Nortel Networks CCAA Restructuring

August 25, 2010

 

Updated on August 25, 2010

RALLY IN SUPPORT OF THE NORTEL PENSION PLAN

The National Union is calling on all retired workers, local unions and our allies to come to Queen's Park on Wednesday September 15th at 12:00 noon to support the former and current Nortel Workers.  The Nortel Retirees and former employees Protection Canada, (NRPC) have been lobbying the Provincial government to explore alternatives to a conventional pension plan wind-up. 

On Sept. 30, 2010, Nortel will cease to administer and pay into the Defined Benefit Pension Plans. The Financial Services Commission of Ontario (FSCO) will then take over as required by current law.  Unless the Ontario government takes prompt action, Nortel's pensioners may lose over 36% of their pensions and possibly even more.  A major part of their loss occurs because, under current regulations, FSCO will simply wind-up the pension funds by converting them to annuities.

This forever locks-in the existing pension deficit and it adds major penalties, because the cost of annuities is presently at the worst they have even been in 25 years with no relief in sight.  It is the worst possible outcome for Nortel's pensioners, who will also be hit with the loss of their health and life insurance benefits at the end of this year.

The Provincial government must take whatever steps are necessary to protect the pension plan that these workers have paid into all of their working life.  This is part of the on-going CAW and CLC campaign to demand "Retirement Security for All Workers."

We ask that all local unions, RW chapters and area councils organize buses in their respective areas.  We need to keep the pressure on all levels of government to fulfill their moral obligation to ensure our pensions are funded and fully protected.

Getting there from Kingston
Departure location: Invista Center (Arena), 1350 Gardiners Road, Kingston, East end of parking lot. - Contact: Barrie Gunhouse 613-549-8138

Getting there from Belleville
Departure location: Former Nortel Networks Building, 250 Sidney Street, Belleville, back parking lot. - Contact: Darwin Hoskin   613-967-0536

Getting there from London Area:
Two departure locations and one pick-up point have been arranged.
CAW Local 27 -606 First St. London ON. N5V 2A2 - (Just south of Oxford St. on the East side)
CAW Local 1520 -6688 Tempo Rd. London, ON. N6L 1L9 - (On the south-east corner of Hwy 401 and Talbot Rd, formerly #4,intersection

Pick-up at CarPool Lot at the intersection of Hwy 401 and Hwy 19 - On the north-west corner of the intersection)

To register for a seat on the bus you may: Call 519-691-2483 and leave your name and telephone number and we will call back

E-mail mcewan@nortelpensioners.ca This e-mail address is being protected from spam bots, you need JavaScript enabled to view it

Getting there from Kitchener-Waterloo, Cambridge and Guelph
One departure location and one pick-up point has been arranged - The bus is free but you are responsible for your own food and refreshments -

Departure time 8:45 AM - Kitchener, Fairview Mall (location at site to be confirmed)
Pick-up time 9:30 AM - Guelph, Stone Road Mall (location at site to be confirmed)
To register for a seat on the bus you may: Receive a call from a volunteer Call 519-691-2483 and leave your name and telephone number and we will call back

E-mail mcewan@nortelpensioners.ca This e-mail address is being protected from spam bots, you need JavaScript enabled to view it

Getting there from Ottawa Area:
NRPC has rented a 50-seat bus to go to Toronto and back on September 15 so retirees and supporters from the Ottawa area can attend the upcoming rally at Queen's Park.

Please email Tony Marsh at mediarelations@nortelpensioners.ca This e-mail address is being protected from spam bots, you need JavaScript enabled to view it or phone at 613-832-4817 ASAP if you would like a seat on the bus. First come, first served. Spouses are welcome. 

Pickup/Dropoff point:    West End Park and Ride (location to be confirmed)#
Pickup Ottawa:            6.30 a.m. -Arrive Toronto (QP):    11.30 a.m. approx.#
Depart Toronto:           1.30 p.m. - Drop off Ottawa:           6.30 p.m. approx.
Bus is free but please bring something to eat and drink for yourself.# We will confirm 50 riders and put about 10 people on standby in case of last minute cancellations. 

UPDATE YOUR PERSONAL INFORMATION

Although it may seem that all of your information is on record, because you are receiving your benefits and LTD or pension incomes, there have been some problems with the names and addresses we have received throughout the Nortel insolvency proceedings. 

We therefore ask that you contact the following to ensure they have your correct information:

NORTEL HR SHARED SERVICES
Phone: (919) 905-9351
Toll Free: 1-800-676-4636
Fax: (919) 905-9301/9302
Hours of Operation:  Monday-Friday from 9:00 am to 5:00 pm ET

Address:
Dept 7094, Mail Stop 570/02/0C2
PO Box 13010
4001 E. Chapel Hill-Nelson Hwy
Research Triangle Park, NC 27709-3010

SERVICE PROVIDERS

Defined Benefit Pension Plan Members
Mercer - 1-866- 667-8358

Defined Contribution Pension Plan Members
Sun Life -  1-866-733-8612

Life Insurance Inquiries
Sun Life - 1-800-361-2128

EMPLOYEE CLAIMS PROCESS

We are very close to agreement on an "Employee Claims Process" which will allow us to quantify all of the claims available for each of the employees, including LTD recipients, and retirees and deferred retirees (those who took employment with one of the companies that have acquired Nortel businesses over the last many years.) The CAW on behalf of its members and those retirees who have retained the Union to act on their behalf have been working in conjunction with Koskie Minsky, Nortel, the Monitor and two different actuarial firms to identify and quantify the claims for all retirees and employees, including those on LTD.

Once the Claims Process is established and the claims of each individual are identified, every individual will receive a document that shows each of the claims that they are entitled to. Each person will then have the opportunity to correct any personal information on record and identify any claims that they may have which were not previously identified by Nortel, the Monitor and the actuaries. If the newly identified claims are in fact entitlements under a collective agreement then these will be added to the individual's claim and the calculations will then be completed to determine the amount of the final claim against the Nortel assets.

The idea behind the process is to ensure that each individual's claim includes all health and welfare benefit entitlements lost in the insolvency, including lost disability income benefits, Retirement Allowance Payments, future pension accruals, life insurance, post-retirement benefits, severance and termination pay, transition retirement allowances and anything else to which you were entitled arising out of your employment with Nortel. 

We anticipate being before the Court on this issue in September 2010, in order to gain approval of this process.  Once the claims process is approved we expect that the documentation will be out to you in the following month or two.  HOWEVER, given that the Nortel insolvency is so complex and there are not only national but international claims being made against all of Nortel's world-wide assets, it is unlikely that there will be any payment in the claims process until, at least, late 2001.

CERTAIN SPECIFIC CLAIMS

The health and welfare benefits, to which our members and retirees are entitled, were paid out of or through the Nortel Health and Welfare Trust (which is discussed more fully below).  That trust fund is scheduled to be wound-up before the end of this year.  The funds in the trust will be distributed in accordance with the terms of the trust as interpreted and applied by the Court.  The remainder of any claim against the assets of Nortel which are not paid as a result of the trust wind-up will become a claim against Nortel's assets under the Employee Claims Process.

Retirement Allowance Payments, severance pay, and other payments due under the collective agreement - these will become a claim against the assets of Nortel.  It will be a normal unsecured claim with all other unsecured claims.  What will be obtained from the assets of Nortel will depend upon the amount received by the Canadian company from the sale of Nortel's world-wide assets. 

However, given the total dollar amount of the claims against Nortel's Canadian assets it is clear that there will not be a dollar for dollar payment of the amounts owing under the collective agreement. We cannot at this point even speculate on the payments that will be made to individual employees for their claims; the sale proceedings have not completed, the claims processes are not complete, and the inter-company claims processes have not completed.

Lost Health Benefits - As with the above noted claims, the cost of future health benefits for both retirees and LTD recipients will become a claim against the assets of Nortel and at this point there is no way of telling what will be received on each claim. 

Survivor Transition Benefits - As with all of the other benefits currently paid out of the H&WT, these payments will cease as of December 31, 2010, and will become an unsecured debt against Nortel's assets.

Life Insurance -Someone only becomes entitled to the insurance payment upon death and there is a question as to whether at the time of a Nortel bankruptcy, if it occurs, someone is entitled to the full payment of the benefit out of the trust fund unless they are already deceased.  Entitlement to the benefit therefore, as with all of such benefits, ends December 31, 2010.  Although the claim for this lost benefit e loss will be made against Nortel's assets - full payment will only occur if the individual is deceased before December 31, 2010.

SPECIFIC LTD ISSUES

Termination of employment

As you will know, the Benefit Continuation agreement provided that the LTD recipients' employment will be terminated on January 1, 2010. Under the court order granted at the time Nortel filed for CCAA protection, the Company could have terminated the employment any employee at any point. However, even though the employment of LTD recipients may be "terminated" it will not affect their right to claim for the lost income and benefits they would have received if their employment had not been terminated. 

Severance Pay

You will not "receive" severance pay on January 1, 2011, however, you are eligible to make a claim for severance pay if your employment is terminated and you have not previously quit or retired. Your severance pay will become a claim that will rank as an unsecured debt of the Company and will become part of the employee claims process. 

If Nortel terminates your employment and then you apply for your pension you will be eligible for severance pay. The question will be whether you are in a position to deal with any problems that may arise between the time of your termination and the time that you pension benefits commence. You should consult a financial advisor regarding this question.

Pension issue

Pension credits continued to increase as if you were still at work and pension contributions were made as if you were still at work. However, in accordance with the collective agreement and the terms of the pension plan, benefit levels were frozen at the time you commenced LTD.

Canada Pension Plan Disability Benefits

Some of you will be in receipt of CPP Disability Benefits, in addition to your LTD benefits.  You should contact CPP as soon as possible to advise that you are losing not only your alternative LTD income, but also your medical and dental benefits.  It might very well be that your CPP disability income will increase with the lose of your LTD income. 

Toll free (Canada and the United States)
For service in English: 1-800-277-9914
For service in French: 1-800-277-9915
TTY: 1-800-255-4786

Or on line at: http://www.servicecanada.gc.ca/eng/isp/cpp/applicant.shtml#c

In addition, the Government of Ontario established the Trillium Drug Program (TDP), which is intended for those who have high prescription drug costs in relation to their net household income.  The TDP contact information is:

P.O. Box 337, Station D
Etobicoke, Ontario
M9A 4X3
Tel : 416-642-3038
Fax : 416-642-3034
Toll-Free : 1-800-575-5386
E-mail : trillium@resolve.com

Other provinces may have similar programs, which will likely be administered through their respective Health Ministries.

STATUS OF THE PENSION PLAN

The pension plan is underfunded for two main reasons, low interest rates, which have the effect of increasing the liabilities and the fall in the equity market which has affected the value of the assets in the Pension Fund. When a company is a going concern, the pension fund is valued on an ongoing basis, which assumes that the losses will not be realized. When Nortel entered CCAA, the relevant valuation is a wind-up valuation. This valuation is typically 10-20% below the ongoing valuation, due to the additional costs and assumptions related to realizing losses at the time of wind up. 

To compound the problem in this case, in 2008 the stock market sustained a record drop in equity values. Like most pension plans, about half of Nortel's plan was invested in equities. It is therefore in pensioners' interests to delay the windup of the plan. A delay will allow the equity market to recover to some extent and also allow bond interest rates to rise. In addition, we would like to see the plan continue until all monies owing from Nortel are paid into the plan so that the underfunding is reduced. All of these will ultimately result in improved pensions. 

When a pension plan is wound up under the standard process, an annuity must be provided which matches all the aspects of the pension plan, other than the reduction in amount of the benefit due to the underfunded status of the plan.  Currently, the annuity markets are at a 25 year low which will reduce the level of pension funding available for pension incomes.  As a result, we are seeking to have the Province continue the operation of the pension plan and to not wind it up at this time.

Please speak to your member of the Provincial Legislature and ask that they support this initiative.  If this happens, it will not only lessen the possibility that pension benefits will be cut, but will reduce the pressure on the PBGF -we are sponsoring a Nortel Pension Rally on September 17, 2010, at Queen's Park to put pressure on the Government to do this.

FURTHER ABOUT THE PENSION

Both Nortel's Defined Benefit and Defined Contribution plans will change as of September 30, 2010. 

CLAIM BY THE PENSION PLAN

The claim with respect to the underfunded pension plan will be submitted by the pension plan administrator.  As noted above, in October the Superintendant of Pensions for the Province of Ontario will be appointing a new administrator, which will likely be an actuarial & consulting company with experience in the administration of pension plans the size of Nortel's.  The unfunded liability in the pension plan will be an unsecured debt of the Company and will receive its share from the Canadian assets.

The funds already in the plan are not subject to Nortel's CCAA proceeding and cannot be used by Nortel for any reason unrelated to the operation of the plan and the payment of benefits.  A claim has been made by the Pension Plan Administrator in relation to the unfunded liability in the Plan. It is not possible to determine the amount of that claim at this point as there must first be an actuarial report to determine the wind-up liabilities of the plan and to determine the full extent of the pension deficit. 

The Ontario government has announced that it will be injecting $500,000,000 into the province's Pension Benefits Guarantee Fund (PBGF), which will be used to support those Nortel employees who worked in Ontario. Those individuals will be assured of approximately the first $1,000 of their monthly pension payments. Part of the Government's reason for doing this was based on lobbying done by the CAW, and others who are potentially affected by Nortel's insolvency. The best way to explain the effect of the PBGF is by way of an example:

PLEASE NOTE THAT THE NUMBERS USED ARE JUST AN EXAMPLE, the funded status is likely to be less than 80%.

If the pension fund is 80% funded and your monthly pension benefit is $1500 then without the PBGF you pension payment would be cut to $1200 per month, i.e., 80% of 1500. The first $1000 per month is subject to the PBGF coverage and Nortel would pay 80% of $1000 and the PBGF would pay the other 20%, or $200. Of the remaining $500 per month that you should have been paid, the pension plan would pay 80%, or $400. As a result, you would receive a monthly pension of $1400 instead of the $1500 to which you are entitled through the Plan or the $1200 that you would receive if there was no PBGF top-up.

The Nortel Defined Benefit Pension Plan is registered and therefore administered in Ontario. The vast majority of former Nortel employees who are affected by the CCAA worked in Ontario or Quebec, but there are groups of Former Employees who worked in Calgary and the Atlantic region. To the extent that their claims are affected by the laws of the jurisdiction of employment or residence, those laws will be taken into account, to be clear, the PBGF does not apply in relation to work performed outside Ontario. Survivor pensions, which are a percentage of the original, are part of the registered plan. Any reduction in pensions would apply to both regular pensions and survivor pensions.

HEALTH AND WELFARE TRUST DISTRIBUTION

Nortel "self-insured" LTD income and health and welfare benefits for LTD recipients and retirees through a vehicle known as a "health and welfare trust".  LTD income and benefits were provided through Sun Life, but Sun Life only provides administrative services - it does not insure those benefits. The medical and dental benefits that current employees and retirees enjoy are also provided through the Trust, as are survivor income benefits and life insurance benefits. 

The HWT will likely be terminated on December 31, 2010, and its assets will be allocated to eligible beneficiaries and distributed to them.  There is no agreement on the appropriate allocation of the HWT assets as yet, and it may be that the Court will be asked to make that determination. We expect that the Monitor will make a proposal for the allocation of these assets, and that representatives of the interested beneficiaries will have an opportunity to make submissions on that proposal to the Court.

Because of a potential conflict regarding the proper distribution of between current employees, including those on LTD, and retirees, we have sought a legal opinion on the options and potential courses of action available to those retirees who have retained us to act on their behalf.  If that opinion conflicts with the opinion of the Union, which is solely responsible for representing the interests of our members on LTD, we will seek to have outside counsel appear before the Court on the motion for distribution of the H&WT assets. 

On December 31, 2009, the assets in the trust were estimated at $80 million, while the liabilities were considerably higher.  As the liabilities in the HWT considerably exceed the trust's assets, the distribution will replace only a portion of the lost future benefits that were historically paid from the HWT.   The balance of the present value of lost future benefits will form part of your claim against the Nortel estate in the Compensation Claims Procedure.

The goal is to achieve the allocation and distribution of the HWT assets before the end of 2010.

HARDSHIP PAYMENT PROCESS

The Court recently approved an extension to October 29, 2010, of the Hardship Payment Process to which applications in the event a person who would receive termination/severance or other payments, is in extreme financial difficulty. The bar for what is hardship was set very high; essentially, a person's household income must be $0 or be in receipt of EI and have high medical payments. 

Any payments from this fund will be treated like an advance on future payments owing under the claims process. If you are at a very low income level and are experiencing financial hardship, we urge you to contact the Monitor under this hardship program. The documents relating to the Hardship Payment Process can be found on the Monitor's web-site:  http://documentcentre.eycan.com/Pages/Main.aspx?SID=89&Redirect=1

HEALTH AND DENTAL BENEFITS

Nortel will cease to pay your health and dental benefits on December 31, 2010.  Although we have been attempting to find alternative coverage for the time after December 31, 2010, it is now clear that this will not happen.  As a result of this, each individual who is entitled to health & dental benefits from Nortel will have a claim for that loss made against the Nortel estate as part of their claim in the Employee Claims Process. 

We are still working on the possibility of locating an insurance provider that will agree to insure your medical benefits without the requirement of a medical assessment and/or the possibility of conversion from the current group coverage to individual coverage with a provider.  If this type of plan is established, you would be given the option as to whether to participate in this plan and also would be responsible to pay the premiums (premium costs and options for benefit coverage are not yet known). 

In light of this new information, you should explore all medical benefit options that are available to you after December 31, which may include your spouse's benefit plan and/or any provincial drug plans for which you may be eligible. 

BACKGROUND TO THE NORTEL INSOLVENCY

In insolvency law there are essentially two types of creditors - secured and unsecured. Secured creditors are usually banks and other lending institutions who have signed an agreement with a company that they are lending to which provides that the lender has first place in the pecking order. There are, of course, sub-groups in each of the secured and unsecured categories. However, in the Nortel insolvency there are no secured creditors. So all creditors in the Nortel insolvency are unsecured creditors.

Nonetheless, Nortel is a very complex insolvency. At the time of the CCAA filing, the Canadian operations of Nortel had very little cash, but did have property, capital assets (equipment, etc.) and, most importantly, intellectual property rights over most of the Nortel patents, etc. In order to get the best price for Nortel's world-wide assets, it was best to keep Nortel operating - basic business law recognizes that an operating company is worth more than a bankrupt company. As a result, the U.S. operations of Nortel were required to lend money to the Canadian operations to keep it afloat while the asset sale process has been taking place. The U.S. parent companies would not lend money to the Canadian operations, which was admittedly insolvent; unless they were sure they would get the money back. 

As such, the court granted the U.S. entities a "charge" over Nortel's Canadian assets. Everyone benefited from this. Without this U.S. financing Nortel Canada would have gone bankrupt last year and the LTD and retiree benefits, LTD incomes, pension plan remittances,  and  employment for current employees would have all stopped last year. In addition, those parts of the Nortel operations that have been sold would have been sold at a much lower price - this is without doubt. With Nortel operating there were a number of companies that were willing to enter into a compensative bidding process  and some of our members have found employment with the purchasers .

In addition to the charge for the monies loaned by the U.S. entities, including the recent tens of millions to fund the continuing LTD and retiree benefits, LTD incomes, and pension plan remittances, there are also charges on the assets of Nortel to ensure the payment of the Monitor and its counsel, Nortel's legal counsel, and others involved directly in the Nortel insolvency. Without being assured of payment, no company, including law firms, are going to step into the breach and guide Nortel through the insolvency proceedings and protect its interests vis-à-vis the other world-wide Nortel entities. Without these professionals - again, Nortel would have gone into bankruptcy last year and every creditor would have lost. 

Unfortunately, this same principle applies to the few remaining directors of Nortel. They have received payments and been provided with indemnification in the event they are sued, unless it is shown that they were guilty of fraud, misrepresentation, or wrongful or oppressive conduct, and in exchange they have agreed to take on the responsibility for those Nortel directors who have quit, including those directors who have quit in other countries. Again, without those directors the company ceases to exist and likely goes into bankruptcy.

In addition, it is important to understand that there is a very complex system of world-wide inter-company funding for all of Nortel's entities and an existing agreement relating to how the proceeds from the sale of licensing agreements and intellectual property rights get distributed to Nortel's operating companies around the world. The process by which the proceeds of Nortel's current asset sales get distributed is a matter which is being negotiated and over which, in Canada, the Monitor has responsibility for ensuring that the Canadian company gets the full entitlement of its share, which will then be distributed to the Canadian creditors. 

Again, it is important to understand that in each jurisdiction, Canada, the U.S., Europe, Africa, Asia and in the Middle East, there are creditors who are working with each of their respective court systems to get their share of the proceeds from the sale of Nortel's assets. The last thing that we want is to have protracted international litigation over the distribution of the sales proceeds which results in years of delay in getting the employee claims paid and which will further eat into the amount that is actually available for distribution.

INFORMATION SOURCES

The CAW-Canada Nortel website - http://www.caw.ca/en/5511.htm

If you are a CAW-Canada member who is currently at work or on LTD, or if you are currently retired and were formerly represented by the CAW-Canada AND YOU SIGNED A RETAINER AGREEMENT WITH THE CAW LAST YEAR - you can provide us your e-mail address and receive future correspondence by e-mail - michelle.bondy@caw.ca

The Monitor's web-site - http://documentcentre.eycan.com/Pages/Main.aspx?SID=89&Redirect=1

The Nortel Retirees and Former Employees Protection Committee - http://www.nortelpensioners.ca/

 

Barry E. Wadsworth
Associate Counsel
CAW-Canada
Legal Department
205 Placer Court
Toronto, ON  M2H 3H9