours above and beyond what I was getting paid for, my reward is a like a slap in the face. Surely our society is better than that?
Retirees should be treated with more respect than this and pension funds need to be fully protected by all governments. Relying on companies to look after their retiree population is preposterous. It seems that once you are gone, you are forgotten and the ongoing payments become a burden rather than a necessary expense.
Well, I’m sure we will survive somehow, but this lesson needs to be brought forward to make sure the next generation to retire faces some stability in their last years.
Since retiring 8 years ago, my income has been at or above the 80% level, and especially during the boom times as the stock market went up. My lifestyle was much as it was before retirement and it was a pleasant life. Then came the market meltdown and my investments took a nose dive. At least my pension income was still proceeding along at the same rate even if my investment returns were negative, and during 2008 it seemed like we would be OK and be able to weather the storm.
Then in January 2009, the company paying my defined pension declared bankruptcy and went into chapter 11. Immediately my income dropped 30%. We had to take stock and I reluctantly had to turn to the savings in my IRA to make up that difference. Luckily we have money in the IRA even though it too had been pounded by the market. As conservative investors we had managed to keep most of the capital but it had suffered close to a 20% drop which was a shock to our system.
After some calculation we went ahead with a new plan to withdraw funds from the IRA to replace the missing pension income. Our total income then returned to the level it was before the bankruptcy but we are prematurely eating into our IRA investments to maintain it.
Part of our other income was also at risk however. Since I had worked for the same firm for 35 years, part in Canada, and part in the US, I was receiving pension from those two subsidiaries. My US pension had ceased immediately since it was considered non-qualified, but my Canadian pension was ongoing. It was being paid out of the pension trust fund.
When the company, Nortel, declared bankruptcy they continued to manage the pension trust funds, however, in spite of government regulations on pension trusts, the funds were woefully under funded.
The best estimates of the pension trust fund showed it was probably only able to support about 60%- 70% of its long term obligations.
So now we face the prospect of another cut in pension income as Nortel liquidates and winds up the pension funds. For the US retirees who are receiving a qualified pension as part of the defined pension plan, there is protection by the PBGC. Unfortunately we don’t qualify for that.
The Canadian pension however, has no insurance protection whatsoever. There is no Canadian PBGC equivalent. As a result our Canadian pension will drop probably by 40% or maybe even as much as 50%. So my pension income in total will be reduced by 50%-60%. Hence I face the prospect of living on about 40% of what I expected as pension income plus the withdrawals from my IRA
This doesn’t seem reasonable at all. After spending so much time and energy helping to build a company and contributing many hours above and beyond what I was getting paid for, my reward is a like a slap in the face. Surely our society is better than that?
Retirees should be treated with more respect than this and pension funds need to be fully protected by all governments. Relying on companies to look after their retiree population is preposterous. It seems that once you are gone, you are forgotten and the ongoing payments become a burden rather than a necessary expense.
Well, I’m sure we will survive somehow, but this lesson needs to be brought forward to make sure the next generation to retire faces some stability in their last years.
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