Nortel Canada Pension Funds NOT Mismanaged

The following detail was provided in a letter to the members of the CAW by Barry E. Wadsworth, Associate Counsel for CAW, regarding the rumor being spread by elected Canadian government officials that Nortel's Canadian pension fund was mismanaged.

Saturday, 16 October 2010

In recent weeks, the CAW has held several information sessions for the unionized retirees, terminated and LTD employees regarding the Nortel bankruptcy process. An issue was raised regarding Ontario Finance Minister Duncan's statement that the Nortel pension funds were seriously mismanaged. Barry Wadsworth, CAW Legal Counsel and Court-appointed legal representative for over the 600 Nortel unionized employees, has prepared the following which can be used in your letter writing to your MPP and to Minister Duncan and Premier McGuinty:

Letter from Barry Wadsworth, CAW Legal Counsel

Dear Brothers/Sisters,

I have received a request from one of the individuals who attended one of our Nortel information meetings to provide, as I had promised I would, points to refute the Minister of Finance's statement that the Nortel pension plan was mismanaged. These points are as follows.

1. The underfunding of the pension plan was as a result of Government policy, by way of the Pension Benefits Act, which does not require that companies fund pension plans on a fully funded wind-up basis. That is, the Government should require companies to fully fund pension plans as if they might go bankrupt tomorrow. Instead, the Act allows companies to fund pension plans as if they will go on forever and any momentary underfunding will eventually be paid for over time. If there was a requirement for fully funded wind-up funding, there would never be a need for the Pension Benefit Guarantee Fund or losses to retiree incomes when an underfunded plan is wound-up. The costs would be fully borne by the companies and not by transfers from taxpayers to the PBGF.

2. Moreover, part of the current underfunding resulted from the 2008 - 2009 losses in the stock market and therefore the value of the equities held by the fund. This is not mismangement - the level of equities in the pension plan was in keeping with the guidelines set under the PBA. Many, if not all, defined benefit pension plans suffered the same losses.

3. Part of the current underfunding resulted from the lowering of the interest rates, which resulted in a lowering of the return on the bonds and other instruments held by the pension plan. This is the same as for equities, above.

4. If there really was mismanagement of the pension plan then the Financial Services Commission should have stepped in to protect the assets of the plan from the former administrator, Mercers.

5. I have not seen where the government or FSCO have brought any charges against Mercers under the PBA, nor has Nortel - the payor Company, nor any individual or group of retiree beneficiaries under the Plan. This is likely because there was no mismanagement as alleged by the Minister. The remarks were therefore ill advised and baseless.

Barry E. Wadsworth
Associate Counsel
CAW-Canada Legal Department
Last Updated ( Monday, 18 October 2010 )