Thursday, May 28, 2009

Nortel Pensions and Paying in Advance

I was recently offered a 10% discount by a contractor for paying in advance. Of course, this raised warning flags for me. Believe it or not, this has a connection to the current trouble with Nortel’s pension plan.

Ordinarily, I wouldn’t consider paying a contractor in advance for fear that he would just skip off with the money. In this case, it was a contractor I’ve used and trusted for about a decade now. I went for the deal with only mild misgivings.

In the end, my contractor didn’t skip out on me, but he also didn’t give me quite the same service as he had in the past. The work was done a little later than usual, and I had to place a couple of extra phone calls to be the squeaky wheel that gets the grease. In the end, I’d say that the 10% discount wasn’t quite worth the extra trouble.

This is often the way things go with an agreement between two parties where one side fulfills their obligations first. The other side may renege entirely, but much more often they just change the deal slightly. The delivered goods or service may not be quite up to the promised standard or may be delivered late.

This is what is happening to current and former Nortel employees now. A percentage of the work done by Nortel employees was paid for with a promise of a pension when they retire. Nortel has already benefited from this work, and now they are changing the deal by reducing the promised pensions for at least some of the employees.

Laid off Nortel workers who choose to withdraw the current value of their pensions are now being told that they will only get 69% of the originally promised amount.

There isn’t much that can be done about this. If there are only 20 cookies on a plate and ten people are owed three cookies each, something has to give. The battles over Nortel’s pension and assets will continue until nothing is left. When all the assets are gone, there will be plenty of people left still owed money.

5 comments:

  1. Sounds like an economics version of a bird in the hand?

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  2. This is only the tip of the pension short-fall iceberg...

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  3. Novice: For Nortel pensioners it has become "a bird in the hand is worth 1.5 birds in the bush." However, with time it may become 2, 3, or 4 birds in the bush.

    Thicken My Wallet: I agree. I've been hearing about pension plan shortfalls for over a decade now. The money to pay out all the obligations just isn't there. The government would be completely irresponsible to try to make up even half of the shortfall. I expect to see a great many baby boomers working at some sort of job into their 70s.

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  4. I wonder how the government can agree to make up the pension shortfall for one company (GM--or so I understand) and then not for the rest of the companies.

    I think it was either a very bad precedent or very unfair...both bad.

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  5. Connie: I suspect that the apparent favouritism for the auto industry workers comes from the fact that they tend to vote in a block and are a political force. I agree that it is unfair, but fairness isn't much of a consideration in politics.

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