11. Employee benefit plans

Plan Description

Nortel maintains various investment plans covering substantially all of its employees, and acts as the plan sponsor for its defined benefit and defined contribution plans. Below is a list of relevant plans discussed in this note and their status as of December 31, 2011 and the basis for which they are being accounted for as of December 31, 2011. Note that although these plans represent Nortel's major retirement plans, Nortel also has smaller pension plan arrangements in other countries.


Plan Name	Status	Current Accounting
Canadian Retirement Savings Plan	Ongoing	Defined Contribution
Canadian Defined Contribution Pension Plan ("DCPP")	Closed 9/30/2010	Defined Contribution
Canadian Post Employment obligation	Terminated 12/31/2010	Estimated Allowed Claim
Canadian Post Retirement obligation	Terminated 12/31/2010	Estimated Allowed Claim
Canadian Defined Benefit Plans
Managerial and Non-Negotiated Pension Plan (registered)	Plan sponsor only	Defined Benefit
Negotiated Pension Plan (registered)	Plan sponsor only	Defined Benefit
Transitional Retiring Allowance ("TRA") & Retirement Allowance ("RAP") Pension Plans	Plan sponsor only	Defined Benefit
Nortel Networks Supplementary Executive Retirement Plan ("SERP")	Terminated 12/31/2010	Estimated Allowed Claim
Nortel Networks Limited Excess Pension Plan ("Excess")	Terminated 12/31/2010	Estimated Allowed Claim
US LTIP (Long-Term Incentive Plan)	Deconsolidated 10/1/2010	Deconsolidated
US Post Retirement obligation	Deconsolidated 10/1/2010	Deconsolidated

Employee Compensation Claims Motion

On October 6, 2011, the Canadian Court approved a methodology and procedure for compensation related claims in Canada. As a result, Nortel adjusted the recorded obligations to reflect the approved methodology for pension plans other than the registered defined benefit plans, but including post-retirement and post-employment plans. For pension plans other than the Canadian Pension Plans and the TRA and RAP plans, an adjustment of $28 was recorded to pension obligations with the corresponding expense recorded in reorganization items. Similarly, adjustments of $63 and $17, for the post-retirement and post-employment plans, respectively, were recorded as a charge in reorganization items. The court approved claim amounts will be updated for continuing service related to active employees. The approval on October 6, 2011 also included a bar date of January 6, 2012 for the submission of any requests for corrections to personal data and/or additional claims related to their respective claims. Nortel continues to review the submissions received and has not identified any significant adjustments to the court approved claim amounts to date.

Defined Contribution Plans

Nortel has defined contribution plans available to substantially all of its Canadian employees. Under the terms of the Retirement Savings Plan, eligible employees may contribute a portion of their compensation to the plan. Based on the specific program in which the employee is enrolled, Nortel matches a percentage of the employee's contributions up to a specified limit. The U.S. LTIP Plan operated under similar parameters as the Retirement Savings Plan. Under the DCPP, Nortel contributed a fixed percentage of employees' eligible earnings to a defined contribution plan arrangement; this plan was closed to new contributions on September 30, 2010. The employer contribution cost of these defined contribution plans was $2 and $12 for the years ended December 31, 2011 and 2010, respectively.

Defined Benefit Plans

Settlement Agreement with Former and Disabled Canadian Employee Representatives

On February 8, 2010, the Canadian Debtors entered into the Settlement Agreement in relation to the Canadian Pension Plans, post-retirement benefits and post-employment benefits. The Settlement Agreement, as amended, was approved by the Canadian Court on March 31, 2010. On September 30, 2010, the administration of the Canadian Pension Plans was transferred to Morneau Sheppell Ltd. (formerly known as Morneau Sobeco Limited Partnership) (appointed by the Ontario Superintendent of Financial Services) and contributions ceased on that same date. Nortel remains as plan sponsor and, in its capacity, amended the plans to cease service accruals effective September 30, 2010. Benefit coverage in the Canadian post-retirement benefit plan and the Canadian LTD plan ceased on December 31, 2010.

As a result of the approved cessation of post-retirement benefit payments with an effective date of December 31, 2010, Nortel recorded the impacts of the Settlement Agreement in accordance with FASB ASC 715-60 "Defined Benefit Plans — Other Post Retirement" ("ASC 715-60"), which required a de-recognition of the liability and deferred actuarial gains totaling $432 in the first quarter of 2010 recognized as part of reorganization items. Nortel has recorded a charge of $443 in reorganization items representing its best estimate of the expected allowed claim amount in accordance with ASC 852 in relation to the participant claims for future years' benefits that they will no longer receive due to the cessation of the plans. In 2011, in connection with the October 6, 2011 Court Order referred to above, this liability was adjusted by $63. To the extent that information available in the future indicates a difference from the recognized amounts, the provision will be adjusted.

As a result of the amendments to cease future service accruals for the Canadian Pension Plans, Nortel triggered a plan curtailment. As a result of the curtailment, on September 30, 2010, Nortel remeasured the Canadian Pension Plans using assumptions consistent with a wind-up basis of accounting as this is Nortel's best estimate of current assumptions and recorded the impacts of this remeasurement in third quarter of 2010 in accordance with FASB ASC 715-30 "Defined Benefit Plans — Pension" (ASC 715-30). In addition, as a result of the remeasurement, Nortel was required to adjust the liability for impacts from the curtailment loss and changes in assumptions at the re-measurement date. The effect of these adjustments and the related foreign currency translation adjustment was to record, in the third quarter of 2010, a curtailment loss of $490 in reorganization items, so as to increase pension liabilities by $579 and accumulated other comprehensive loss by $89. The Plans were remeasured on December 31, 2010 as part of the ongoing pension accounting under ASC 715-30. Refer to the discussion below regarding the wind-up order of the Canadian funded pension plans for information related to a further remeasurement in 2011.

Wind-up Order of the Canadian funded pension plans

On March 8, 2011, the Ontario Superintendent of Financial Services ordered the wind-up for the Canadian Pension Plans with an effective date of October 1, 2010. Nortel's net pension liability for the Canadian Pension Plans is based on the pension assets and liabilities as of this wind-up date. As such, the 2011 pension expense for the Canadian Pension Plans was limited to the amortization of accumulated other comprehensive income. As a result of this order, Nortel remeasured the pension obligations under the plans in the first quarter of 2011 using wind-up assumptions as of the effective date, resulting in a reduction to pension liabilities and OCI of $96 as compared to the remeasurement as of December 31, 2010. The settlement process for the Canadian Pension Plans has not been finalized, and as such the assumptions used to calculate the Canadian Pension Plans' pension obligations could be subject to change. There were no advancements in the settlement process for the Canadian Pension Plans during 2011 and as a result no impacts to the liability.

Termination of Canadian unregistered defined benefit plans – SERP and Excess

As at December 31, 2010, the SERP and Excess plans were both terminated. Nortel recognized settlement accounting for these plans, and recorded a curtailment loss of $6 and a plan settlement gain of $201 in reorganization items, representing the consolidated liabilities for these two plans. At December 31, 2010, Nortel has recorded in reorganization items a charge of $168 representing its current best estimate of the expected allowed claim amount in accordance with ASC 852 in relation to the participant claims for future years' benefits they will no longer receive due to the cessation of these two plans. To the extent that information available in the future indicates a difference from the recognized amounts, the provision will be adjusted. Refer to the Employee Compensation Claims Motion section above for additional information regarding adjustments to SERP and Excess. As a result of the motion, SERP and Excess were adjusted by $3 and $14, respectively.

Impact of U.S. deconsolidation

As a result of the deconsolidation of the U.S. Subsidiaries on October 1, 2010, Nortel recorded a reduction in its pension obligation, post-retirement obligation, and accumulated other comprehensive income of $427, $225 and $25, respectively.

Pension and Post Retirement Benefits

As a result of the above actions taken by the Company, there were no longer any post-retirement programs in effect on December 31, 2010. The following discussion includes activity during the year ended December 31, 2011 for pension and post-retirement plans and only information related to year-end balances and forward-looking information for the pension plans

In the first quarter of 2011, a remeasurement of the Canadian Pension Plans was completed followed by a year end measurement of the TRA and RAP pension plans. The effect of the net actuarial gain adjustment and the related foreign currency translation adjustment was to decrease accumulated other comprehensive loss including foreign currency translation adjustment by $129. The unfunded status of its defined benefit plans decreased to $1,352 as of December 31, 2011 from $1,490 as of December 31, 2010 primarily as a result of an actuarial gain due to the remeasurement of the Canadian Pension Plans and the TRA and RAP plans of $47, the partial settlement of the RAP of $8 related to payments made by Flextronics to former Nortel employees, settlement in the Taiwan plan $2 and foreign exchange movements on the Canadian plans of $86. The net impact to plan assets as of December 31, 2011 was an increase of $55 resulting from investment income, offset by $55 related to foreign exchange fluctuations.

See note 2 regarding changes to the funding of Canadian registered defined benefit pension plans, post-retirement and post-employment benefits. Pension and other post-retirement benefit costs reflected in the consolidated statements of operations are based on the projected benefit method of valuation.

The following details the unfunded status of the defined benefit plans and post-retirement benefits other than pensions, and the associated amounts recognized in the consolidated balance sheets as of December 31:


	Defined Benefit Pension Plans						Post - Retirement Benefits
	2011			2010			2010
Change in benefit obligation:
Benefit obligation - beginning	$	3,997		$	3,473		$	569
Impact of deconsolidations of EMEA Subsidiaries and U.S. Subsidiaries		-			(94	)		(219	)
Service cost		1			8			1
Interest cost		4			196			14
Plan participants' contributions		-			-			7
Actuarial loss		(47	)		292			31
Special and contractual termination benefits ^(a)		-			2			-
Curtailments and settlements ^(a)		(10	)		273			(370	)
Benefits paid		-			(334	)		(43	)
Foreign exchange		(86	)		181			10

Benefit obligation - ending	$	3,859		$	3,997		$	-

Change in plan assets:
Fair value of plan assets - beginning	$	2,507		$	2,459		$	-
Actual return on plan assets		55			236			-
Employer contributions		-			26			36
Plan participants' contributions		-			-			7
Plan settlements		-			(2	)		-
Benefits paid		-			(334	)		(43	)
Foreign exchange		(55	)		122			-

Fair value of plan assets - ending	$	2,507		$	2,507		$	-

Net amount recognized	$	(1,352	)	$	(1,490	)	$	-

Amounts recognized in the accompanying consolidated balance sheets consist of:
Liabilities subject to compromise	$	(1,357	)	$	(1,493	)	$	-
Other assets		5			3			-

Net amount recognized	$	(1,352	)	$	(1,490	)	$	-

Amounts recognized in accumulated other comprehensive income (loss) - before tax - consist of:
Net actuarial loss	$	674		$	803		$	-

Net amount recognized	$	674		$	803		$	-

(a)

Curtailments, settlements, and special and contractual termination benefits resulted from the plan terminations, plan amendments, 2008 Restructuring Plan, 2009 Restructuring Plan, and Post-Petition Date Cost Reduction Activities in conjunction with divestiture activities in 2009 and 2010, as set out in notes 8 and 9.

The accumulated benefit obligation for all defined benefit plans was $3,859 and $3,976 as of December 31, 2011 and 2010, respectively. The following details selected information for defined benefit plans, all of which have accumulated benefit obligations in excess of the fair value of plan assets as of December 31:


	2011		2010
Projected benefit obligation	$	3,859	$	3,974
Accumulated benefit obligation	$	3,859	$	3,974
Fair value of plan assets	$	2,503	$	2,502

The following details the amounts recognized in other comprehensive income (loss), including foreign currency translation adjustments, including the other comprehensive income (loss) related to the EMEA Subsidiaries, for the years ended December 31:


	Defined Benefit Pension Plans						Post-Retirement Benefits
	2011			2010			2010
Prior service cost	$	-		$	-		$	2
Amortization of prior service cost		-			(2	)		-
Net actuarial gain (loss)		(84	)		201			34
Amortization of net actuarial gain (loss)		(43	)		(66	)		3
Curtailment		-			(14	)		70
Settlement		(2	)		27			-
Impact of deconsolidations of EMEA Subsidiaries and U.S. Subsidiaries		-			(993	)		1

Net recognized in other comprehensive income (loss)	$	(129	)	$	(847	)	$	110

The estimated amounts in accumulated other comprehensive income (loss) to be recognized as components of pension expense during the next fiscal year are as follows:


	Defined Benefit Pension Plan		Post-Retirement Benefits		Total
Net actuarial loss	$	42	$	-	$	42

The following details the net pension expense for the defined benefit plans for the following periods:


	2011			2010
Pension expense:
Service cost	$	1		$	8
Interest cost		4			196
Expected return on plan assets		-			(151	)
Amortization of prior service cost		-			2
Amortization of net losses		51			43
Settlement and curtailment losses		(7	)		467
Special and contractual termination benefits		-			2

Net pension expense	$	49		$	567

Weighted-average assumptions used to determine benefit obligations as of December 31:
Discount rate		4.2%			4.3%
Rate of compensation increase		N/A			0.2%
Weighted-average assumptions used to determine net pension expense for years ended December 31:
Discount rate		4.1%			5.5%
Expected rate of return on plan assets		N/A			6.3%
Rate of compensation increase		3.4%			3.5%

The following details the net cost components of post-retirement benefits other than pensions for the following periods:


	2010
Post-retirement benefit cost:
Service cost	$	1
Interest cost		14
Amortization of prior service cost		(3	)
Amortization of net losses gains		(3	)
Curtailment & Settlement losses gains		(450	)

Net post-retirement benefit cost	$	(441	)

Weighted-average assumptions used to determine benefit obligations as of December 31:
Discount rate		N/A
Weighted-average assumptions used to determine net post-retirement benefit cost for years ended December 31:
Discount rate		6.0%
Weighted-average health care cost trend rate		7.8%
Weighted-average ultimate health care cost trend rate		4.9%

As a result of the transfer of administration of the Canadian Pension Plans, Nortel is no longer the administrator of the assets for the Canadian Pension Plans. Accordingly, Nortel is not in a position to set target investment allocations or dictate investment strategies. Further, changes in the plan assets no longer impact Nortel's net pension liability as a result of the order to wind-up the Canadian Pension Plans with an effective date of October 1, 2010. Consequently, disclosure information of the Canadian Pension Plan's assets has not been included in these financial statements.