Former employees of Nortel Networks Corp. will see their benefits coverage extended until the end of 2010 under a new $57-million funding deal unveiled Monday.
The agreement, negotiated between Nortel and two groups representing former employees, will affect tens of thousands of pensioners, long-term disability recipients and workers whose severance payments were cut off after Nortel filed for court protection from creditors in January last year.
Among those affected are 400 employees receiving long-term disability benefits, who will now receive those payments until the end of the year instead of seeing them come to an end on March 31 as expected. Nortel funded its own long-term disability coverage plan for workers, which meant the company's insolvency has left their fate uncertain.
The deal will also see pensioners and employees on long-term disability continue to receive medical, life and dental benefits until the end of the year instead of March 31.
The plan will also provide up to $3,000 in a lump sum to workers who were terminated before Nortel's court protection filing, and who did not receive all of their promised severance pay. The payments, totalling $4.2-million, will be treated as an advance against the employees' claims under the court restructuring process, which means employees can try to collect more as creditors of the company under liquidation.
Nortel chairman David Richardson said Nortel is pleased to have come to a resolution of some of its important employee matters.
"We understand the need to provide clarity to former employees," he said in a statement Monday.
Mr. Richardson said the deal means employees will receive almost two years of medical, dental and long-term disability coverage between the time it filed for court protection under the Companies Creditors Arrangement Act last year and the end of 2010, which is "an unusually lengthy period of time for companies under CCAA."
In total since January, 2009, Nortel estimates it will pay about $100-million while under CCAA to its pension plans and benefits costs.
Susan Kennedy, an employee on long-term disability who represented other workers in negotiating the agreement, said the deal buys workers almost a year to make alternative arrangements to adjust to the potential loss of income they are facing.
"When you're thinking your benefits could end on March 31, a sort of panic sets in, and people are very stressed out and very worried," she said in an interview. "At least if you give us the benefits for the rest of the year, I think it will help people to calm down a little bit and start to plan for the future."
She said the deal also gives the Nortel employee groups more time to try to find solutions for workers, including exploring the possibility of creating a new benefits plan as well as continuing to lobby the federal government to change legislation to give retirees a higher claims status when a company liquidates under the Bankruptcy and Insolvency Act.
After Dec. 31, retirees and workers on long-term disability will still receive some benefits from a Health and Welfare Trust created at Nortel in 1980 with money to cover benefits costs for workers. The fund does not have enough money, however, to provide benefits indefinitely, which means employees can also attempt to recover money as creditors under the court process.
Most of the $57-million committed Monday will be new money from Nortel, and will not come from the trust fund, Ms. Kennedy said, which means the additional coverage will not deplete the trust assets to pay income benefits for 2010.
As part of the deal, Nortel also pledged to continue to fund its pension plans until Sept. 30 - an extension from March 31 - at which point the plans will be transferred to a new administrator appointed by the Superintendent of Financial Services in Ontario to oversee their windup.
In exchange for the agreement, employees who have not been paid their full severance amounts will abandon a lawsuit they have launched in the Supreme Court of Canada seeking restitution from the company.
Employees also agreed to legally acknowledge that their claims are unsecured, which means employees cannot claim they should be given a higher "preferred" status under existing law for making claims on the company's assets.
The settlement agreement still requires court approval at a hearing scheduled for March 3.