Found this chestnut in my “drafts” folder. It is a rewrite, with some add-ons for good purpose. I will be writing more about my blind luck, or as Michael James would say, my ability to fall backwards into butter. The Nortel pension helped me retire, because I got out of it in time. This was written in 2009 as the pension fund collapsed. For those who didn’t read the last line of my retirement article, I am not retiring from here, just yet.
NB: I have only 416 articles left in my “drafts” folder.
Estimated reading time: 5 minutes
In 2008, Larry MacDonald reached out to me about the Nortel pension crisis and its effects on my life. Thankfully, I came through it well. However, I feel it’s essential to share what this situation truly meant, especially for my amazing colleagues over the past 20 years. This topic resonates deeply for many, and I’m eager to explore why it touches so many hearts. Let’s dive into this important conversation together!
Historical Background
The Nortel pension program was negotiated many years ago. It was arranged by the union that represented their manufacturing employees. This was back when Nortel built phones and phone systems itself. The Pension was a defined-benefits program. It was very generous. An employee who stayed at Nortel for 20-25 years would receive very good compensation. This was especially true if they retired somewhere near their 60th birthday.
Since the mid-90s (or earlier), the pension fund has been “underfunded.” There are not enough funds in it, so the fund cannot pay out to all possible and current members. The last published numbers suggested that the pension fund was only funded to 86% of the needed funds. However, this number was from 2006, just before the Financial Apocalypse of 2008. There has been no published statement about how “funded” the pension plan was.
Direct Impact: Pensioners
Many retired folk live on the Nortel pension. They are directly impacted by the mess that arose. I believe their medical benefits have been or will be cut. This was part of “the deal.” Now, these seniors will have to find health insurance. Alternatively, they may have to live without it and hope for the best. This was a major part of the plan was continued free health insurance.
Payouts to pensioners dropped to reflect the funding to the pension plan. Retired folks thought they had done the right thing. They worked hard and were now harvesting the fruits of their hard labour. However, they will now get less money. There might be a cut of 35%, or more, on what they live on. A large percentage of these people cannot go back to work. They cannot find employment either. Not many firms other than Wal-Mart are willing to hire 70-year-olds.
Direct Impact: Just Retired
The current bankruptcy-protection mess has directly impacted a subset of Nortel pensioners. These are the just retired. Many of these folks received a Retirement Allowance to help them transition to retirement. They use it to help clear up debts. Some possibly set up retirement savings. This allowance was not a pension payment (i.e. not from the Nortel Pension fund) it was from Nortel and as of January 15th 2009, it has been stopped, because Nortel is not paying this either.
These folks may be able to return to work to try to recoup this income. However, they are losing a large chunk of money they were counting on for retirement.
Lessons from Experience
My experience with the Nortel pension disaster taught me this: no plan is perfect. Even if you have a great pension today, it’s still wise to build your own safety net. Top up your RRSP. Maximize your TFSA. Track your net worth. Create multiple income streams for retirement.
Think of your pension as a foundation, not the whole house.
Big Picture: What Canada’s Retirement System Looks Like
The OECD and financial experts like those at DBRS warn that our system, while robust, faces long-term challenges:
- Aging population
- Fewer workers per retiree
- Increased longevity
- Lower investment returns
Translation? We can’t afford to take pensions for granted.
So… Do You Have a Pension Plan?
If you do, that’s great; just ensure you understand how it works and what it promises. If you don’t, that’s okay too, but start building your retirement strategy today.
Plan like your future depends on it!
Bonus Tip:
Not sure where to begin? Visit FCAC’s Retirement Planning Tools for practical guidance on savings, budgeting, and retirement prep.
Recap: Helpful Pension Resources in Canada
- Pension Plans in Canada (Statistics Canada)
- Canada Pension Plan (CPP)
- OECD: Retirement Income System in Canada
- DBRS Report on Pension Sustainability
Nortel related articles
- On Being Laid Off (a retrospective) what had I learned the 10 years after getting laid off.
- A Year Ago, written a year after that day I was laid off luckily I was waiting to start a new job
- Sometimes it is better to be lucky a retrospective about how lucky I was to get laid off when I did. Read on to find out why.
- Pensions and Severance an important topic I took from my layoff from Nortel.
- Twenty Years in One Line is what my severance letter did. My 20 years are summed up in a sentence.
- Financial Issues With Severance what do you do with your severance if you have options? If you get severance as well.
- On Being Laid Off my explanation of being laid off from Nortel, a day or two afterwards.
- Nortel Still Paying Out? Really, well not that much.
