PBGC Moves to Protect Pensions at Nortel Networks Inc.
FOR IMMEDIATE RELEASE
July 17, 2009
WASHINGTON-The Pension Benefit Guaranty Corporation (PBGC) today announced it will take responsibility for the underfunded pension plan covering some 23,000 employees and retirees of Nashville-based Nortel Networks, Inc., the U.S. subsidiary of Nortel Networks Corp., an international telecommunications technology concern headquartered in Toronto and formerly a unit of Bell Canada.
The pension insurer's move comes as the company, in chapter 11 bankruptcy, prepares to liquidate in a series of impending asset sales. None of the proposed transactions will include the pension plan. If the PBGC delayed action until after the sales, no entity would remain to finance or administer the plan, and the possibility of recovering on the agency's claims for unfunded pension liabilities would be severely diminished.
The Nortel Networks Retirement Income Plan is 58 percent funded, with assets of $716 million to cover benefit liabilities of $1.23 billion, according to PBGC estimates. The agency expects to cover the entire $514 million shortfall. The plan was frozen as of Dec. 31, 2007, for all participants.
The PBGC will take over the assets and use insurance funds to pay guaranteed benefits earned under the plan, which ends on July 17, 2009. Retirees and beneficiaries will continue to receive their monthly benefit checks without interruption, and other participants will receive their pensions when they are eligible to retire.
After it becomes trustee, the PBGC will send notification letters to all participants in the Nortel Networks plan. Under provisions of the Pension Protection Act of 2006, the maximum guaranteed pension the PBGC can pay is determined by the legal limits in force on the date of the plan sponsor's bankruptcy. Therefore participants in this pension plan are subject to the limits in effect on January 14, 2009, which set a maximum guaranteed amount of $54,000 for a 65-year-old.
The maximum guaranteed amount is lower for those who retire earlier or elect survivor benefits. In addition, certain early retirement subsidies and benefit increases made within the past five years may not be fully guaranteed.
Workers and retirees with questions may consult the PBGC Web site, www.pbgc.gov or call toll-free at 1-800-400-7242. For TTY/TDD users, call the federal relay service toll-free at 1-800-877-8339 and ask for 800-400-7242.
Retirees of Nortel Networks who draw a benefit from the PBGC may be eligible for the federal Health Coverage Tax Credit. Further information may be found on the PBGC Web site at http://www.pbgc.gov/workers-retirees/benefits-information/content/page13692.html.
Assumption of the plan's unfunded liabilities will increase the PBGC's claims by $513.7 million and was not previously included in the agency's fiscal year 2008 financial statements.
The PBGC is a federal corporation created under the ERISA. It currently guarantees payment of basic pension benefits earned by 44 million American workers and retirees participating in over 29,000 private-sector defined benefit pension plans. The agency receives no funds from general tax revenues. Operations are financed largely by insurance premiums paid by companies that sponsor pension plans and by investment returns.
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PBGC No. 09-47