Evidence of meeting #38 for Finance in the 40th Parliament, 2nd Session. (The original version is on Parliament’s site, as are the minutes.) The winning word was nortel.
A recording is available from Parliament.
Liberal
Massimo Pacetti Liberal Saint-Léonard—Saint-Michel, QC
I have a quick question for Ms. Kennedy, because my time is limited.
Ms. Kennedy, I want to ask about what happened in your case. To an extent, you faulted the employer by saying they didn't take insurance. Again, I'm not taking sides, but I'm trying to understand: wouldn't that have been one of the questions you would have asked? You then turn around and say it's the government's responsibility for them to have insurance.
Spokesperson, Canadian Nortel Employees on Long Term Disability
We looked for many people who might have insured our benefits. It was a long search. At first we originally thought that it was Sun Life; then we discovered that was for administrative services only. Then we looked at the fact that the money was placed in a health and welfare trust. According to the Canada Revenue Agency bulletins--and by the way, I'm nowhere near to being an accountant; I'm a psychologist--only the LTD part of the benefits that are put in there--
Liberal
Massimo Pacetti Liberal Saint-Léonard—Saint-Michel, QC
An accountant wouldn't have been responsible for your health plan. That's in the fine print. I think you can blame that on the lawyers. I think we can agree on that.
The question again is, how can we prevent that in the future? You were contributing to an insurance plan, and you were expecting the insurance plan to have an insurance. Is that feasible?
Spokesperson, Canadian Nortel Employees on Long Term Disability
Attempts were made in Alberta to protect against problems like this, but it was done at the provincial government level. They changed the Insurance Act so that a self-insured company providing LTD insurance--
Liberal
Massimo Pacetti Liberal Saint-Léonard—Saint-Michel, QC
I have to interrupt you, because I want to ask a quick question to Diane.
Diane, you put a lot in your brief, as usual, and if I can be critical, it's all over the place. One of the things that I think is also important for Mr. Zafirovski to respond to is the fact that you mentioned that there is a secured creditor, whereas he specifically stated that there were no secured creditors. I think that's an important point. Could you perhaps clarify that?
Conservative
Independent Analyst, As an Individual
A $200 million debtor-in-possession line of credit has been offered by Nortel Networks Inc. The beneficiary of that is Nortel Networks Limited, which is the Canadian operation. This is typical financing. In the first days of the bankruptcy protection filing, the court granted that they would have preferred status above all unsecured creditors. Since it is super-priority, I would say it's effectively secured financing, and it's certainly to the detriment of the net asset estate for Canada that is available to pay the pro rata share to the severance and the pension deficits of Canada.
Conservative
President and Chief Executive Officer, Nortel Networks Corporation
Can I clarify that, Mr. Chair, if you're interested--
Conservative
The Chair Conservative James Rajotte
Mr. Zafirovski, what we will do is at the end we might have about three minutes and I'll give you a very short time then.
Monsieur Laforest, s'il vous plaît.
Bloc
Jean-Yves Laforest Bloc Saint-Maurice—Champlain, QC
Thank you, Mr. Chair.
Welcome and good morning to all of the witnesses. I would like to address Mr. Ken Lyons, specifically.
Mr. Lyons, I know that you are one of the representatives of the Nortel Retirees' and Former Employees' Protection Committee. You represent approximately 3,000 Nortel retirees in Quebec.
Earlier, I was listening to my colleague, Mr. Carrier, talk about how human capital, human resources are and will continue to be the greatest asset for companies such as Nortel. We have heard from people who feel that they gave everything—their lives, their passion—to Nortel.
Earlier, I asked Mr. Zafirovski how he felt about the situation, as he did not even try to help people. I did not ask this question, but it was understood afterwards. When he approached the federal government, and met with ministers, he did not even try from the outset to protect his former employees and retirees. This was not done.
I heard my colleague Mr. Pacetti tell us that he does not want to blame anyone. I have difficulty accepting the fact that what could have been done to support this human resource, retirees, was not done from the outset. They want to count on their human resources for the future, but at the very least, they must show respect towards those who made Nortel achieve the level of excellence it achieved.
Mr. Lyons, I would like to hear your comments on that issue in particular.
Ken Lyons Representative, Nortel Retirees' and Former Employees' Protection Committee
Good morning, ladies and gentlemen.
Firstly, I would ask those who are asking me questions in French if they would be so kind as to allow me to respond in English, for the benefit of those who do not have access to interpretation, if that does not offend you. Would that be all right?
Representative, Nortel Retirees' and Former Employees' Protection Committee
I'll answer the question in English.
How do I feel in this situation? I feel that I was just dumped aside. I gave my life. I loved working for Nortel. It's a passion for me. It is so much a passion that I still manage a museum, voluntarily, that boasts about Nortel's history going back to the very beginning. I'm still doing it on a free basis.
Nevertheless, we have pensioners who have pensions of $12,000 a year, $1,000 a month. If they take the hit of 31% they will go down to $690 a month. Think of the survivors. They're taking another hit. It really hurts.
The Nortel I knew was a fabulous company to work for. We stuck together and we knew where we were going and all that. Unfortunately, what I've seen happen after I retired in January 1999 is the company before that point was well managed, but then they went on a buying spree and we ended up with new CEOs who seemed to be intent on creating wealth for themselves, and that caused a downward spiral.
I hope that answers your question.
Bloc
Jean-Yves Laforest Bloc Saint-Maurice—Champlain, QC
I would like you to further elaborate.
You must certainly have your own overall interpretation of the causes of this collapse. Could it have been prevented? What solutions would you suggest, at the very least to resolve the current problem, and if possible, prevent it from recurring?
Representative, Nortel Retirees' and Former Employees' Protection Committee
The main reason we end up with pension fund underfunding is the Income Tax Act. It's not a provincial responsibility, it's a federal responsibility. It prohibits overfunding pension funds by more than 110%. That's the big problem.
It was stated by Mr. Zafirovski a while ago that Nortel has maintained its payments, but it took a hit. When they were able and they had the funds to put money in the pension fund, they were not allowed to do so because of the Income Tax Act. We've made proposals that it should be raised to 125% instead of 110%.
There's also another proposal, which is far more interesting to companies and the stakeholders, the retirees, and that is to have a superfund that would sit on top. The companies would have the tax breaks, and if the pension fund is fully funded at 100%, then they could start taking money out of the superfund without having to go through all kinds of hurdles.
These are intelligent solutions.
There are also solutions some of our members have looked at that can help our own situation. It may well be, and we certainly don't hope so, that Nortel will not be able to restructure successfully and keep on with the pension fund obligations, so we're going to be faced with a hit. The big problem we have right now is a wind-up. We don't want our plan to be wound up if this happens. Keep it alive.
I do not have the information with me, but we have proposals where that could be done, without hurting the pensioners as much as it is now.
Conservative
Bloc
Jean-Yves Laforest Bloc Saint-Maurice—Champlain, QC
Thank you, Mr. Chair.
Earlier, Ms. Urquhart made a few suggestions, one of which is to give former retirees priority as secured creditors in the sale of assets.
Are you in favour of this suggestion? Are you pressing the government to take a step in that direction?
Representative, Nortel Retirees' and Former Employees' Protection Committee
I agree completely.
I'm fully in support of the proposition that the pension deficits should be treated preferentially, as wages are. Looking at it, what's our pension? When we were working, we were given a salary, taking into consideration that we had a pension. We didn't have quite as much money as others, all right, so what we have now are deferred wages.
It's the same thing with our benefits. One thing I didn't mention a while ago is that if we lose our benefits, it's going to cost us about $250 a month on top of the loss that we have. You know, we don't have bonuses. What we see on one side, unfortunately, are bonuses: they're going up, and we're going down.
Conservative
Conservative
Daryl Kramp Conservative Prince Edward—Hastings, ON
Thank you, Chair.
Thank you so much to our guests for coming in.
Mr. Lyons, of course you came up with a number of points there, a superfund, etc. These are obviously ideas this committee has been dealing with; we've had a pretty exhaustive study on pension capacities and liabilities. You also mentioned as well that you have other plans you would suggest, which might even be in the offing. We would like you to submit those in writing to this committee. You certainly don't have the opportunity now, with the brevity of time we have. I believe we would certainly entertain those and throw them into the mix for our deliberations. We would therefore appreciate it if you would do that.
Representative, Nortel Retirees' and Former Employees' Protection Committee
You can count on it.
Conservative
Daryl Kramp Conservative Prince Edward—Hastings, ON
Thank you very kindly.
Mr. Hanrieder, I've noticed that you've had your hand up on a number of occasions when you haven't had the opportunity to comment, certainly during Mr. Pacetti's turn. Maybe I'll give you that opportunity now on a couple of those points.
Professional Engineer, As an Individual
I appreciate it.
Yes, I'd like to comment about the feeling of the employees inside. They say that we saw this coming. Well, Nortel employees are probably the most dedicated, hard-working employees. It was a passion, as mentioned by some of the members down here. We went in there and we built the company. We built products that were simply amazing in the market, etc. We were fully invested in recovering the company. Many times Mr. Zafirovski rallied us as employees to do that.
As I said, rumours of bankruptcy were happening in the November timeframe of last year. They told us very clearly, “Don't worry, we're into Q4, give us some more hard work and we'll be more than happy to make this company successful”. As I said, this was a surprise to us. We were fully invested in making the company successful.
Conservative
Daryl Kramp Conservative Prince Edward—Hastings, ON
Okay, thank you.
Mr. Sproule, on the actual liabilities that are there in the various sectors, whether it's severance and disability or the pension, the various components of the liability that sits before all of the people right now, could we have a breakdown as to the percentage and total cost of each of those?