Nortel wants to dump retirees

The company asks a bankruptcy judge to allow it to drop insurance coverage.

Staff WriterJune 23, 2010 

As it winds down bankruptcy proceedings, Nortel Networks has asked a federal court to terminate insurance coverage for more than 4,000 retirees and their dependents, many of whom live in the Triangle.

Nortel told the federal judge in Delaware who is overseeing the bankruptcy proceedings that the retiree benefits are costing the company $2 million a month. As of Sept. 1, Nortel wants to cut off retirees' medical coverage, prescription drug coverage, long-term disability and life insurance.

The move will almost certainly increase medical costs for the retirees and their families, who had been promised Nortel-subsidized health care coverage for life. In some cases Nortel was subsidizing nearly half the cost of medical coverage for its former employees.

"If you wish to replace such coverage or to supplement Medicare coverage ... you will need to purchase and pay for an individual insurance plan of your choice," the company said in a letter to retirees. "There will be no Nortel subsidy."

At its peak, Nortel employed as many as 10,000 in Research Triangle Park.

The beleaguered company filed for Chapter 11 bankruptcy protection in January 2009.

Once North America's leading maker of switches and other telecom gear, Nortel has sold of most of its business assets in the past year. To date Nortel has sold business units to Radware, Telefonaktiebolaget LM Ericsson, Hitachi, Avaya, Genband and Ciena Corp.

Nortel has arranged for 4,019 retirees and dependents to sign with United Healthcare for coverage. The policies will not require a medical exam or exclude coverage because of ill health or tobacco use.

Nortel retirees don't know yet how much more they'll have to pay without the Nortel subsidy. A United Healthcare spokesman said the information will be distributed soon.

Joel Webb, who worked 28 years at Nortel, pays $70 a month for his Nortel-sponsored coverage. Webb, 61, was laid off in 2008 as a senior manager of emergency recovery operations; he now needs to bridge the gap until Medicare coverage kicks in at age 65.

Based on initial calls to insurers, he expects his monthly medical insurance cost to soar to $600.

"That'll eat up our savings pretty quick," he said. "I'm going to have to go back to work."

Joe Samuel, who retired from Nortel in 2008 after 28 years with the company, fears a pre-existing condition will limit his insurance options. He's 61 and had his colon removed after he developed cancer.

Samuel said his health care costs him $560 a month out of pocket for him and his wife, with Nortel covering the other half of the cost.

Samuel lives in Cary and left Nortel as chairman of Nortel India. He put in an inquiry to Blue Cross Blue Shield and was told it's not likely he could get a policy because his colon cancer puts him in a high risk category. United Healthcare may be his only option, he said.

"I have no choice but to take it," he said. "It doesn't matter how much it'll cost."

United Healthcare plans to organize informational meetings for Nortel retirees next month.

Nortel told the federal bankruptcy court that insuring 2,592 retirees and 1,490 spouses and children is costing the company $1 million a month. Covering 280 participants on long-term disability is costing another $1 million a month.

"While the debtors recognize the importance of the benefits provided under the Retiree Medical Plan to their retired employees, the debtors have determined that it is necessary to terminate the plan at this state of the restructuring," the company told the court.

john.murawski@newsobserver.com or 919-829-8932

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