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Government agency takes on U.S. Nortel pension fund

Government takes over Nortel pension

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Nortel’s pension fund for its U.S. subsidiary that covers 23,000 employees and retirees has been taken over by an agency of the U.S. government.

The Pension Benefit Guaranty Corporation declared Friday that had taken the action “to protect pensions at Nortel Networks” because the company is being prepared to “liquidate.”

Nortel declared bankruptcy in January in both the United States and Canada. Its home headquarters is in Canada. The company employs some 2,000 people in the Triangle area.

The company has declared a strategy to sell off its assets. An auction is set for July 24th that will cover Nortel’s leading wireless technology assets. Nokia Siemens has already offered $650 million.

According to the PBGC’s statement, the U.S. Nortel “Retirement Income Plan” is only 58 percent with $716 million in assets and benefit liabilities of $1.23 billion.

“The pension insurer’s move comes as the company, in chapter 11 bankruptcy, prepares to liquidate in a series of impending asset sales,” PBGC said in a statement.

“None of the proposed transactions will include the pension plan. If the PBGC delayed action until after the sales, no entity would remain to finance or administer the plan, and the possibility of recovering on the agency’s claims for unfunded pension liabilities would be severely diminished.”

According to the PBGC, it will use “insurance funds” to pay guaranteed plan benefits

“The PBGC will take over the assets and use insurance funds to pay guaranteed benefits earned under the plan, which ends on July 17, 2009,” PBGC said. “Retirees and beneficiaries will continue to receive their monthly benefit checks without interruption, and other participants will receive their pensions when they are eligible to retire.”

Benefits will be capped at $54,000 a year for recipients who are 65.

“In addition, certain early retirement subsidies and benefit increases made within the past five years may not be fully guaranteed,” the PBGC said.