Former Nortel Employees to Fight Claim on Deferred-Compensation Funds

Bidders are ready to get their hands on Nortel (News - Alert) Networks Corp.’s patent portfolio, yet former employees are ready to battle the bankruptcy court. It seems the company has seized $37.9 million that had been set aside for retirement, claiming employees knew the risk when they participated in the deferred-compensation plan. 

According to a Total Telecom (News - Alert) report, Nortel argues that this money comes from the pay of just a “select group” of top executives. These were funds that highly compensated employees set aside in a special tax shelter and Nortel says they should go into the piles of assets accumulating in Chapter 11. 

The retired workers are crying foul. With the exception of just one senior executive, the deferred-compensation participants numbered 325 and included software engineers, former middle managers and others not considered “highly compensated”.

This current dispute is the latest in a series of fights between Nortel and disabled, laid-off and retired workers in Canada, Britain and the U.S. These individuals have had their lives disrupted by the collapse of the company. Pension authorities have been brought in to shoulder the company’s retirement pay plans, which were heavily underfunded. 

For its part, Nortel has been selling off assets to accumulate some of the cash it needs to fulfill its debts. The company is planning for the next round of sales and the company’s portfolio of technology patents is expected to add at least another $1 billion to the $3 billion the company has raised to cover its bills.

Nortel also plans to use the deferred-compensation cash and notices were sent out December 22. Nortel claims this move is a stipulation with U.S. Bank, which holds the funds in trust. The stipulation demands the bank liquidate the deferred-compensation savings trust and hand it over to the company. Former employees appear to be left with few options. 

According to Nortel, deferred-compensation participants understood they would join the ranks of unsecured creditors to share in the Chapter 11 plan distribution, which was created in 2000. This “rabbi trust” falls outside of the protection of U.S. pension laws, Nortel argues. Participants can attack the programs if they can prove they were not operated as advertised. Deferred-compensation plans can be found to be protected retirement savings if they were made widely available and if the information was scant or wrong. Many of the employees included on the list claimed they were given no warning that their money could be or was at risk and intend to fight Nortel’s move in court.