I thank all members of the committee for this opportunity to speak on behalf of retirees and former employees of Nortel.
The committee I represent includes Nortel retirees and former employees and was formed after Nortel filed for bankruptcy protection on January 14. We represent some 17,500 pensioners across Canada, the bulk of them in Ontario, but 3,000 in Quebec and 2,000 in other provinces. Of that, there are another 11,000 people who are represented in the health plan. There are 750 pensioners who receive additional benefits, and over 1,000 severed employees who are affected by what's happening at Nortel. Today, in other discussions, I've discovered another 450 employees on long-term disability who are being affected by what's happening with Nortel.
Why are we here today? We wish we weren't here. We wish there were a viable solution for Nortel to emerge from CCAA, but there's no indication that such a plan is forthcoming. In fact, the press is full of indications that the pieces will be sold off and what will be left will be a rump of the corporation.
There is a campaign to save Nortel that's under way from former executives, and I wish them well, and I hope they get enough oxygen to breathe. But the reason I am here is I must plan for the worst outcome. That worst outcome will be the windup of Nortel.
Who is affected? It's the registered pension plan. It's underfunded. Yes, the pension assets are segregated from the corporation, but there's a significant piece of underfunding in the plan itself, to the tune of about $1 billion. That represents two plans, both the negotiated plan and the non-negotiated plan. There are union retirees who are also affected. That plan, as Mr. Zafirovski has said, has dropped 31% since the last evaluation. Under CCAA and BIA, our pension deficit will sink to unsecured creditor status.
The retiree health plan and other benefit plans are underfunded. That whole area is extremely opaque. Pension plans are at least public, and there's information available. So unlike the registered plans, it's not funded, it's paid out of Nortel revenues, there is zero visibility in terms of the long-term viability of these plans, and there's no federal or provincial government oversight. These claims will actually sink to unsecured creditor status. And in the case of putting pensions and the health plan together and the loss of that for some of our members, it would be welfare for some of those people.
In preparing for this, I started looking at the long-term disability group. Again, there are no federal or provincial standards for long-term disability. The plan is administered through Nortel's health and welfare trust, and is funded, again, through Nortel general revenues on a quarterly basis. It is a self-insured plan. There is no backing of any insurance companies. If Nortel goes insolvent, the monthly payments to those long-term disability people will sink to unsecured creditor status. If they ever make it to the pension plan, they'll lose any accruement of those dollars in terms of making it into a pension plan. For them, they'll lose crucial health care. Again, it means welfare for some, for people who are ill-equipped to look after themselves.
Finally, there are the severance people. Employment standards acts, from what I understand, are a lot in the provincial domain, but those standards are being overridden by CCAA and BIA. Those severance claims will sink to unsecured creditor status. As we all know, the severed employees now have to move on to EI and get handouts from the taxpayer.
Who are the unsecured creditors? Let's look at number one: the bondholders, a sophisticated bunch of money managers—sophisticated not only on the bondholder side but in the corporation. They negotiate between equals. They do it for a living. The bondholders take an active view of risk management, of what happens if the corporation goes bankrupt. They look at the probability of default. They shorten the maturity dates on bonds, they ask for higher yield, and they're clever enough to make sure they get cross-guarantees between the two jurisdictions of Nortel, between the U.S. and Canada. In this environment, the original bondholders are actually selling or probably have sold off a lot of their assets, and they've been picked up by vulture bondholders. The information I have is that those bonds are probably going at 12¢ on the dollar.
I don't know what the outcome is going to be if Nortel goes insolvent, but as an unsecured creditor, I'm going to get something north of 12¢ on the dollar. Let's call it 20¢ on the dollar. But I and all of the people I've talked about are going to take a significant haircut.
I'm worried about other jurisdictions. This is a very complex case. Nortel is a large organization. From what I understand in Nortel Canada, there are very few assets. There is little cash, and a global R and D centre with huge costs associated with it. So there are many liabilities.
One of the most significant of the liabilities is what's represented by the group I represent—$1 billion at least from a pension underfunding, plus another maybe $300 million if you add up all the other issues. Outside Canada there's cash, but it's cash that probably can't be reached, because it's tied up in China, which has policies that don't allow you to bring cash back to Canada.
My concern as a creditor is to make sure that the rightful assets belonging to the parent corporation come back to Canada. I am also concerned about other jurisdictions trying to reach out and grab assets in Canada, where there are limited Canadian assets.
Let me move on to the retirees. We are not a sophisticated bunch of money managers. There is an inequality between what the company understands of the pension plan and what the retirees understand. We've put in a lifetime of work and invested in our pensions and our benefits. For us, risk management was all about whether we were going to live too long or too short, whether our spouses would be looked after, whether we'd have a good health plan if our health declined. We never contemplated company bankruptcy.
For the disabled employees, their wage replacement and health care claims are going to sink to unsecured status. Any pension accrument will sink to unsecured status. These people are not eligible for EI or WEPP—all they're going to get is their CPP disability. For the severed employees, there will be no severance pay. Most employees did not even contemplate that they weren't going to get severance. It's highly unusual for people not to be paid severance as they leave the corporation. These people have been forced onto EI, forced to go on at the taxpayers' expense.
What we have here is an egregious imbalance. This problem has been known for a while, and it's not been fixed. People such as pensioners and the disabled and former employees sink to the bottom of the ladder. In today's economic climate, things are going to be brought forward. It's not just about the assets, or even the tax implications. The bondholder is going to get tax write-offs, tax gains. I don't know what we're going to get. We're going to lose money, but I doubt if we're going to be given any treatment from a taxation point of view.
I'm here today to ask you, the members of Parliament, to remedy this situation. The CCAA and BIA sinks us down to unsecured creditor status. I urge you, with the utmost urgency, to grant higher-priority ranking to pensioners, disabled employees, and severed employees. I ask you to handle their claims.
This is a federal jurisdiction. Pensions are provincial issues, but this is a federal jurisdiction. Two days ago there was a unanimous vote in the House, and one of the items in that unanimous vote was to give pensions higher priority in bankruptcies. That unanimous agreement has now been shifted to a study by some other committee. I think what's interesting about the proposal here today is that it requires no new government spending. So there's an opportunity here.
Government, you're investing in infrastructure today to protect the economy. Could you please invest in the legal framework to correct this egregious imbalance? This legislation is shovel-ready, and I implore you to act quickly.
Thank you.