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Self Insured Company Disability Plans

As part of the Nortel Bankruptcy, one of the biggest victims was employees on disability. The disability plans ended up in a mess, and those on disability lost their benefits. I knew a few folks directly impacted by this, which makes me very upset thinking of them. Could this happen again? You’d hope not, but nothing much has changed.

More Insurance that Doesn’t Quite Insure

Behold the plight of the 400+ Nortel employees (Canadian) who have been living on disability insurance. They will be cut off from their benefits. This has come to light in the media finally. Nortel officially disappeared a while ago.

How can this be, you ask? Nortel and other large companies typically self insure these kinds of plans. This means though it looks like you have your insurance with a large insurance company, you don’t. Your employer holds your policy and is paid out by your employer (when you make a claim). It is much cheaper to have the insurance company administer the Insurance Policies to the large company. The money comes from the large company directly (rather than merely paying premiums to the insurance company and profiting from the programs).

So what is the problem? The apparent issue with Nortel is that the company does not exist anymore. Anyone owed money through this kind of disability policy is now only an unsecured creditor and will likely get very little (if any) more money. The fact that the firm can dodge this debt by simply declaring bankruptcy is terrible (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 money they can. However, as of the cut-off date, they will be without income, leaving them few options to live on. They may have access to the Canada pension plan disability but not much else. Those with disability insurance with large firms currently self-insuring should contact their MP’s right away to put in place some protection system for this kind of insurance policy.

Former Legislation

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 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))

Talk to your MP and MPP about these acts and why they died.

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 owned by an Arm’s length company that the Insurer funds) puts 1.1 Million people at risk currently (according to the Canadian Life and Health Insurance Association (from the CBC post Disability 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 upsets me is I paid for this insurance when I worked at Nortel, and it was a costly premium paid for peace of mind, yet the money effectively went into the company’s coffers instead of a safe place. In case I needed it?

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


I am most likely in the same situation now. I am a Civil Servant, and I guess that the Government self-insures. This couldn’t happen again, could it? Remember, Nortel was too big to fail. The government couldn’t declare bankruptcy, could it?

Other Nortel Disability Stories

From the archives 2010

Feel Free to Comment

  1. nortel disabled (former)

    Undisclosed self insured plans should be illegal. Companies like Nortel need to live up to their obligations.

    Bill C-624, introduced by Liberal MP Mark Eyking, would amend the Bankruptcy and Insolvency Act and the Companies’ Creditors Arraignment Act to protect employees on long-term disability by granting them preferred status during bankruptcy proceedings.
    Independent financial analyst Diane Urquhart, who has championed the workers’ cause, said the Tories are objecting to it for the same reason they killed the previous bill. But that clause, she claimed, has been eliminated. “There was a debate on March 11 in the House and while there was no vote, what essentially happened was the Conservatives indicated they would not support the bill for all the same reasons the Senators did not support (the previous bill),” she said. “They did not give a single fact or evidence to support their reasons.”

    While we are in crisis the following bonuses and “professional” fees have been paid in Nortel Bankruptcy proceedings.
    328 Million in Professional Fees
    On top of this, there is an Annual Incentive Plan which continued in the normal course post bankruptcy without requiring court approval.If I assume Annual Incentive Plan (AIP) of 10% of pre-incentive payroll, then the total global AIP could be well in excess of $300 M. Take this AIP amount of $300 M number as an Urquhart estimate only and one that is based on an assumption of % of payroll paid as an AIP and an estimate of Nortel global payroll based on knowing the actual Nortel Canadian payroll. The total bonuses paid in 2009 & 2010 would likely be at least $440 M.

  2. Many canadians are unaware that the canadian government offers tax benefits and grants for anyone who has a physical or mental disability. Unfortunately collecting these benefits can be complicated and stressful. At the Canadian Disability Corporation they simplify the process to make sure you obtain every dollar possible from the CRA. On top of this, they will also ensure you’re applied to other programs available to people with disabilities such as the Registered Disability Savings Plan (RDSP).

  3. I might also add that an appeal of the settlement that would force the disabled onto the welfare system is pending and the result is expected in a day or two. The fight for the rights of the disabled Nortel employees is not over. Support and help for all Canadians who have this toxic Insurance is not over and ability to have the change in time to protect the Nortel disabled workers has not expired. Action to keep taxpayers from supporting these more than 400 disabled Canadians and the many that may unfortunately follow is needed now, it is not to late to stand up and tell The PM, Toxic Insurance does not belong in Canada. Say it now, or pay for it later.

  4. As one of Disabled Nortel employees fighting to stop this toxic Insurance to protect all Canadians, I have lots of advice and also knowledge about what is an isn’t being done. The Nortel disabled employees continue to recieve benefits and will until Dec.2010. At that time whether or not Nortel continues as a patent or other type company the disabled employees will be fired. The burdon of supporting these workers will fall to the Canadian taxpayers unless the government amends the CCAA/BIA with for example Bill S-216. We have started a post card/letter campaign to send to PM and would suggest that all Canadians join it. It is a non partisan comment, it simple states that all Canadians need to be protected from Toxic Insurance. Writting to the PM is free no postage required. Over a million Canadians are lining the pockets of companies with their hard earned dollars, thinking that their contributions are being used to provide them with insurance, this is wrong and must be stopped. In one study the difference in what they are paying for and real insurance that would protect them is $60 a year. I think most Canadians if told the truth and given the option of real or toxic insurance would happily pay the $60 for safety and peace of mind.
    I would be happy to provide your readers with a copy of the letter for the PM and the address. It would be nice if it could be posted on this site, so all your readers could help protect themselves, either by no longer paying employers for toxic insurance, or from picking up the tab after these companies like Nortel fail in tax dollars. It’s companies like GM, Chrysler and the Bay (3 of hundreds who self insure)who’s disabled will also need to be supported by taxpayer money if Government change does not happen.

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