The article “The Big Lesson From Nortel Networks: Pension Plans Aren’t A Guarantee” was originally published on Financial Post on October 21, 2016.

Ever since Nortel Networks first filed for bankruptcy protection in 2009, the 20,000 Canadian pensioners of the company have been waiting to see how much they will get out of the pension plan.

Court proceedings in Canada and the U.S. have focused on how to divvy up Nortel’s US$7.3 billion in assets between Canadian, U.S. and European creditors. Estimates from financial analyst Diane Urquhart suggest that more than US$1.9 billion in legal and advisory costs have been incurred, drastically reducing the money for Nortel’s creditors, including pensioners.

The Nortel pension fund has been managed by Morneau Shepell on behalf of the province of Ontario for the past seven years. Nortel’s Canadian pensioners’ battle for their benefits has now culminated in settlement options that need to be considered and decided upon by the end of 2016.

Pensioners will receive different cuts in their pensions based on where they worked and the province in which they reside, but estimates are that Canadian pensioners will receive somewhere between 55 cents and 70 cents on the dollar. Pensioners in Ontario are estimated to have only a 30 per cent reduction in their pensions, in part because of the province’s Pension Benefits Guarantee Fund.

There will be two options for pensioners, including a lump-sum commuted value payment to be transferred to a locked-in retirement account (LIRA) or life income fund (LIF). Their retirement incomes will depend on investment performance in these accounts and minimum and maximum withdrawals would apply beginning at age 72 at the latest.

The second option is an annuity, much like a pension, which is a monthly payment for life. An annuity would be purchased from an insurance company since the pension plan will cease to exist beyond 2017 as the bankruptcy proceedings wind down.

These are obviously significant financial decisions for pensioners who expected to receive much higher “guaranteed” monthly pension payments in retirement. It will depend on personal factors whether the lump-sum payment or annuity option is better.

But other Canadians in pension plans should also consider the implications of Nortel’s pension woes upon their retirement planning. Horror stories like Nortel can make you wonder whether it is better to opt out of company pensions entirely and go it alone.

Nortel’s woes and widespread pension shortfalls should prompt pensioners and policymakers to consider stricter rules on pension deficiencies

Defined-benefit (DB) pension plans are clearly not always guaranteed. In fact, Aon Hewitt’s Pension Plan Solvency Survey from earlier this year found that only eight per cent of the 449 DB pensions it administers were fully funded. The median solvency ratio was only 81 per cent at that time, meaning a 19 per cent shortfall in assets relative to estimated pension benefits payable.

Persistent low interest rates have hampered the ability of pensions to generate solid returns and magnified deficiencies in recent years.

So what’s a DB pensioner to do? I think Nortel’s woes and widespread pension shortfalls should prompt pensioners and policymakers to consider stricter rules on pension deficiencies and for more provinces to follow Ontario’s lead with pension fund guarantees.

Pension plan members in the private sector need to at least consider the risk of their company being able to fund their pension payments for life if they have the opportunity to commute their pension and otherwise take a lump-sum payout upon leaving the plan.

And for the growing ranks of defined-contribution (DC) pension plan members who are not maximizing their contributions or leaving their pensions invested in cash, generous pension payouts are not guaranteed either. Sun Life estimates as much as 50 per cent of the free money employers offer as a match to funds employees contribute — some $3 billion — is being left on the table.

The Pension Investment Association of Canada (PIAC) reports over $800 million in DC pension assets are invested in cash, daily interest and money market investments. These returns are not even keeping up with inflation.

Should a pension plan member ever opt out of their pension plan? There are 20,000 Nortel pensioners who may disagree with me, but I would say that the answer is no. Hopefully, Nortel is an anomaly. The discipline, tax deferral and company match on any Canadian pension plan are compelling reasons to take full advantage of whatever your employer might offer.

But, if you’re a member of a pension plan, consider this: Your pension plan is not guaranteed. Do not be naïve in thinking your pension will provide eternal retirement security for some of the reasons above, as well as others.

Pay close attention to your pension, whether it’s a DB or DC plan. You owe it to your future, happily retired self. And, if you’re a Nortel pensioner, make the most of your decision and compare your options to determine what’s best for you and your family.

Jason Heath is a fee-only Certified Financial Planner (CFP) and income tax professional for Objective Financial Partners Inc. in Toronto, Ontario.