Nortel's US Pension Fund Taken Over by Federal Agency

Nortel pensioners in the USA had some good news after the Pension Benefit Guaranty Corporation (PBGC) announced it will take responsibility for the underfunded pension plan covering some 23,000 employees and retirees.

The Nortel Networks Retirement Income Plan has benefit liabilities of US$1.23 billion, but assets of just US$716 million, according to PBGC estimates. The agency expects to cover the entire $514 million shortfall.

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.

The PBGC is a federal corporation, and 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.