The dissenting disabled employees of Nortel have filed a leave to appeal to the Court of Appeal of Ontario to gain a last minute reprieve from the life of poverty and medical crisis they feel they will face now that their health and welfare trust (HWT) has been terminated, a move that went into affect on Jan.1, 2011.

A decision on whether the appeal will be heard is expected to come soon.

Many Canadians with disabilities live in poverty due to grossly inadequate Canada Pension Plan (CPP) disability income. A single person with a disability receives a maximum of $13,521 per year. A disabled parent with two children receives only a maximum of only $18,408 per year. Nortel disabled employees have average medical costs of $7,200, with one at $50,000 per year.

These benefits are under par when compared to benefits in the U.S. and U.K. In the U.S, a disabled person with two children gets $48, 780 per year from Social Security and the U.K. Pension Protection Fund provides for $47,509 a year.

This appeal will define whether vested pensioner life insurance benefits are the legal obligation of the employer or of the legally distinct HWT. If the court precedent is for vested pensioner life insurance benefits to be legal obligations of an HWT, 1.1 million Canadians in self-insured disability income plans had better opt out of their employer plans and seek personal disability insurance coverage.

The actuarial liabilities for disability income are always a small proportion of the total actuarial liabilities for pensioners vested life insurance benefits and disability income due to only 0.9% of the workforce is disabled. HWT’s are generally not fully funded. When deficient HWT assets are used to pay both pensioners life insurance and disability income on an HWT termination, the disabled get deeply compromised.

In his Nov. 9, 2010 decision, the Nortel Companies’ Creditors Arrangement Act judge, Justice Geoffrey Morawetz, added the following words to interpret the meaning of future benefits in the 1980 Nortel HWT Trustee Agreement termination clause: “claims that would certainly have been made in the future.” The termination clause says: “The trustee shall also determine on a sound actuarial basis the amount of money necessary to pay and satisfy all future benefits and claims to be made under the plan in respect of benefits and claims up to the date of notice of termination.”

The added words allow a lump-sum payment of $3,500 each to the 10,000 living pensioners from the HWT. The 400 disabled are left with a lump-sum settlement from the HWT that funds just 27% of their disability income until age 65, death or recovery.

The leave to appeal asks that legal interpretation of “future benefits and claims” be made in the context of “incurred claims.” Under accepted insurance and actuarial principles and practices, future benefits relate only to incurred claims for insured events that have already occurred prior to the termination of the contract. Deaths benefits for living pensioners are not incurred claims, because the insured event of death has not occurred prior to the termination of the HWT.

Justice Geoffrey Morawetz’s Nov. 9, 2010 Nortel HWT decision conflicts with Canada Revenue Agency (CRA) rules for HWTs. The income tax act has had a clause since 1979, of no tax deduction for employer contributions paying for life insurance beyond the current year. The Nortel HWT has always had pensioners’ group one-year term life insurance policies that are automatically terminated upon Nortel’s receivership or bankruptcy. CRA ruling documents clearly say that HWT’s have no liability for future life insurance premiums and must not have a permanent surplus.

On the other hand, future disability income is part of the incurred claim from the onset of disability before the HWT’s termination. According to a 1979 CRA interpretation bulletin, a self-insured disability wage loss replacement plan is to operate on insurance principles and like “an insurance plan.” So, the HWT does have a legal obligation to pay the future income of the disabled beneficiaries.

The 1998 Canadian Pacific Railway law case reinforces that HWT assets funding future disability income are not a contingent reserve, but a legal obligation.

It is surprising that income tax act rules for HWTs, which are a CRA defined vehicle, have been ignored by Justice Geoffrey Morawetz and the counsel representing the employer, court monitor, pensioners, and the disabled and continuing employees.

The appeal will clarify whether income tax rules for HWTs and insurance and actuarial principles and practices may be ignored in the interpretation of HWT trustee agreements.

Diane A. Urquhart is an independent financial analyst working as a financial expert in class actions, bankruptcy proceedings and governments hearings on legislative reform and regulatory enforcement of securities, pension plans and health and welfare trusts.

Copyright © 2020 Transcontinental Media G.P. Originally published on

Join us on Twitter

See all comments Recent Comments

Beverley Smith:

The average Canadian goes about life doing mundane things like falling in love, having children, working to put food on the table, paying the bills, dreaming of a holiday, little things but these mundane things are the anchor of Canada. Not only does the paid work create economic progress but the care role, unpaid, creates community and replenishes the generations. The CPP is a nation’s attempt to reward this mundane everyday role. The CPP itself is a mundane thing, a work in progress. It so far mostly valued the paid work, mostly penalizes the person who did not save enough while toting that barge and lifting that bale, and mostly ignores the care role that made the nation strong. It penalizes just by not valuing them, those who became ill or disabled and it penalizes them for life.
Since we all know in our heart of hearts that is not fair, since we all know that making grandmas poor is not fair, the CPP needs fine-tuning. We become a better nation, more fully aware of all the roles that make us strong when our CPP ensures all seniors have dignity. They all have done their best.

Sunday, January 09 at 4:39 am | Reply

nortel disabled:

I as a disabled nortel employee paid into LTD plan to the max and was given confirmation I would be covered until 65. There was absolutely no mention of self insured or risks in any of the benefit documentation.

Now I am told that I will only get 30% of my already cut salary of 50% and all benefits are cut. Nortel at the same time was able to pay 400 Million in incentive bonuses and some 300 Million in lawyer fees while Feds watch the whole fiasco and have done nothing to intervene. Nortel
is off loading its obligation on the tax payers and this is not right.

Sunday, January 16 at 1:15 am | Reply

Add a comment

Have your say on this topic! Comments that are thought to be disrespectful or offensive may be removed by our Benefits Canada admins. Thanks!

* These fields are required.
Field required
Field required
Field required