October Demonstrations in Ottawa and Toronto

Announcement on the Canadian NRPC Website:

The NRPC, in conjunction with the CAW, Teamsters, other organizations and pensioner groups, will be demonstrating en masse to hammer home the criticality of protecting employee rights including pensions, severance pay, and benefits.

While other governments, the U.S and UK, are backing former Nortel employees there, our provincial and federal governments are not involved, not even interested. We need the support of our governments. It is time to have our voices heard loud and clear.

Join the mass demonstrations calling on the Governments of Ontario and Canada to act on behalf of former Nortel employees and all Canadian pensioners

Pensions and health benefits are at serious risk
Special retirement payments have been stopped
Recently severed people did not receive their severance pay entitlement
LTD employees stand to lose almost all income and health benefits


We need everyone out for the two demonstrations including family and friends. We call on the support of the public at large and all other pensioners - you could be next!

QUEENS PARK TORONTO - OCTOBER 7, 2009

Where: Queen's Park
When: Wednesday October 7, 2009
Time: 12:00-1:30pm

PARLIAMENT HILL OTTAWA - OCT 21, 2009

Where: Parliament Hill
When: Wednesday October 21, 2009
Time: 12:00pm

Canadian Pension Trust Fund

The NRPC & Koskie Minsky Q & A has some information that applies to those of us with Canadian pensions who are living in the US. The following are summaries of some key excerpts from the Q&A at the August 25th webcast by the NRPC & Koskie Minsky

The most recent valuation of the trust fund was an estimate determined by Mercer and resulted in the 69% figure currently being used. In the event of a wind-up, a new complete evaluation would be carried out before any cuts would be made in pensions.

The recent upswings in the Canadian market and dollar are likely to have improved the percentage since the fund is 53% invested in stocks, though 75% of those stocks are global, not Canadian.

Nortel is still continuing to contribute to the defined pension plan. In the 2006 evaluation the pension Plan was valued at 103%. The tax law calls for penalties to companies with more that 110% funding. On wind-up of a pension plan the valuation is typically 10%-20% below the on going valuation due to the additional costs and assumptions of wind-up.

In the event of a wind-up, the Ontario Superintendent of pensions will take over responsibility for the management of the plan and appoint an administrator. It is in our best interests for the wind-up to be delayed as long as possible to allow equity markets and bond rates to improve.

Because the Nortel pension fund is so large, it may be unsuited to the normal wind-up process and may take a number of years to obtain annuities to cover everyone. It is further complicated by the inclusion of limited cost of living advances in the plan. The NRPC and Koskie Minsky have approached the Ontario Government to appoint a facilitator who may allow changes in the normal process to better suit our purposes.

On wind-up pensioners would receive payments from an annuity which will reflect the funding percentage of the trust fund. The annuities will be purchased to reflect the plan provisions. This will include survivor benefits and cost of living increases as defined in the plan unless a facilitator negotiates changes to the pension benefits.

Pensioners will not be able to take a lump sum payment for the remaining commuted value of their pension.

The actual final value of the fund will not be able to be determined until all claims have been made and processed and decisions made on creditor payouts. In the mean time an interim fund evaluation can be determined and used by the administrator to be used in pension payouts.

It was suggested that people use a figure of 30% reduction for now for planning purposes

Nortel Retirees in US with Canadian Pensions

The NRPC & Koskie Minsky Q & A has some information that applies to those of us with Canadian pensions who are living in the US.

Koskie Minsky will represent all (non-union) retirees with Nortel Canadian pensions in the Canadian case including those living in the US. KM is negotiating the claims process with the Canadian court and lawyers and will contact all affected Nortel ex-employees with Canadian pensions. KM will assist people in calculating and filing their claims regardless of the country or province of residence.

The Canadian pension claim process has not yet been determined. Claims will relate to any shortfall in the pension trust fund so it is difficult to determine what the claims are until the pension trust fund situation is clarified. This will likely occur if the pension is transferred to the Ontario superintendent in the event that the Nortel pension plan is wound up.

Q&A from Canadian Webcast

The Q&A document from the August 25th Webcast has been posted on the Nortel Pensioners website at;

http://nortelpensioners.ca/index.php?option=com_content&task=view&id=401&Itemid=192.

The information is mainly for Canadian Nortel ex-employees however there are also a number of questions and answers relating to people living in the US and drawing a Canadian pension. You can download the document from the site at the address shown above.

I plan to summarize various qustions and answers and publish the summaries on this site over the next few days.

PBGC to start paying Nortel pensions in January 2010

Some people have received letters from the PBGC stating that they will start receiving their pension checks from the PBGC agency starting in January 2010. The letters indicate that the payments will be coming from State Street Corporation (SSC), PBGC's paying agent, instead of Northern Trust.

The PBGC is obviously working with Nortel and Mercer to obtain the relevant information on all people currently receiving defined pension benefits. If you are a recipient of a monthly defined benefit pension payment from Nortel,your pension checks should continue to come from Northern Trust until Jan 2010, at which time the PBGC agency will start issuing them. You should check with the PBGC to determine if there are any impacts on the payments since they have specific rules and limits of the monthly amounts paid.

Also if you think that you are covered by the PBGC and have not yet received a letter, I suggest calling the PBGC to confirm your eligibility.

Cross border judicial cooperation?

When Nortel auctioned off the wireless business in July the US and Canadian courts attempted to run the show jointly by working a video link between the two courtrooms in real time to approve the plan of action.

Both judges agreed to a simple script for the hearing. However, shortly after Nortel’s US lawyer explained the guidelines in Delaware, Judge Gross, the US judge, jumped the gun by approving the plan and ending the hearing.

Judge Morawetz and the assembled Canadian lawyers and creditors in Toronto were left with their mouths open wondering what happened.

A private telephone conversation between the two judges followed, after which the joint hearing was reopened, and that allowed Judge Morawetz to save some face and approve the plan.

As stated by one of the Canadian lawyers present, “It was embarrassing what happened that day,” and followed up by declaring that US lawyers view Canada “as a complete afterthought”.

For those of us who are Canadian creditors this does not bode well for the percentage of assets allocated to Canada after Nortel’s full liquidation. We will probably be short changed in terms of the money left to divide among Canadian creditors, after the US has taken its pound of flesh.

Since most of the cash is in the US entity this probably seems like a reasonable distribution, but given the fact that the company originated in Canada where all the ideas, designs, and strategies that led to its success were created, it’s a hard pill to swallow.

Segal provides data for claims against Nortel

The NUSRPC and Segal have delivered on their promise to calculate claims for paying members. I received an email late Friday with details on their calculation for my own claim which is a non-qualified 15 year certain US pension that was stopped when Nortel declared chapter 11.

The details on my pension had been sent from Nortel to Segal who used the information as well as actuarial tables used by the PBGC to determine benefits in qualified pensions plans terminated in 1994. So there is a reduced level of Nortel rejecting the calculation when the claim is reviewed by the court.

At this point the next step is to transfer the information provided by Segal on to the bar coded form sent to me by Epiq Systems with a schedule number, and forward it along with the supporting Segal document to Epiq Systems.

In terms of the calculation, Segal used a discount rate of 6.02% for the next twenty years and 5.48% thereafter. These are the same numbers used by the PBGC. Given the fact that we have been in a period of zero or almost negative inflation, it is hard to swallow such a high discount rate. However using something different may cause a rejection of the claim and could result in no pay out whatsoever.

The total number calculated by Segal for the remainder of my 15 year certain pension is 17% less in terms of dollars as compared to simply taking the monthly amounts and multiplying by the number of months left in the 15 year term. This reflects the discounting to state the total value in today’s dollars. If a more reasonable discount rate of 3% had been used the reduction would only have been in the order of 7%. However it seems that no matter where we turn, we are going to be penalized for something we had no control over.

The penalizing story doesn’t end there either. In the event that there are any Nortel assets to be distributed to creditors, retirees will receive the same percentage as all other unsecured creditors. So the total value will be reduced by an even larger factor. Let’s say that Nortel’s assets are only 30% of all the claims in the US, I would only receive 30% of the total, which is already reduced by 17%. So that means I would only get 25% of the dollars as a lump sum, as compared to Nortel continuing to pay me for the remainder of my 15 years.

Then to add insult to injury, the lump sum can’t be rolled over into a tax deferred account so I will have to pay taxes on it at a much higher rate than if I had received it over the full period of the pension. That’s probably another 25% reduction using the difference in those tax rates.

So I will be lucky to get 18% of the dollars promised to me by Nortel when I retired. Where does the rest of that money go? To lawyers, executive bonuses, board of directors, tax men, and hangers on probably. What a great system we have to reward those who don’t deserve it, and stiff those who have worked hard for many years to earn it.

Submitting claims against Nortel

The NUSRPC has written an email to its paying members to let them know that Segal will be sending out information this week to a number of the members who have non-qualified pensions. Segal has received the information from Nortel/Mercer and has completed the calculations. They will send the information by email.

A confirming email will also be sent by the NUSRPC so look out for that and make sure you get your claim forms sent in well before the bar date of September 30th 4:00PM Eastern Time.

The forms to use are the ones that were sent to you by Epiq Systems. They have a bar code, a schedule number, but no $ amount entered. Attach the Segal calculations to your form and enter the amount on the bar coded form.

For people with severance claims only the total amount for the severance owed can be claimed. The NUSRPC has been told that interest cannot be added to the claim.

For people with deferred compensation claims, the NUSRPC has been told that you should use the amount that was posted on your account as of January 31, 2009.

Segal calculations on claims

Like many other people I am a little anxious about the looming deadline of September 30th for claims against Nortel. Those of us who are paying members of the NRPC are waiting for Segal to complete their calculations and forward the information to us.

To this point I have not received any information directly from Segal or the NRPC regarding when Segal will get this information to me. I was told second hand that it should arrive within a week. Let's hope that is true. My backup plan is to file my proof of claim based on my own calculations if I haven't heard anthing by the middle of next week. Then if Segal does provide something that differs I can file an amended claim.

The problem is that once this deadline is past there is no way the court will accept any more claims. So we need to make sure our claims are there in good time and registered into the EpiqSystems database.

Nortel US medical benefits

When Nortel went into Chapter 11 protection many people were immediately concerned about the continuance of their medical benefits. This especially applied to retirees who are less than 65 years old and don't have the Medicare safety net to fall back on.

The benefits have been continuing so far since there are still employees working at Nortel and the payments have continued to be made to Cigna. However we all know that at some point those benefits will stop.

A recent posting on Yahoo Nortel Pension Group indicated that someone from Nortel HR shared services advised a retiree that there would be a 2-3 month notification before those benefits stopped. That is certainly better that immediate stoppage like what happened to our Non-Qualified pensions and severance. I am not certain how true the statement is, but it's a slight glimmer of hope for a few of us.

The lawyers prospering from Nortel's bankruptcy

Whilst thousands of retirees and former employees of Nortel wonder if they will ever see any of the money owed to them and fret over future cuts to their pensions and livelihood, the lawyers are circling like vultures around Nortel's carcass and picking off the meat before anyone else can get near it.

On August 26, the Ottawa Citizen reported that Nortel is expected to have professional fees of US$290 million associated with its bankruptcy filings. This is US$104 million higher than the US$186 million professional fees paid in ABCP CCAA restructuring, the largest CCAA case in Canadian history completed on January 19, 2009. Nortel's professional fees will be US$197 million higher than the US$93 million spent in the Stelco CCAA case.

So the final Nortel estate will be almost $300M lower due to the charges by the legal beagles and will reduce the claims of all the deserving creditors. Who monitors and approves those legal fees? Not Ernst & Young. The monitor's role definition states specifically that E&Y is not responsible for checking invoices and costs. So it has to be the board of directors and what's left of management who approve those fees. They certainly seem to be free and easy with our money. But then isn't that what got them into this pickle in the first place? So we shouldn't be surprised. Once again we seem to be victims without any say. Our only recourse is exposing these practices to public scrutiny.

IRS tax claim against Nortel

In previous management teams, Nortel would meet with IRS representatives to review the tax payments and transfers between business units in multiple countries. Most previous claims by the IRS were worked out in this manner so that the impact on Nortel was fair and reasonable.

At this stage in Nortel's life, there may be few people left who can complete such complicated discussions and speak with authority about the decisions and actions taken to ensure that taxes were calculated and paid properly.

Let's hope that there are a few left and that they get all the support that they need from current and former management to explain the discrepancies. The executives who fled the sinking ship should be required to provide their reasoning and actions that has led to this deplorable situation.

The puzzling IRS $3Billion claim against Nortel

If it is allowed to stand, the IRS claim of $3Billion against Nortel will devastate the estate and reduce the chances for all other creditors of being repaid anything reasonable.

The IRS claim could materially affect the global settlement, including the Canada Estate. If this claim stands, the Global Estate claim would fall from an estimated value of 40% to 14%.

The claim by the IRS is very puzzling. Nortel would have had to make incredible profits over the last decade in order to owe such a sum. I hope that there will be lots of challenges to this. It looks to me like the IRS is placing a claim (with priority) in order to get as much as possible back for themselves and maybe the PBGC: (the PBGC estimates the trust fund to be short by $514M). It will hurt all the other creditors and retirees if this is allowed to proceed and it will do nothing to help the US retirees since their pensions will be subject to the PBGC rules anyway.

The Canadian court and the monitor need to raise serious questions about this. The creditor committee in the US also needs to review this urgently and seriously. And the court appointed counsel for the unsecured creditors needs to be involved up front and objecting strenuously to this outrageous claim.

The basis for the claim seems to be somewhere in the transfer pricing methodology used by Nortel. This is even further mystifying since the IRS had already entered into a preliminary agreement with the Canadian tax authorities earlier.

In the first quarter 2009 Nortel submitted a 10-Q form which is an SEC requirement for declaration of financial status. There was discussion of agreement between the US and Canadian tax authorities, and Nortel apparently managed their taxes with the knowledge of both tax authorities. So why is the IRS submitting a claim of such magnitude at this point, and why was this not raised in prior years? Something definitely is awry.

This is an extract from the 10-Q

In September 2008, with respect to the 2001-2005 APA under negotiation, the Canadian tax authorities provided the U.S. tax authorities with a supplemental position paper (Canadian Supplemental Position). We have evaluated the Canadian Supplemental Position and have adopted it under FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes—an interpretation of FASB Statement No. 109” (FIN 48), as the most likely of the possible outcomes. We believe that the Canadian Supplemental Position provides a reallocation of losses between the U.S. and Canada that moves toward a compromise of the reallocation provided in a prior U.S. position (U.S. Position) paper.

The Canadian Supplemental Position Paper resulted in a decrease as at September 30, 2008 of the deferred tax assets in the U.S. of $345, with a corresponding reduction in the valuation allowance, and an increase in deferred tax assets of $378 in Canada, with a corresponding increase in the valuation allowance. We received verbal communication from the Internal Revenue Service (IRS) in December 2008 stating that a tentative settlement on the 2001-2005 APA had been reached between the U.S. and Canadian taxing authorities. We have not received any written communication from the taxing authorities regarding the details of this tentative settlement. We expect the Canadian and U.S. tax authorities to meet to discuss the final settlement position in the next few quarters. We are unsure of the impact, if any, of the Creditor Protection Proceedings on the APA negotiations.

We are not a party to the government-to-government APA negotiations, but we do not believe the ultimate result of the negotiations will have an adverse impact on us or any further adverse impact on our deferred tax assets.