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Nortel: Lets Get Rid of U.S. Retiree, Life Insurance Benefits

Nortel Networks retirees in the United States are in danger of losing their benefits.

The insolvent telecom equipment maker, whose assets now are made up mostly of patents, has told a bankruptcy court it wants to end health care and life insurance benefits on Aug. 31 for more than 4,000 people and their dependents. Nortel said each program costs $1 million per month and it would rather spend that money on other responsibilities. Indeed, Nortel soon will distribute the $2.8 billion in cash it has amassed from unit auctions to pay off creditors. Theres no insight yet into which debtors will receive the money.

Sure, cutting off retirees benefits presumably would give Nortel more funds to reduce its financial obligations. But there are no guarantees the company would funnel that extra $2 million per month to creditors. Thats because Nortel, particularly in bankruptcy, has been willing and almost, it seems, eager to pay big bonuses to executives rather than to continue its obligations to retirees and pensioners. Nortel has defended its millions of dollars in incentives as ways to retain talent. But that has come off to observers as millions of slaps in the face to people who spent their careers at a once-respected, well-operated telecom company.

Details of Nortels intentions, and whether judges will approve its request, should emerge over the next couple of months. Nortel filed for protection from creditors in January 2009 and is nearing the 18-month limit Congress has placed on companies to keep them from stagnating in bankruptcy. That means Nortel has to deliver its restructuring proposal and disclosure statements which will show who is getting paid and how much soon. Nortel has until July 14 for the former and has asked for an extension until Sept. 3 for the latter.


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