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 who were directly impacted by this, and it 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 policy is held by your employer 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 profit 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 is likely to 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 that are currently self-insuring should be contacting their MP’s right away to have put in place some 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 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 two 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 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 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
- Long Term Disability Insurance more opinions on the Nortel disability insurance debacle.
- Long Term Disability Insurance is a good thing to get, especially if you are the sole income earner in your family.
- Disability Insurance vs. Critical Illness Insurance, oh yes there is a difference so don’t get confused.
- Nortel : What is Left? Wasn’t much, and the Lawyers took most of the scraps from that.
- Plan for Emergencies always. Have an emergency fund, but having disability insurance is important too.
- Insurance: Paying for Something You Never Want to Use sums it all up, doesn’t it?