An Ottawa-based law firm has commenced a national class action lawsuit on behalf of Nortel employees across Canada regarding changes made to the telecom equipment company’s pension plan.

The suit, filed by Nelligan O’Brien Payne, claims that Nortel failed to provide employees with reasonable notice of the changes.

In June 2006, Nortel announced that it would move employees in the defined benefit (DB) plans to defined contribution programs, effective early 2008. “The classes cover employees with 20 or more years of service,” says Steve Levitt, an associate with Nelligan O’Brien Payne. “And it’s our position that individuals with that length of service or more are entitled to receive more notice than the notice that was given.”

Members of the DB plan would be eligible to stay in the plan and be grandfathered if, as of Dec. 31, 2007, they were at least age 55 with at least 70 points (age plus service), at least age 60 regardless of service, or have at least 30 years of service regardless of age.

“People who met those criteria were fine. It was individuals who did not meet those criteria that this class action is about and who also had lengthy service with Nortel,” Levitt says. “There are a lot of people who were in their late 40s or mid-50s who wouldn’t meet those criteria but still have lengthy service with Nortel and had made a lot of retirementplanning decisions based upon being able to access that pension benefit.”

There are other issues in the class action as well, Levitt explains. For example, Nortel told employees it will not take into account future salary increases beyond Jan. 1, 2008 when calculating the value of the pension benefits. “We think that’s incorrect,” he says.

However, Nortel says the “changes to the pension program were designed to bring the company in line with many other comparable companies, while ensuring we still offer a competitive pension plan and overall benefits program,” according to a statement. “As we have just become aware of this action, we have no further comment at this time.”

Levitt says another issue is that some employees were given short notice regarding the termination of retiree benefits. Nortel said that “current post-retirement healthcare benefits will be eliminated for employees who are not age 50 with five years of service on July 1, 2006.”

In order to proceed as a class action, the case must be certified by the Ontario Superior Court of Justice. The precise number of employees involved and the procedure for handling claims by individual employees will be determined in the certification process.


World View

Full Disclosure

The U.S. Department of Labor has announced a proposal to give defined contribution (DC ) plan members more information on fees and expenses. As well as providing investment-related information in a comparative chart or similar format, the regulation would require fiduciaries to disclose plan information, such as available options, investment returns and fees and expenses, to members on a regular and periodic basis. The proposed regulation would be effective for plan years beginning on or after Jan. 1, 2009.

Retreating From DB

Watson Wyatt Worldwide’s 2008 Pension Plan Design Survey reveals that more than 40% of defined benefit (DB ) pension plans are expected to have closed to future accrual within the next five to 10 years, up from the current 6%. Also, the proportion of DB plans open to new entrants is expected to fall to just 14%, down from 25%. More than 60% of employers believe that employer contribution rates to DC plans will be higher over the next five to 10 years. On average, the DC plans surveyed have employer contributions of 9.5% of salary and employee contributions of 5.2%.

GM Slashes Retiree Benefits

General Motors (GM) is eliminating healthcare coverage for salaried U.S. retirees over age 65, effective Jan. 1, 2009, as part of a plan to save US$15 billion in 2009. Retirees and surviving spouses will receive a pension increase of about US$300 a month from GM’s overfunded U.S. salaried plan to help offset the costs of Medicare and supplemental coverage. Nearly 100,000 former non-union employees will be affected. GM also plans to delay $1.7 billion in payments to the United Auto Workers’ retiree healthcare fund.