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Nortel and Air Canada retirees facing pension cuts

April, 2009

Former employees from two of the country’s largest corporations, Air Canada and Nortel Networks, are facing a pension crisis most retirees would regard as the stuff of their worst nightmares.

Nortel and Air Canada pensions could end up being cut 30 to 40 per cent if the companies succeed in convincing Ottawa, during the current economic crisis and corporate restructuring, of their need to be relieved of debt, by not topping up their pension funds with billions of overdue dollars.

A demonstration last month at Pierre Elliott Trudeau Airport photo:ITLaurian

A committee of Nortel pensioners, many of them in Montreal who were non-unionized white collar and managerial personnel, are on the verge of hiring lawyers to proceed with a court case against Nortel’s position. In a statement, the committee claims their pensions are “at risk,” since Nortel filed for protection from its creditors in Canada in January and “the Nortel pension fund is undercapitalized.”

Nortel, previously incorporated as Northern Electric and then Northern Telecom, has about 9,000 non-unionized pensioners. While it is not unusual for companies to underfund pension plans, the practice was a source of contention in labour unions long before the current economic downturn, and the companies are now asking the federal government for up to 10 years to make up the difference.

In the meantime, Nortel has obtained bankruptcy court permission to pay more than $52 million in bonuses to executives and other members of its senior leadership, under a plan to retain key personnel. Nortel sought creditor protection after losing nearly $7 billion since 2005. The company plans to fire at least 5,000 workers this year as part of a reorganization.

Even though their former employer isn’t under bankruptcy protection, retired Air Canada employees who belonged to the International Association of Machinists and Aerospace Workers (IAMAW) are facing a similar concern.

Lloyd Cahill of St. Hubert, who retired from his job as an Air Canada machinist in 2005 after more than 32 years service, is facing the prospect of having to return to work for an indefinite period, at the age of 58, if $700 is cut from his $2,400 per month pension cheque because Air Canada doesn’t pay up.

On March 18, as many as 3,500 Air Canada ground workers staged a demonstration at Pierre Elliott Trudeau Airport in protest against ACE Aviation Holdings, the airline’s parent, which wanted to distribute more than $400 million in cash reserves to shareholders, rather than use it to reduce a $3.2 billion pension fund deficit.

“The way the market went and the way these plans were already underfunded has created a problem,” Dave Ritchie, vice-president of the IAMAW, said in a phone interview from Toronto with The Senior Times. He estimated the shortfall would result in a loss of up to 30 per cent on payout to pensioners if uncorrected.

“Unfortunately, the federal regulation only allows them to have their plan funded to a certain allotment and over that you no longer get any tax relief,” he said. “When you’re a corporation, of course, you’re looking for tax relief, so you don’t put the money in, and at the end of the day you end up with the problems.… These pension holidays should never occur.”

Ritchie agreed that government economic policy overall in the last three decades has been to view corporations as the so-called “engine of the economy” and to prioritize their interests, while leaving workers second in line. He said Nortel and Air Canada are not alone in seeking to have the outstanding part of their pension obligations reduced or dismissed.

He pointed out that a consortium of six major Canadian corporations, including Bell Canada, Canada Post, CN Rail, CP Rail and MTS Allstream, submitted a collective brief during a recent nationwide consultation on federal fiscal reforms. “They’re saying they don’t have the money to do it,” he said. Ritchie pointed out that in the last two years ACE paid out $2 billion to its shareholders, and $43 million to Robert Milton, the CEO, but the company still took no action to service its pension debt. “There is something wrong with that system,” he said.



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