Nortel US moves to seize $37.9m in deferred compensation

The following story was published on Dec 23rd on the Dow Jones Bankruptcy Review.

As explained to me the program referred to was available to most everybody in the U.S. at JCI 6 (director-level) or higher. Some JCI 5’s were eligible too. The vast majority of participants in this plan were at the director and VP level, not the CxOs or LOB presidents.


Nortel moves to seize $37.9m in executive retirement savings

By Peg Brickley, Dow Jones Daily Bankruptcy Review

Thursday 23 December 2010

Canadian firm says money is part of a 'risky' deferred-compensation plan.

Nortel Networks Corp. moved Wednesday to seize $37.9 million in retirement savings socked away over 10 years by some of its U.S. managers and executives.

The Canadian telecommunications-equipment maker says the money is in a deferred-compensation plan that participants understood was a "risky undertaking," because terms allow Nortel to take the retirement savings if it ran into trouble.

The filing with the U.S. Bankruptcy Court in Wilmington, Del., is couched as a stipulation with the bank that holds the deferred pay and bonuses in a trust account. Once a judge signs off on the settlement, Nortel's papers say, the money executives put away in the trust becomes company property. Nortel named no names in Wednesday's court filing but said the money was put away by "a select group of management and highly compensated employees" in the U.S.

According to the company, the deferred-compensation plan it created in 2000 is a "rabbi trust," which falls outside the protection of U.S. pension laws. Executives were offered an opportunity to delay taking up to 80% of their base salary, and up to 95% of commissions and bonuses, by putting the money in the trust.

The expectation was that they would draw on their earnings after retirement, when tax rates were lower. Nortel says the deal included an understanding that in the event of bankruptcy, the participating executives would get in line with other unsecured creditors to await payment under a Chapter 11 plan.

The fate of deferred-compensation programs in Chapter 11 often depends on how the programs were actually administered. Because they expose earned employee pay to creditors, such programs are supposed to be limited to top executives who presumably have access to professional advice about the risk of participating.

Not all companies might play by the rules, though.

Christmas Break

I know this Christmas won't be a very happy time for many people, especially the disabled Nortel people facing major issues next year. During this Christmas-time I hope that for a while we can all put aside our worries and concerns, and focus on our families and get that happiness feeling once again for at least a little while.

I will probably not be posting anything for a few days though if I notice something happening I will make sure it gets posted.

So please check back again after Christmas when I will continue to issue information as I find it and will provide my opinion as I see fit.

Merry Christmas to all my readers, and I sincerely hope that the New Year brings us a lot better than these last two.


Tom

(1) EMEA Claims (2) US Restoration Plan termination

(1) Emea Claims

The Canadian monitor Ernst and Young have submitted their 58th report to the US court outlining a proposal to set a bar date for Feb 11, 2011 for all Nortel EMEA related claims. Most of those claims are inter company and will likely be contentious. They are also a sticking point in terms of settling the division of assets between geographic units of Nortel and it is E&Y's point that these claims need to be identified and resolved before the division of assets can be properly determined.

The report is listed on a docket for Dec 23rd on the Epiq web site.

The process in the report contains a paragraph referencing the claim by the UK Pension Trust, and the UK Pension Protection Fund. This is a little unsettling since that claims was ruled out of line by both the Canadian and US courts last year since it is a UK claim against other country assets. However the UK funds have not given up and are pressing for settlement and have been allowed to participate in the mediation talks on allocating the Nortel assets by geography. Since the claim is huge, ($3B), it could impact us tremendously if allowed to stand.

(2) US Restoration Plan Termination.

After almost 2 full years of not getting paid my non-qualified pension from Nortel US, I received a letter from them, sent through Epiq, basically telling me that the restoration plan has been terminated. The letter also states that any claims related to the restoration plan will be settled through the claim process that was established in 2009. Seems a little late for that information to be arriving. I presume this official termination is a required legal step to meet some ERISA or other employee protection requirement.