Thank you very much.
Thank you, Mr. Chair.
My name is Don Sproule. I am the National Chair of the NRPC, or Nortel Retirees' and Former Employees' Protection Committee. We me is Bernard Neuschwander, NRPC Quebec Region Chair.
If we could just move to chart 2, please, very quickly, I wanted to put a face on the 19,000 pensioners in Nortel who are going to be affected by this insolvency. Just remember that the people you see in front of you here are healthy enough to come to these kinds of functions. This gentleman here was healthy enough to make it to the Parliament Hill rally, but again, this is affecting 19,000 pensioners.
Next, chart 3 has statistics that show what the 19,000 is made up of. There are 11,700 people currently on pension. Of that, about 11,000 of them are receiving health plan benefits. The average age is 73. These are not golden and gilded pension plans. The average pension plan for people on retirement right now is $17,000. If you segregate that, the people in union plans are getting $12,000 a year.
On top of that, there are the people who will be reaching retirement age. There are some people who have left the company. There are about 5,800 of them. As for new deferred pensioners coming on board, the long-term disability group will be terminated at the end of this year and will become deferred pensioners. We think the majority of them and people laid off within Nortel will become deferred pensioners.
That's how we come up with a total of 19,000 people who will be affected from a pension point of view and about 11,000 people from a health and welfare benefit point of view. Again, the deferred people do not benefit from the health plan.
Across Canada, we have over 9,000 people in Ontario and 6,000 people in Quebec. The remaining 9% are outside of those two provinces.
I made a presentation to you in June of last year on the Nortel situation. Since then, hopefully everybody has been reading the newspapers. Nortel is liquidating under CCAA. Major assets have been sold. The last major asset is the intellectual property. The company will probably be down to about 400 people by the second quarter.
Our pension claims have not been totally calculated, but certainly for the two registered pension plans, we're talking about $1.1 billion of deficit in those pension plans.
On the Canadian estate, we're far from being close to understanding what we're going to get from the Canadian estate when it is finally settled. We do know that there's no cash left in Canada--just enough to manage operations. The payout will come from global assets. They've all been put into a global lockbox, but it is far from determined as to how those global lockboxes will be unwound and what will come to the Canadian estate.
Now, having just said that I think the whole thing is highly speculative, I'll put my speculation forward. I think we're going to get maybe between 10¢ and 30¢ on the dollar, but again, it's too early to tell.
It's been a year of worry for pensioners. There is no end in sight. I suspect we have another two years of going through this process before we find out the final outcome.
Next is chart 5. In that environment of uncertainty, we're waiting to hear from the judge in the next couple of days, but there is a settlement agreement with Nortel Canada for existing benefits, and our health plan will come to an end at the end of December of this year. Also, our pension plan is going to be wound up as of September 30 of this year. At that time, we expect a cutback of something worse than 31%, so that's something below the 69% level.
That cutback is determined by the expected cost of converting that plan to annuities. The Nortel requirements for annuities will not fit within the Canadian marketplace--both the size and the type of annuities that we're talking about--and because of that we expect to suffer more in terms of annuity payout to the pension plan.
Just so you are aware, we are exploring at an early stage with the Ontario government the concept of a pension orphanage, whereby we avoid having to go to annuities and avoid some of these key windup charges. But the implication is that by the end of this year, the average pensioner will lose about 40% of their income, both in pension and in health payments. This will be a hardship for all and poverty for some pensioners.
Chart 6 asks, “How did we get here?” I looked at other corporations and we worked on this as a committee. We believe we spent something close to 75,000 man-hours on this activity.
Nortel is not an ongoing entity. We had negotiating power in terms of what GM had available to them, and what Stelco and Algoma had available to them, in terms of cutting deals with the federal government and certainly with some of the provincial governments. The negotiating power with ongoing entities, of course, is jobs, jobs, and jobs. In the case of Nortel, there are no jobs. It's all being sold off. What's left is the rump of the pensioners and other people affected by this.
In Canada, there is no viable pension insurance scheme. There's another day set aside for that, we understand.
There is a very limited Ontario scheme, the pension benefit guarantee fund, which will help Ontario pensioners or people who worked in Ontario. We're probably talking about $310 a month in terms of what that scheme will pay out. And certainly all those pensioners who worked outside of Ontario will get nothing in terms of pension insurance.
If you look across the global stage in terms of OECD countries--and again, there's another day for this--there is no priority for pension deficits in the bankruptcy courts. We have sunk to the lowest of unsecured creditors.
Very quickly, the bankruptcy courts seem to be all about equals negotiating what's left of the corporation. I maintain that the pensioners and other employees affected by this insolvency are hardly equals among the people who are the unsecured creditor class.
Bondholders are extremely sophisticated people. They manage risk not only with Nortel, but across other investments. They can actively manage risk in terms of shortened maturity dates. They were able to cross-guarantee their bonds between Canada and the United States. And they can actually purchase default insurance called “credit default swaps”.
The suppliers equally have risk distributed across many customers. In some of the cases they had negotiating power as the assets were sold off because they were critical to the business. Some suppliers managed to get 100% on the dollar.
The U.K. government, as you're probably aware, is making noises about trying to make claims on the Canadian and the U.S. estates. It did not get leave to make those claims, but it's going to be coming back.
In 2006 the U.K. pension administrator negotiated a deal with Nortel Canada, with the parent company, to cross-guarantee some of the pension obligations for the pension administrator in the U.K.
Finally, pensioners never contemplated company default. All our risk is concentrated in a single entity, Nortel Canada; it is not spread across all of the Nortel entities. When they took pensions, pensioners did so to avoid personal risk--would they live too long and not have enough money, would they not live long enough and their wives not be taken care of, and would they become sick.
I maintain that pensioners are hardly among equals when it comes to being unsecured creditors. Our request is that pensioner claims be given preferred creditor status under the bankruptcy laws. We would certainly rank below multiple classes of secured creditors--and hopefully that would not impact the ability of corporations to restructure--but we do wish to rank at the front of the line of unsecured creditors. Our pensioner claims would include pension deficit, health, and other claims.
Now, in making a decision and trying to understand the impacts of what that means within the bankruptcy environment, we do ask you to weigh the societal costs. My colleague has actually calculated that at being in the order of $355 million. She's also done work in terms of what it means--because people say there are going to be increased capital costs in terms of changing the bankruptcy laws--and in her estimation there will be an increase of 0.02% to 0.11% for all corporations. For those corporations that are in pension deficit, her estimate is 0.16% to 0.79%. So there will be a cost of capital increase, but let's think about what it means to the societal cost.
As I went through these charts, I began to think about what would happen if corporations actually had to pay that amount. It might make them top up their pension plans and not get into the situations they're in now.
From a summary point of view, I will turn it over to my colleague Monsieur Neuschwander.