Self Insured Company Disability Plans

More Insurance that Doesn’t Quite Insure

Please note this post is more of a rant than anything else, please treat most of this as my opinion only.

So the plight of the 400+ Nortel employees who have been living on disability insurance, and are about to be cut off from their benefits (in fact they may already be cut off, couldn’t really find a straight answer there), has come to light in the media again (Nortel officially disappeared a while ago, I believe with the last vestiges transferring to another firm).

How can this be, you ask? Nortel and other large companies typically self insure these kind of plans, which means, even though it looks like you have your insurance with a large insurance company (say like Sun Life or Manulife), your policy is held by your employer and is paid out by them (should you make a claim). To the large company it is much cheaper to have the large insurance company simply administer the Insurance Policies, and have the money come from the large company directly (rather than simply paying premiums to the insurance company and have them profit from the programs).

So what is the problem? The obvious issue with Nortel, is that the company effectively does not exist any more, and thus anyone who is owed money through this kind of disability policy is now only an unsecured creditor, and is likely to get very little (if any) more money. The fact that this debt can be dodged by the firm by simply declaring bankruptcy is smelly (in my opinion).

So what can be done? For the folks at Nortel, not much more, they have hammered out a deal to get whatever moneys they can, but as of the cut off date, they will be without income, leaving them few options to live on. For those that have disability insurance with large firms that are currently self-insuring, they should be contacting their MP’s right away to have put in place some kind of protection system for this kind of insurance policy.

There are two pieces of legislation on the books about this topic:

  • Bill S-216 An Act to amend the Bankruptcy and Insolvency Act and the Companies’ Creditors Arrangement to protect beneficiaries of long term disability benefits plans (authored by Senator Art Eggleton)
  • C-476 An Act to amend the Bankruptcy and Insolvency Act and other Acts (unfunded Pension Plan Liabilities) (author Wayne Marston (Hamilton-East-Stoney Creek))

That people should talk to their MP about.

Pension reform is needed as well, but these “policies” being held on the companies books as debt liabilities and not like a pension (which is held by an Arms length company, that is funded by the Insuror), puts 1.1 Million people at risk currently (according to the Canadian Life and Health Insurance Association (from the CBC post Disabilty Insurance at risk for 1.1 Million)).

If you are in this kind of disability insurance program, you may be at risk and it would be in your best interest to follow up on this issue.

What really upsets me, is I paid for this insurance when I worked at Nortel, and it was a very expensive premium that was paid for peace of mind, yet the money effectively went into the companies coffers, instead of a safe place in case I needed it?

The worst part of this whole story, is I know people directly effected by this cut off, and they are the ones who need help. We shall see how this shakes out, but if anyone knows more about this, please feel free to comment.

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Prisoners of Debt (80s financial crisis)

For those of you who believe that all of the financial crisis of today are something new, I’d like to remind you that we are reliving history in some ways (over, and over, and over again).

The NFB has another very interesting feature film about another Debt Crisis, but this one happens in the 80’s.

This feature documentary reveals how Bank of Montreal chairman William Mulholland dealt with his debt-laden customers Dome Petroleum and Mexico during the global debt crisis of ’82. Interviews with bankers and financial experts demystify the causes of debt crisis, confirm the fragility of the international banking system and outline the problems to be solved if the system is to survive.

This is over 38 years ago, but a global debt crisis, how could that happen again? Hmmm….

Prisoners of Debt: Inside the Global Banking Crisis, Peter Raymont & Robert Collison, provided by the National Film Board of Canada

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Random Thoughts: Top Kill!

I Shall Be Avenged!

I figured after my vitriolic rant of yesterday about the Globe and Mail survey of Financial Blogs, I might get a few responses or comments but heard nothing. I guess it’s hard to tell whether the crazy guy standing on the Corner yelling about conspiracies is being Ironic, Sarcastic or Just Crazy!.I have been told that I do crazy well, so please be assured I will not be fire bombing the offices of the Globe and Mail any time in the foreseeable future. Hopefully all the links I gave back to Preet may win me the iPad he is giving away (in which case he can win the contest, if I get a new Tech Toy).

As for BP and their lovely Top Kill idea, just goes to show that it is a lot harder than you think to stop oil from spewing from the earth’s crust, than you thought it might be. I do love the Media’s need to associate catch phrases with each idea put forward. I’d go for the “Stop the Darn Oil from Spewing” plan, might be the best of the bunch.

Given the tremendous heat wave in Southern and Eastern Ontario, it was good to see the Hydro Grid stay functioning in my happy part of the world. Remember to look here to see where the power is out in Ontario (of course if it is out where you live, you may have some problems getting to this site).

In the financial blogs this week, some very interesting stuff (remember to follow me on Twitter most of these posts I have already put on my Twitter feed as well):

  • A Penny saved is a penny earned is an expression Michael James would like to stamp out in his piece Endless Debate About the Penny, I like the penny, it’s a magical monetary item.
  • The Darling of the Globe and Mail: Preet, gives us a useful hint on How to Do a Background Check on Your Advisor which makes sense since you are most likely giving them access to a great deal of sensitive information about you.
  • Rob Carrick points out that lazy sods like me who didn’t do anything about their Bond positions, even though all experts were saying, Run away it’s the end of the bond world! may have been lucky in Bad Financial predictions? No, just bad timing good timing for me, bad timing for the prediction, that works.
  • Larry MacDonald is showing some skepticism when it comes to the new National Securities regulator in his piece: National Securities regulator no help, I suspect his concerns are well founded (unfortunately).
  • Are you financially sexy? is an odd question to ask, but Million Dollar Journey’s guest writer is manly enough to ask it.
  • Gail V-O has some good points in her article 7 Ways to Avoid Fraud and these are important things to remember. Never put important documents out in the paper recycle!
  • Budgets are $exy gives us Top 10 Credit Score Misconceptions and surprisingly, having a good credit score makes you sexy is not on this list!

Hopefully this weekend is not as sweltering, and maybe a little rain would be nice to cause my grass not to crunch as much as it does now.

Remember to put on some sun screen, I did see the most painful thing I could think of which was someone who had just had a tatoo done (had that plastic covering on it), however they had also got a severe sunburn in that area as well, double ouch!

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Review: Madoff and the Scamming of America

Ripped Off: Madoff and the Scamming of America from the History Channel, is an entertaining video about the Madoff Affair. I borrowed it from the Ottawa Public Library (which I strongly suggest you support if you live in Ottawa).

The video’s content is no more in depth than most of the Magazine articles I have seen on this topic, however, it does do a very good job of putting a face on the victims of this crime, and that is what makes this video intriguing to me.

Madoff and the Scamming of America
The DVD from Amazon

Bernie Madoff was not just a Wall Street insider, he was the Wall Street insider, and because of his positions on the NASDAQ board, and his investment house, he was the last person to be suspected to be running a Ponzi scheme, however, as we have learned, it is always the least likely ones that seem to be the biggest perpetrators  of this kind of scheme.

The video outlines Madoff’s rise to legitimacy, and gives some useful background on the Ponzi Scheme and about the man who was first caught running this kind of scam Charles Ponzi . The main allure of these kind of schemes seems to be at a few social levels:

  • Exclusivity is a good lure, if the scheme does not allow just anyone in, more people want to join it. To quote Groucho Marx, “… I would never join a club that would allow me to be a member…”.
  • The person who runs the scheme is typically a Sociopath, or has an inate ability to manipulate family and friends into investing. These schemes start with family, friends and then goes after communities (fellow church goers, as an example).

The video does a very good job outlining how regular intelligent (and in this case very rich) people and institutions (many hedge funds were highly invested in Madoff’s scheme) were duped by this man.

At times I found myself feeling very little sympathy for the investors who lost their money (which is an awful thing, and I feel ashamed that I do), but at times you keep asking, “How did you fall for this?”. I then remember how much money I lost on Nortel and feel even more ashamed, for reveling in these people’s plight (i.e. everyone can be fooled at some time, by a slick operator).

In the words of Gordon Gecko… greed is good…” is every one’s credo, when it comes to money (OK, most people).

My Opinion

I found this video entertaining, a little insightful, but I didn’t pay any  money for it, and I am not sure I would buy it, but getting it from the library made it a fun 50 minute watch.

There is also another documentary about how we are heading for the next great depression, which I didn’t watch.

This was an unsolicited review (for disclosure sake).

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Rainy Days and Mondays Always Get Me Down

One of the more cliche statements most financial planners, and financial advisers make is that you should have a Rainy Day fund, but what do they really mean by this statement?

The easy answer is, they want you to save for the future to make sure if there is some heinous and unexpected expense that arises (e.g. the car breaks down, the furnace blows up, etc., etc.,) you will have funds enough to deal with this surprise expense. This is a simple concept, and really points out that with money you cannot just live in the here and now, you must plan for the future, even if you are not sure what that future might be.

Rainy Day Saving Vehicles?

So what savings vehicles can you use to create your Rainy Day fund? In Canada there are a plethora of financial methods you can use that should make your savings safe and grow in a reasonable fashion. The ones that I can think of are:

  • A tin can or piggy bank in your house. Surprisingly there are some folks who still use this methodology, where they put their change and found moneys away, and every period of time they empty it out and put it in a savings vehicle. This is actually good, except that the money sitting at home has 1 or 2 dangers too:
    • The money is way too available to you, and can easily be used for an impulse buy, and thus is lost for your rainy day.
    • You may forget you have this secret stash, and thus it will sit in the coffee can not growing for a long time.
  • A savings account. This is a good place to put it, given it is not as available to you as the coffee can, but savings accounts don’t pay much in terms of interest, but they also don’t tend to lose value either (unless you pay ridiculous service fees for use of the account).
  • Your TFSA, yes that brand new savings vehicle could be your “Rainy Day” fund, and it fits the model quite nicely. If the account is a trading account, then you can get nice gains (but also risk losses as well, as you always do when you invest in equities). The nice part about the TFSA is if you take your money out, it’s growth is tax free, and you don’t lose that savings space in your TFSA either.
  • Your RRSP, well that is a really rainy day you are saving for. That money is a lot farther away from your usage, you get a tax break for putting it in, but you get penalized when you take it out, but it is still a place to put your Rainy Day funds.
  • An RESP for your kids, is a rainy day fund of a kind, since it is saving for your kids education, and is designed to make their entry into University a less traumatic experience (for you).
  • An RDSP is another long term savings vehicle to help your kids or loved ones, if and when you are not around (a very rainy day).
  • Paying off your debts is an interesting twist on the Rainy Day fund. If you pay down your debt, you will have more debt room later if you need to borrow, and if you pay off your debt quickly, you can then build up savings and create a real Rainy Day fund.

Are there other Rainy day savings vehicles I am missing? Ponzi schemes? Pyramid schemes? Tulip futures? Any ideas posted in the comments would be appreciated.

Cry havoc and let slip the dogs of war!!!!

All right I have had enough of being treated as a second class financial blogger by the Globe and Mail, they announced The Best Canadian Money Blogs as voted on by their readers, and I was nowhere to be seen!  The winners were WhereDoesAllMyMoneyGo and Squawkfox ?!?!?!? This is an outrage, much like when the Montreal Expos were taken away and put into Washington to become the Senators!!! I shall not rest until this wrong has been avenged!!!!

Congrats to the two winning sites and to all the other participants, it is an honour to have even been mentioned with them.

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