Nortel Networks CCAA Restructuring

EMPLOYMENT RELATED CLAIMS PROCESS WEBINARS

Webinar for all Former Employees of Nortel
November 10, 2011
10:00am EST

To access this webinar:

http://www.bellwebcasting.ca/audience/index.asp?eventid=14184206

Webinar for all Nortel LTD Beneficiaries
November 10, 2011
2:00pm EST

To access this webinar:

http://www.bellwebcasting.ca/audience/index.asp?eventid=60511415

Webinar for all Former Employees of Nortel (French)
November 11, 2011
2:00pm EST

To access this webinar:

http://www.bellwebcasting.ca/audience/index.asp?eventid=71340578

Dial-In Audio Only Option:  There will be a dial-in audio-only option for all of the listed webinars. If you do not have access to the internet and wish to participate in one of the webinars by telephone, you can register for this service by leaving a voice message on the Koskie Minsky hotline at 1.866.777.6344. Please leave a message leaving your name, telephone number and the date and time of the webinar that you wish to join. A representative of Koskie Minsky will call you to confirm your participation.

EMPLOYMENT RELATED CLAIMS PROCESS INFORMATION MEETINGS

Koskie Minsky, the Representative Counsel for Nortel's former employees, including pensioners and surviving spouses, and disabled employees of Nortel, will be holding a series of live information sessions to provide an overview of the Compensation Claims Process, including information about the Information Statement Package process and what action, if any, is required by you.  Representatives of the CAW-Canada will also be in attendance.

The meetings will consist of a presentation, after which the audience members may ask questions.  Only Nortel LTD employees, former employees or their spouses may attend. These are NOT public meetings.

NORTEL -2011 INFORMATION MEETING SCHEDULE - PLEASE NOTE THAT THE SESSIONS LISTED BELOW ARE IN THOSE LOCATIONS WHERE THE CAW HAD BARGAINING RIGHTS.  KOSKIE MINSKY WILL HAVE OTHER INFORMATION SESSIONS.  Please check their web-site for further information on meetings in Calgary, Ottawa and Montreal - http://www.kmlaw.ca/Case-Central/Overview/Page/?rid=107&cpid=23

Date, Time, City and Location

Nov. 15, 2011 - 4 pm - Toronto
Design Exchange
234 Bay Street, TD Centre, Toronto, ON

Nov. 16 - 2 pm - London
Hellenic Community Centre
133 Southdale Rd, London ON

Nov. 17, 2011- 1 pm - Belleville
The Greek Hall
70 Harder Dr., Belleville, ON

Nov. 17, 2011 - 7 pm - Kingston
Kingston Banquet and Conference Centre at Days Inn
33 Benson Street, Kingston ON

Nov. 24, 2011 - 2 pm - Toronto
Radisson Plaza Mississauga Toronto Airport
175 Derry Road East, Mississauga ON

Nov. 24, 2011 - 7 pm - Toronto
Radisson Plaza Mississauga Toronto Airport
175 Derry Road East, Mississauga ON

THE MONITOR'S APPROVED EMPLOYMENT RELATED CLAIMS PROCESS
The following is a summary of the claims process and procedures related to lost incomes, benefits, termination and severance pay, among other things. IT IS JUST A SUMMARY. The details are contained in the Monitor's report which can be view by clicking: http://www.caw.ca/assets/images/Seventy-FifthReportoftheMonitornoapp.pdf%7BRDhref+%7Dnbsp;

The process to develop a procedure by which approximately 16,000 Nortel employees, former employees, including LTD Beneficiaries, pensioners and their survivors can claim for all of the losses they have suffered due to Nortel's insolvency is extremely complex.However, through the procedure that has been negotiated the vast majority of those persons having a claim will not have to do much other than ensure that the personal information which has been accumulated about them is correct.  If it is correct, then you do not have to do anything.If it isn't correct, then there is a process by which you can seek to have that personal information corrected.

On October 6, 2011, we were before the court which approved the claims procedure. A lot of work by a lot of people has gone into this process.  The Union has worked with the court appointed representatives for the retirees, employees and LTD recipients and the financial advisors supporting our efforts, to find a realistic, efficient and practical means to determine what is owed to our members, former members and other similarly situated Nortel employees and retirees. It has been a very long process and the result, fortunately and unfortunately, is a very comprehensive document which outlines for each individual what their claim is against Nortel and the specific basis for that claim.

In most insolvency cases that involve our members losing health, dental and vision benefits, future LTD and retirement supplement incomes, as well as lost termination and severance pay, we would have to perform individual calculations, often requiring actuarial assistance, which reflect, to a greater or lesser degree, the approximate value of those losses. However, in this case, the number of affected individuals is so great, and the losses for such a wide variety of claims are so large, that a more efficient and effective process had to be developed.  With the aid of many who have worked very hard, a more efficient and effective process will be put before the court on October 6.

Another complicating factor was the fact that Nortel offered numerous compensation and benefit programs over the course of many decades and over time those programs altered with, for example, each new collective agreement that was negotiated. It must also be kept in mind that there were other unions, as well as a very large group that was non-unionized and who were subject to different policies and individual contracts of employment than were applicable to our members. In addition, many Nortel employees worked in numerous jurisdictions and overseas as well, which also complicated the process of determining the possible claims available to them.  As such, it would be almost impossible for any individual Nortel employee to determine what claims they would have, calculate the amount that should be paid to them for future lost benefits and incomes and thereafter file a claim in the Nortel CCAA proceeding and then each go through an adjudication process.

For that reason it was necessary to negotiate an acceptable method to calculate and process these claims. The primary principle was that categories of employees should be treated consistently, which led to the development of the categories and the determination of what types of claims would be available in each. The question was then which claims in each of the categories were available to each of the individuals in the category to which they belonged.  Which claims could be determined by applying the information of each individual to the requirements for receiving each of the possible benefits in the category and determining if the individual met the criteria for obtaining that benefit, now or in the future.

In order to determine the value of an individuals' claim, assuming that someone was or would be entitled claim for a particular lost benefit now and in the future, it was necessary to apply commonly used actuarial valuations of lost future benefits or incomes, or to look to the collective agreement, past policies or benefit guidelines.  The use of actuarial valuations is common in these types of situations and will be described below. That, in a very general nutshell, describes the process by which the Employment Related Claims Procedure was developed; I can assure you it was not that easy in reality and there were thousands of minor and major factors which also went into its development.

Each claimant, including the survivors of retirees, will receive an individual "Information Statement" that will set out not only the amount of the individual's claim, but also the information about that person upon which the claim has been calculated. Each claimant will have an opportunity to correct any personal information they believe is inaccurate. If the information is correct, or if any changes which the individual wants to make are not ultimately accepted or doesn't change the claim, then the amount set out in the Information Statement will be the claim against Nortel for all purposes.

The Monitor currently estimates the value of the claims of the approximately 16,000 claimants at approximately $1.06 billion, comprising the following very broad categories:

(a) Benefit Claims consisting of:

        (i) claims under the Non-Registered Pension Plans, i.e. RAP, of approximately $268 million; and

        (ii) claims for health, dental, vision, life insurance, and income benefits of approximately $631 million;

(b) Severance and termination pay, including accrued vacation during the notice period, of approximately $164 million; and

(c) Patent Award Claims of approximately $285,000.

There is a companion process for any individual claim not covered by the Information Statement or for any grievance which is unrelated to the Information Statement claims.

As noted above, potential claims vary depending on the category a claimant is in. Not all of the categories are applicable to the CAW members and former members. A brief outline of some of the CAW applicable categories and potential claims are set out below:

Pre-Filing Terminated Employees, Post-Filing Terminated Employees who were not offered employment with a successor employer (Pre-Filing and Post-filing relate to whether the individual was terminated before or after January 14, 2009, when Nortel filed for CCAA protection) and Pension Eligible Terminated Employees:

Termination and Severance Pay Claims, including accrued vacation.

Employees transferred post-filing to a successor employer where that employer did not offer post-retirement benefits, non-registered pension plans or defined benefit pension plans:

Termination and Severance Pay Claims calculated in accordance with the Post-Filing Transferred Employee Termination and Severance Claim Methodology; and

Retirees:

• Lost RAP;
• SIB/STB;
• Health benefits,
• Life insurance, including accidental death and death benefits.

LTD Beneficiaries:

• LTD Basic Life,
• LTD Optional Life (if applicable),LTD accidental death benefit and LTD Dependent Life Benefit;
• Medical and dental;
• Lost income;
• accrual of STBs;
• continuation of defined benefit or defined contribution accruals under the Registered Pension Plans;
• lost RAP;
• lost future retiree health benefits;
• Termination and severance pay.
  

The same claims methodology will apply to Active Employees, and there is at least one CAW member in that situation, based on when they are transferred or terminated. The potential claim will be determined at the time this event occurs and the circumstances. The process will be the same but the date for disputing the claim will depend on the date they are terminated.

VALUING THE CLAIMS After identifying the categories and claims, negotiations occurred with respect to how to calculate each of the Benefit Claims, the Termination and Severance Pay Claims and the Patent Award Claims.

A. Benefit Claims Given the uncertainty of future events the application of actuarial assumptions is the standard method for determining future losses. Nortel's actuary, Mercer, has prepared documents setting out the agreed assumptions which will be used to determine the value of individual claims, which are, in turn, based upon the personal information set out in the Information Statements for each claimant.

PLEASE NOTE THAT THE FOLLOWING EXPLANATION RELATING TO DETERMINING THE PRESENT VALUE OF FUTURE LOSSES IS A VERY SIMPLE VERSION OF WHAT IS A VERY COMPLICATED PROCESS.

The process for determining the amount of each claim is based on determining the present value of future losses. This process is complicated and first involves determining the total actuarially determined future loss based on certain assumptions, i.e., the likelihood that a person at a given age with a given gender who retires at a given age and having certain other traits will be alive at each of the years in the future to be paid the benefit which they are entitled to. In calculating the lost future benefit you have to actuarially reduce the benefit by the likelihood, based on standard mortality tables, that the person will be alive to receive it in each of those years. When, according to those tables it is almost absolutely assured that a person with those traits would not be alive then the benefit would be zero and you then add together all of the amounts in the prior years to give you the actuarially determined lost future benefit.

For example, suppose a person was to receive a $100 health benefit at the end of each year. Then assume, based on the actuarial tables, that a person with this person's traits had a 1 in 3 chance of dying each year, or, put another way, a probability of surviving each year of 2 in 3 or 67%. You then calculate the probability of surviving each of the succeeding years by multiplying the probability of surviving (67%) by the resulting percentage in the previous year and multiply the resulting number by the benefit amount to determine the actuarially determined loss for that year.

Form A, entitled "Your Compensation Claim Amount" setting out the claimants':
(i) Termination and Severance Pay Claim amounts, if applicable;
(ii) Benefit Claim amounts, including among many others, if applicable, health, dental, vision, RAP, LTD, life insurance, optional life insurance; and
(iii) Patent Award Claim amounts, if applicable; and
NOTE - Claims or distributions have been or will be reduced by applicable payments received during the CCAA proceedings, including with respect of the following:
(d) hardship payments;
(e) payments received from the Termination Fund;
(f) distributions received from the corpus of the Health and Welfare Trust; and
(g) any other valid set-offs relating to amounts owing to Nortel.

 Form B, entitled "Your Personal Information Change Form", setting out the Personal Information relating to the particular Employee as at December 31, 2010, used to determine the claim amounts.  The form will include a column for the claimant to indicate any corrections to the data.  Such changes will have to be supported by documentation verifying the requirement for the change.  

A Guide to Using Form B to assist the claimant in understanding the various personal data used to determine their claim and to understand whether any of the Personal Information requires correction.  The Guide also describes the type of documents which can be used to verify that a change to the personal information is needed.

A claimant who has any changes or corrections to Form B must mark those changes or corrections in the corrections column, attach supporting documentation, complete and sign the Confirming Changes Section and return the completed Form B to the Monitor so that it is received on or before 4:00 p.m. (Eastern Time) on December 23, 2011.

Form C Proof of Claim, for all claims, including grievance claims, not covered by the claims set out in the Information Statement; and

A Guide to Completing Form C.

The Monitor and Nortel will review and consider any requested changes and may accept or reject them. If accepted, and the change results in a change to the claim amount, the Monitor will send a Revised Information Statement reflecting the correction(s) to the Personal Information and the revised claim amount. If the change is accepted and the claim amount does not change the claimant will be notified of this as well. If the requested change is rejected, the Monitor will send the claimant a Notice of Disallowance (Personal Information) together with a blank Dispute Notice (Personal Information) and the claimant will have an opportunity to dispute that disallowance (which is described below).

Proof of Claim Process

As noted above, the vast majority of claims are based on Information Statements and any accepted corrections. However, certain claims were excluded and an individual Form C Proof of Claim must be filed for those claims where a claimant believes he or she has any other claim against any one or more of the Nortel Canadian companies, the Directors or Officers of those companies for amounts owing arising from the administration, management or oversight of any pension plans or employee benefit plans administered or sponsored by Nortel that is not included in the Form A. Any such Proof of Claim must also be filed so that it is received by the Monitor prior to 4:00 pm (Eastern Time) on December 23, 2011 (the "Proof of Claim Bar Date").

Resolution of Disputed Changes or Claims

As noted, the Monitor, in consultation with Nortel, will review all requested changes relating to a claimant's personal information and any individual Form C Proofs of Claim that are filed. The Monitor may then request additional information from a Compensation Creditor; and may accept or disallow the change or Proof of Claim in whole or in part.

Any claimant who intends to dispute the Monitor's disallowance must file a Dispute Notice with the Monitor no later than 4:00 pm (Eastern Time) 28 calendar days after the Monitor sent the Notice of Disallowance.

The Monitor may attempt to resolve the amount of the claim with the claimant, however, if it is not settled within a certain time period the Monitor may refer the dispute to a Claims Officer for determination or, in the alternative, bring the dispute before the court for determination. The Claims Officer will determine his or her own process and, generally, must make a decision within 30 days of the close of any proceeding.

A determination of the Claims Officer may be appealed to the court.

FINAL DISTRIBUTION OF THE HWT

While much work has been done by the Monitor and others to try and bring about the wind-up of the HWT and make final distributions to the beneficiaries, there are still a number of issues to be resolved before that can occur.  For example, in determining the amount actually remaining in the HWT, the following are some of the unresolved issues which must be clarified:

a).  investment returns;
b).  treatment of stale-dated cheques;
c).  the actual amount of Pensioner Life premiums paid during 2010;
d).  the treatment of costs related to expenses incurred prior to the termination of the HWT but not submitted by February 28, 2010;
e).  taxes and administrative costs; and
f).  any fees paid from HWT assets pursuant to the Settlement Agreement with respect to any dispute or litigation regarding the HWT.

There are also uncertainties with respect to the liabilities of the HWT, as previously reported, which include:

a).  changes to the estimated actuarial value of benefits as a result of status changes occurring with respect to the individual, such as recovery or death;
b).  the resolution of contingencies; and
c).  updating of data to December 31, 2010.

We will continue to update you with respect to the progress on distributing the HWT funds to the beneficiaries.

IMPORTANT NOTICE REGARDING PENSIONS

The Following announcement was issued by Morneau Shepell, the pension administrator, regarding reductions to the current payments being made to retirees under the Nortel Negotiated pension plan.  The notice advises of the reductions in pension payments that have been expected for a long time.  The Pension administrator has been very conservative in its projections regarding the funded status of the plan and therefore has likely reduced pension payment more that will eventually be required, however, it has the right and the obligation to make the decisions it has made.

It is our hope that the current negotiations seeking to obtain more funding for the pension plan will mean that the funded ratio will increase and with it an eventual increase to the now reduced pension benefits retirees are receiving.

IT IS VERY IMPORTANT THAT YOU READ THIS AND CONTACT MORNEAU WITH ANY QUESTIONS YOU MAY HAVE - 1.877.392.2073

Important Announcement Regarding Pension Reductions

This announcement is to advise you of an important issue regarding your pension from the Nortel Networks Negotiated Pension Plan (the "Plan") Registration No. 0587766.

Based on the most recent actuarial valuation as at December 31, 2009, prepared by the prior actuary for the Plan, there were insufficient assets to fully satisfy the benefit entitlements of all members and pensioners.

We have reviewed the current funded status of the Plan and have determined, on a preliminary basis, that there are only sufficient assets to support approximately 75% of the benefit entitlements, excluding indexation, for Ontario service and 57% of the benefit entitlements for non-Ontario service.

These preliminary estimated funded levels are based on conservative assumptions and may be changed later in the wind up process.  For example, a claim has been filed against the estate of Nortel for the estimated funding deficiency in the Plan, and we expect that we will receive some recovery on this claim (although the timing and amount payable under this claim are still uncertain). Any recovery on this claim will increase the funded status of the Plan.

The funded level is currently higher for Ontario service than for non-Ontario service because Ontario members do not have the entitlement to future pension indexation (i.e., their benefit value is lower).

Ontario Members

We have filed an application with the Superintendent of Financial Services (the "Superintendent") requesting a declaration pursuant to subsection 83(1) of the Ontario Pension Benefits Act, (the "Act") that the Pension Benefits Guarantee Fund (the "PBGF") applies to the Plan.

The PBGF is an insurance-type compensation fund that provides limited protection for pension benefits for members and pensioners who had pensionable service in Ontario in under-funded pension plans in circumstances set out in the Act.

Ontario is the only province with such a fund.

Therefore, rather than reduce all of your monthly benefits for Ontario service to the 75% estimated funded level for the duration of the wind up process, as an interim measure, we will make monthly pension payments up to the amounts guaranteed by the PBGF for Ontario employment. Please note that if a portion of your benefit was earned in a province other than Ontario, this portion of your benefit is payable at the 57% funded level and is not eligible for coverage under the PBGF.

In addition, Ontario legislation provides that when a pension plan is wound up with insufficient assets, indexation after the wind up date is not to be paid unless all other plan benefits have been fully paid. As a result, any indexing applied after September 30, 2010 for pensionable service in Ontario is not eligible for coverage and has been deducted from the monthly payments.

Overpayments

Pensioners have been paid 100% or their benefits subsequent to the wind up date of October 1, 2010, whereas they are only entitled to payments at the funded ratio after that date.

Pursuant to wind up rules, they have been overpaid for the period October 2010 to July 2011 and we have an obligation to recover these overpayments.

Overpayments are being recovered over the estimated lifetimes of the individual pensioners (determined on an actuarial basis).

The reductions necessary to recover these overpayments will vary depending upon the amount of the overpayments and the age of the member. They have been capped at a maximum of 7% of full entitlements, and most reductions are well below this threshold.

Current gross monthly pensions payments will be revised effective with the August 25, 2011 payment (tax deductions will be adjusted accordingly):

We regret that such action is necessary in light of the Plan's underfunding, but the Administrator is responsible for ensuring that all members and pensioners of the Plan are dealt with in a fair and equitable manner and in accordance with pension legislation.

Letters have been sent to all pensioners who were in receipt of pension benefits as of October 1, 2010, indicating the amount by which their pensions have been reduced. When you receive your letter, please review it carefully, particularly with regard to the information on your province of employment. If the information is incorrect please refer to the instructions outlined in the letter under "Verification of Province of Employment".

A webinar will be hosted by Koskie Minsky on July 22, 2011, from 1:00 pm to 3:00 pm. We will be participating in this webinar to give you an opportunity to ask questions about this required step in the wind up process. The webinar link is at www.bellwebcasting.ca/audience/index.asp?eventid=74164979.

If you do not have access to the internet, contact Koskie Minsky by July 20, 2011 at 1.866.777.6344 to register for listen-only access.

PAYMENTS OUT OF THE HWT

There has been some confusion arising out of the distribution of the Nortel Health and Welfare Trust (HWT), particularly with respect to the payments that will be made to Nortel LTD recipients.  The payments that will be made prior to and at the time of the wind-up of the trust, to LTD recipients and other beneficiaries of the HWT, arise out of a court approved distribution method and the calculated claims that all of these beneficiaries have against the trust.

Below is an example relating to an LTD beneficiary with a $300,000.00 present value claim for lost income benefits against the HWT.   It helps explain an e-mail many of you received from the LTD Steering Committee, which is not a CAW body , but includes Ms. Kennedy who was appointed by the Court. The content of the response below was sent to other Nortel disabled employees in response to inquiries made by other LTD recipients. I have modified the answer they sent to me so that it is generic in nature.

The payments being made to LTD beneficiaries from the HWT are based on the actuarially determined total claim an individual has against the trust.  A person with a $300,000 claim against the HWT will be entitled to $101,400 from the Trust or  or 33.8% of their total claim.  This distribution amount of 33.8%, was set out in the HWT distribution proposal made by the Monitor and approved by the Court last year.  The $300,000.00 claim amount will have been shown in the Beneficiary Estimated Allocation Statement which this LTD recipient received last year.  All LTD recipients would have received such a statement.

This person with the $300,000.00 claim will have received interim payments totalling  25% of their $300,000 claim by the end of July, or $75,000. The amount being paid to this individual  in the July payment will be $75,000 less the amount of interim payments already received in the two prior interim distributions made in January and May/June of this year.  By the way, these interim payments do not include the one made on account of termination pay made in May of this year, which does not count against the HWT claim, but will count as a partial distribution against y9our claim for lost termination/severance pay.   

In this example, the interim payments were $10,140.00, made in January 2011 and May/June  2011, so the total remaining to be paid by July 31 is $64,860 ($75,000 less $10,140). That equals 25% of the $300,000 claim.  There still remains to be paid out of the HWT an amount equal to 8.8 % of the $300,000 claim or $26,400.  This amount will be paid on final wind up of the HWT, which should occur later this year. The total payments of $75000 paid by July 31 and $26,400 paid later, being $101,400, equal 33.8% of the $300,000 claim. 

The remaining 66.2% of this person's claim against the HWT will becomea claim against Nortel's estate.  The prospects  for recovery from the estate have improved significantly as a result of the sale of Nortel's intelectual property assets, which netted $4.5 billion.  However,  much  work remains to be done before a distribution can occur from the estate.  Hopefully, the various entities of Nortel's world-wide enterprise, and their creditors, which includes the LTD recipients, can come to an agreement over the distribution of the proceeds from the sale of Nortel's assets and avoid lengthy litigation.  We will continue to keep you updated.

NORTEL'S PENSION PLANS AND THE PBGF

A further update on the status of the Nortel Insolvency was prepared by the Firm of Koskie Minsky, which represents the vast majority of retirees, non-CAW LTD recipients and former employees who were not CAW members since January 14, 2009.

Superintendent Appoints New Pension Plan Administrator

Under the Court approved Settlement Agreement, Nortel ceased to be the administrator of the Nortel pension plans on September 30, 2010. The Financial Services Commission of Ontario (FSCO), the Ontario pension regulator, has appointed Morneau Sobeco Limited Partnership (Morneau Sobeco) to be the new plan administrator effective October 1, 2010.  For those on pension now, until the new administrator advises of changes, your payments will continue unchanged. It is anticipated that the current benefit levels will continue at least to the end of 2010. Reductions will be imposed later. Effective October 1, 2010, inquiries regarding Nortel's defined benefit pension plans should be directed to Morneau Sobeco:

http://www.pensionwindups.morneausobeco.com/
nortelwindup@morneausobeco.com

Negotiated Plan: 1-877-392-2073

Please visit the FSCO website at http://www.fsco.gov.on.ca/english/pensions/Nortel.asp if you would like more information about Morneau Sobeco's recent appointment. The FAQ section of the FSCO website also contains other information that you may find useful.

Why a New Plan Administrator Was Appointed

Pension plans that are registered in Ontario must be administered in compliance with the Ontario Pension Benefits Act, which sets out minimum standards for the operation, funding and termination of pension plans in Ontario.  Because Nortel stopped administering its plans on September 30, 2010, a new plan administrator was necessary to ensure continuity in the administration of the Nortel pension plans (including payment of pension benefits) to commence the wind-up of the Nortel pension plans and to represent the pension plans in Nortel's CCAA proceedings.

In carrying out the wind-up of the Nortel pension plans, the administrator will be responsible for determining adjusted entitlements, including the "top up" provided through the Pension Benefits Guarantee Fund ("PBGF") to pensions earned in Ontario. A retiree's entitlement with the PBGF "top up" is determined as of the date the plan is wound up.

Since Morneau Sobeco's appointment took effect on October 1, 2010, a review of the Nortel pension plans has commenced and ultimately, a wind-up report will be prepared as of October 1, 2010. The wind-up report will be prepared by Morneau Sobeco and will include a recommendation to FSCO about the final wind-up ratio of the Nortel pension plans. Once approved, Morneau Sobeco will commence the process of winding up the Plan by purchasing annuities for pensions in pay, deferred annuities for those who elect them, and commuted value payouts to those who elect that option. All benefits will be reduced to the wind-up ratio, and then topped up, if applicable, by the PBGF.

There will be different wind-up ratios and different benefits by province.  The assets of the Nortel pension plans will first be allocated to each province, and then the wind-up rules of each province will be applied with respect to the benefits accrued for work in that province.  The details are not yet clear, but the major differences are:

• Ontario benefits are eligible for a PBGF top-up.  It appears likely, however, that all future indexing will be eliminated for Ontario benefits. Without that indexing, the plan will appear to be better funded. Thus, the Ontario benefits will have the smallest initial reduction, but they will be "frozen" and receive no future increases regardless of future inflation levels. 
• Québec benefits retain indexing, so they will have a lower wind-up ratio.  There are also options available to those whose final Nortel employment was in Québec that are not offered in other provinces, and these may result in a further reduction to the Québec wind-up ratio.
• Benefits for those elsewhere in Canada retain indexing.  However, depending on the formula used to allocate the assets to each province, there may be provincial differences in the wind-up ratios.

How will the PBGF benefit me?

Nortel's Defined Benefit plans are underfunded, and there will not be sufficient assets to pay the promised benefits in full. If you worked in Ontario, PBGF will top up the first $1,000 of monthly pension for service that accrued while employed in Ontario.

For example, assume you are entitled to a monthly pension of $2,000 but that at the date of wind-up, the pension plan is funded at 70%.  The first $1,000 of your pension will be topped up by the PBGF such that it will paid in full ($700 through the funds in the pension fund and $300 by the PBGF). The remaining $1,000 of your pension will be paid at the 70% value. Therefore, your total pension payment would be $1,700 as opposed to the $1,400 level you would receive if there were no PBGF, or the $2,000 level you would receive if there were no funding deficiency on plan wind-up. If you did not work in Ontario for your entire career, only the portion of your pension which was accrued in Ontario will be subject to the PBGF. This portion will be determined according to the contributions made while working in Ontario, which is based on the age and service requirements in the Plan.

How long will a pension plan wind-up take?

Pension plan wind-ups can take years, even when they are straightforward. Nortel's pension plan wind-up will be lengthy and complicated.  Please note that the wind-up administrator (Morneau Sobeco) will permit eligible plan members to commence their pension during the course of the wind-up, subject to receiving the approval of the Superintendent to do so. Morneau Sobeco has already applied for approval under section 70(3) of the Ontario Pension Benefits Act. Note that pensions started during the wind-up will be paid at a reduced rate to approximate the deficient funded ratio of the Plans; similarly, pensions currently in pay will soon be reduced to the same rate. We will continue to provide progress reports with updated information and estimated timelines as the wind-up progresses.

What if I am a member of the defined contribution pension plan?

In the defined contribution pension plan, contributions are fixed, and the amount of eventual retirement income is not guaranteed, like it is in a defined benefit pension plan.  Members of the defined contribution plan will not be subject to the same reduction of anticipated benefits.

In order to determine when you are eligible to retire from the defined contribution pension plan, you will need to contact Morneau Sobeco.

2010 PENSION CREDITS FOR ACTIVES AND LTDS

All disabled employees received a letter from Nortel in mid-September to notify them of the transition of pension plan administration from Nortel to the new FSCO-appointed administrator, Morneau Sobeco, and the change in pension credits for the period from October 1 to December 31, 2010.  All accruals in the plans stopped on September 30, 2010.  Nortel put in place a new "Retirement Savings Program" (RSP) for continuing employees, including disabled employees, to replace the old defined benefit and defined contribution plans. Under the RSP, Nortel will contribute 2% or 4% (depending on level of entitlement) of eligible earnings for each disabled employee into an RRSP account in his or her name.  Employees who were in the defined benefit plan will receive into their [after tax savings] accounts a one-time "top-up" deposit to compensate for the portion of the value of the DB benefit that would have accrued under the defined benefit plan for the period of October 1 to December 31, 2010, which is over and above the value of Nortel's contributions for that period.  Outlined below is a hypothetical example which illustrates how these calculations have been made.

1. The present value of your defined benefit pension is $300,000 as of December 31, 2010.

2. You will have 30 years of service as of December 31, 2010 and will not yet be age 65.  Therefore, your pension is worth $10,000 per year of service.

3. Your value for three months is $10,000/4 = $2,500.

4. Your defined contribution accrual is $500.

5. Your defined benefit cash payment is $2,500 - $500 = $2,000.

You will no longer receive any form of pension accruals and/or contributions as of December 31, 2010.  You will have a claim against the Nortel estate for the accruals you would have received if Nortel had not become insolvent. We will provide more information about this during the Compensation Claims process, which we expect to commence in early 2011. 

Early Retirement Options

The normal retirement date under the Nortel pension plans is age 65. However, the Nortel pension plans also permit eligible plan members to retire early, often with a reduced pension. You will need to contact Morneau Sobeco directly to determine if and when you are eligible to retire early and what reduction you can expect as a result.

Many people have asked whether they can retire after October 1, 2010, and the answer is yes. There may be delays in processing applications for pension commencement however, because until a wind-up report is approved by the Superintendent, any payments out of the Plans must be approved. Accordingly, those who wish to start their pensions are likely to experience delays in doing so.  We have raised with Morneau Sobeco the serious concerns of some that delays in processing payments will cause financial hardship.  Morneau Sobeco is already in the process of seeking approval from the Regulator to commence new pensions.

Important: Please be aware that any change in your status as a disabled employee before December 31, 2010, will result in the loss of any distribution from the Health and Welfare Trust and the loss of a claim for lost future LTD wage replacement, medical benefits, and other claims.

SPECIAL ANNOUNCEMENT REGARDING NORTEL PENSION WITHDRAWALS
 
As you will no doubt be aware, over the past many months we have received allot of questions about when our members, especially those who were in receipt of LTD benefits, should apply for their pensions.  It has been our suggestion that those who were pension eligible apply for their pensions when it was in their best economic interest.  For those who were active employees, it was when they could first apply.  For those in receipt of LTD benefits, it was likely to be after December 31, 2010, so that they would continue to receive LTD incomes and benefits until those payments ceased.
 
Many of our members were having difficulties in obtaining information from the newly appointed Pension Administrator, Morneau Shepell Ltd.  In part this was due to that company's having to obtain and assimilate a large amount of data from the prior administrator.  In part, this was because the company had to obtain the permission of the Superintendant of the Financial Services Commission (FSCO) to start paying pensions because of the fact that the pension plan was in a wind-up information.
 
Morneau has now received the consent of the FSCO to commence making payments on new pension applications.  However, because there has been no final determination on the funding status of the pension plan, a process which may take many more months and may take up to a year, new pensions will only be paid at 50% of the level which the new applicant would be entitled to.  For those whose service for Nortel was performed in Ontario, the Pensions Benefits Guaranteed Funding will be taken into account and amounts paid may therefore be higher.
 
Those who have already applied for their pension and requested a retirement quote, will receive a Retirement Election Option Form in the next several weeks.  Members who have not applied for their pension or requested a quote and wish to make application should contact Morneau at 1-877-392-2073.  In any event, all members will be receiving an update on the pension plan and their activities in the near future.
 
A Further Special Note For Those Who Received LTD

Ontario's Superintendent of Financial Services has made a special provision relating to those who had been receiving LTD benefits and who were employed in Ontario, Alberta and Nova Scotia.  FSCO has also approved the transfer of certain sums from the pension plan to the LTD recipients.  This approval includes the interim transfer of up to 50% of their commuted value entitlement to a locked-in retirement account, even if the individual is not pension eligible to receive their pension.

The above noted update from Morneau will provide additional information on this option, however, if you have any questions please contact the Plan Administrator at 1-877-392-2073. 

Disabled employees have been notified that their employment will be terminated by Nortel as at December 31, 2010. Termination normally triggers a range of options for a terminated employee, including the right to elect an immediate transfer of his or her pension entitlement into a locked-in retirement vehicle.  However, the Nortel pension plans are in the midst of being wound up so the normal timing and process will not be applicable.

Pursuant to section 73(2) of the Ontario Pension Benefits Act, in a plan wind-up, all persons entitled to a pension benefit, except pensioners who are already receiving a pension, have a right to transfer their commuted value out of the plan. That is, anyone who is not a pensioner will be offered the portability option. Option statements will be provided to everyone with a plan benefit after Morneau Sobeco has prepared and filed a "wind-up report" for each of the Plans, and the Superintendent has approved them.

All disabled employees will be provided with the option to transfer the entire commuted value of their pension into an authorized locked-in retirement vehicle, or to receive an immediate annuity (if they are retirement eligible) or to retain the right to a deferred annuity, for monthly pension payments in the future. Typically in a pension plan wind-up, this process of providing option statements and allowing lump sum transfers from the plan would not occur until a wind-up report has been prepared and approved. However, we have raised with Morneau Sobeco the serious concern that delays in processing commuted value transfers for disabled employees will cause significant financial hardship. We are discussing with Morneau Sobeco a protocol to permit the calculation and transfer of partial commuted values into an authorized locked-in retirement vehicle for disabled employees who want them.  You may not, however, receive the commuted value of your pension in cash.

Those who elect to take their commuted value will only receive the approved reduced transfer ratio of their pensions. To inquire about when you are eligible for retirement, please contact Morneau Sobeco directly.

Locking In

Lump sum transfers from the Plans are required to be "locked in". The reason why your pension may be transferred to a locked-in vehicle, but not given to you in cash is because, as a general rule, vested pension benefits are not intended to be accessed until you reach retirement age or a qualifying early retirement age under the pension plan. Typically, the assets supporting an employee's "deferred" pension entitlement either remain in the pension plan until retirement age or are transferred out, on a locked-in basis, to another pension plan or retirement vehicle, or used to purchase a deferred life annuity from an insurance company. The public policy behind locking-in is to ensure that pension plan assets are available exclusively to benefit the employee during his or her retirement years. Accordingly, the Ontario Pension Benefits Act prohibits the cash value of a pension benefit from being (1) commuted or surrendered, (2) subject to execution, seizure or attachment, or (3) assigned, charged or given as security.

Exceptions to Locking-In

There are some disabled employees who have expressed concern about their pensions and the locking-in requirement in the legislation. In exceptional circumstances of "financial hardship", members may be able to access "locked-in funds". Financial hardship is a defined term under provincial pension legislation or regulations, and in most provinces there is a special procedure to follow in order to apply for access to the locked-in funds. If you choose to transfer the commuted value of your pension into a locked-in vehicle, the provincial laws of the province where you live will apply in order to unlock those funds. Any members wishing to access pension funds are only permitted to do so according to the applicable pension legislation.

For example, section 67 of the Ontario Pension Benefits Act permits a member with financial hardship to apply to unlock the funds. The applicant can apply based on six qualifying circumstances, which include low income, risk of eviction from home or rented home, money for rental deposit, medical treatment or residential renovations related to a disability or illness. For free assistance filling out the required forms in Ontario, contact the Financial Services Commission of Ontario at 416-250-7250 or toll free at 1-800-668-0128.

You should be aware before applying to unlock funds due to financial hardship that this money is no longer protected from creditors, and may be seized and/or affect your eligibility for certain government benefits. Please contact your provincial pension regulator for questions and assistance with unlocking funds in a locked-in retirement vehicle.

Commencement of Your Pension

If you are eligible for a pension - that is, you have reached your "normal retirement date" or a qualifying age for an early pension under the Plan - and wish to commence your pension during the wind-up, you must contact Morneau Sobeco. You will be provided with a series of forms to be completed. Normally, pension plan administrators request 90 days' notice in order to properly process the paperwork.

What happens if I am not yet pension eligible?

If you have not elected to commence your pension, or you are not entitled to, you will choose between:

# Lump sum commuted value transfer (to be transferred into a locked-in retirement vehicle with amounts in excess of Income Tax Act (Canada) limits taken in cash and subject to income tax); or

# Annuitized deferred pension (based on your age and eligibility for retirement).

You will be provided with an option statement setting out these choices, with the amounts specified, following your termination from Nortel. This process cannot take place until the wind-up report has been completed and approved by the Superintendent.

Will I receive my pension option form right after I am terminated?

Disabled employees have been notified that they will be terminated on December 31, 2010. Under normal circumstances, an option form would be sent to you setting out what you may do with your pension benefit following the termination of your employment. However, because the Pension Plans are being wound up, the process will be different. Typically in a wind-up, option statements are not distributed until a wind-up report has been prepared and approved. This can take 1 to 2 years. We have asked Morneau Sobeco to consider putting into place a special process for disabled employees who are losing their LTD income and are unable to withstand the normal delays. 

Retirement: When Should the Process Be Initiated?

In accordance with the Settlement Agreement, long-term disability income benefits will continue to be paid by Nortel until December 31, 2010. Provided you are still entitled to long-term disability income benefits at the time of the valuation of your claim against Nortel, you will have a claim for the value of your future income benefits up until age 65 (among other claims). To ensure that you receive any distribution from the Health and Welfare Trust and from Nortel's estate for the future amounts to which you are entitled as a disabled employee, your status must remain unchanged.  If you are retired at the time of valuation (i.e. before January 1, 2011) , you will not be entitled to a claim as a disabled person.  If you reach age 65 before January 1, 2011, you will not be eligible to claim as a disabled person and you may have no choice but to take your pension because your disability payments are not payable after age 65. Others who are entitled to an early pension may wish to seek independent financial advice as to the optimum time to retire. We do not yet have information about the details concerning how to initiate the retirement process after December 31, 2010. You will be advised as more details become available.

If you have questions about your individual pension and/or retirement please contact the following:

Defined Benefit Plan Members Negotiated Plan: 1-877-392-2073

INFORMATION FROM THE NRPC REGARDING A PENSION ALTERNATIVE

In meetings on December 17th with the Ontario Ministry of Finance and FSCO, the National Chair of the NRPC, Don Sproule, was provided with a long sought after letter from Minister Duncan concerning the request by the NRPC to proceed with the Financial Sponsorship Model (FSM) as an alternative to conventional wind-up of the Nortel pension plans. The letter is a conclusion to the second review of FSM ordered by the Liberal Government at the end of September 2010.

Key points covered in the letter:

# Acknowledges the arguments made by the NPRC for greater pensioner choice during pension wind-up; i.e., choice beyond the current conventional wind-up-by-annuity.

# Provides a clear statement of government intention that will allow the FSM RFP respondents to proceed to submitting binding proposals. Although we are still many months away from binding FSM proposals, when they are ready, pensioners will have an opportunity to choose between conventional wind-up and the FSM. Full communication of the FSM will be provided when the selection process has been completed to enable pensioners to make an informed decision.

# By mutual agreement between the MoF and the NRPC, the default pensioner option will be conventional wind-up-by-annuity. Pensioners must make a clear choice if they wish to opt out of conventional wind-up and pursue the FSM concept.

It has always been advocated by the NPRC that for eligible Ontario service, the benefits of the PBGF (Pension Benefit Guarantee Fund) must apply to either option; of conventional wind-up or the FSM. We received corroboration of this today. This is extremely good news for those with Ontario service and we further thank the Minister for this confirmation.

The actions of the NPRC Québec executive have been instrumental in advancing options for Nortel Québec pensioners, most recently with the Nortel specific provisions in Québec Bill 129 put forward by Minister Julie Boulet. At the same time, Ray Hounsell, Québec chair, has been at the table during all the Ontario Government discussions over FSM. With this announcement by the Ontario Government, the Québec executive will be moving forward to see how the elements of the FSM can further improve the lot of Québec pensioners.

In the case of most of the remaining provinces, the NRPC has had early indications that provincial administrations would be willing to consider other wind-up options if Ontario takes the lead. This is now clearly the case and as the details of FSM are fleshed out, we will be taking the proposal to those provincial jurisdictions so that pensioners with service in those jurisdictions will also be given a choice.

We have much work to do, but it's time to pause here and without going into names thank the many people that got us to this stage: our advisory team from Koskie Minsky, The Segal Co and RSM Richter, the NRPC national executive, the NRPC Québec executive, and all members who attended the rallies at Queen's Park, signed petitions and wrote to or visited their MPPs and Government Ministers. Special mention goes to the "NRPC 16" who got us a second review of the FSM concept with Premier McGuinty.

Finally, the political process worked and we expressly thank four Ontario MPPs: Charles Sousa, Yasir Naqvi, Bob Chiarelli and Norm Stirling who have worked in support of finding better options for Nortel pensioners.

WORLD WIDE ASSET ALLOCATION MEDIATION