Business World

Nelson Ellsworth could see trouble coming well before Slater Steel Inc. sought bankruptcy protection in 2003 and he lost his job at its Atlas Specialty Steels unit in Welland.

The shock, he says, was discovering at age 49 that nearly a third of the funds required to back his pension were not there.

"We were always told for years the pensions were stable; they were monitored by the government. No one (in the mill) ever dreamed our pension plan was as underfunded as it was."

Five years, a stint of unemployment and a couple of jobs later, Ellsworth is back with a small crew at his old mill, the same mill where his father and uncle once worked.

The new owner, MMFX Technologies Corp. of California, hopes to expand by making a stronger, more rust-resistant yet cheaper steel for reinforcing bars than rivals with their older metallurgy.

But Ellsworth earns a third less pay per hour; his new pension plan offers no guarantee of lifetime income; and, because of the large reduction to his Slater pension and the lack of inflation protection, he now plans to work to age 65, if his health holds out.

His former workmate Mike Bibeau is working two jobs, as a cleaner at a school and as Christmas staff at a Sears Canada store. "They gave me a reduced amount (of pension) but it wasn’t enough to retire on. So I had to find work," he says.

Yet Ellsworth and Bibeau are luckier than many workers now fearful about their jobs and severe investment losses. They are among the minority who have any pension plan. And it was based on their former high wages, about $30 an hour.

"I am a guy who had 29 years and about seven months in a company, and we could retire at 30 years with a pension ($2,170 a month until age 65, when government pensions are payable)," says Ellsworth, a union activist, father and grandfather. Bibeau was only one extra month away.

Although their pensions were reduced by about $470 a month, it would have been worse had an Ontario pension guarantee fund not made up some of the shortfall.

Ontario has two of the strongest pension protections available in Canada. A Pension Benefits Guarantee Fund will cover the shortfall on up to $1,000 of a person’s monthly pension.

Regulations also require that senior workers hit by a mass layoff be treated as though they’re still working toward an early pension. They don’t have to take a lump sum transfer or wait until age 65.

These are valuable protections that would be the envy of millions of other workers who must rely on their own savings or a defined-contribution pension of the type Ellsworth now has at MMFX, which contributes a lump-sum percentage of pay to an investment fund, but makes no promises about future value.

Even defined benefit pensions that promise a set dollar amount or a percentage of pre-retirement income are now more vulnerable. Shortfalls could be larger if a company fails during the current economic storm, and the province is not obliged by law to bolster the pension guarantee fund.

Mercer, the benefits consulting firm, says severe stock market losses and lower interest rates have left many pensions short of funds. Its pension health index show a typical plan short 28 per cent at the end of September, but things have only gotten worse.

For example, the General Motors of Canada Ltd. pension funds aim to have 69 per cent invested in stocks, according to actuarial reports obtained by the Star. If GM’s funds tracked the performance of major stock and bond indices up to the end of November, the plans for hourly workers would have been short nearly 55 per cent and for salaried workers about 40 per cent, leaving a potential hole in Ontario incomes of about $7.5 billion should the company fail. So even pensions at companies "too big to fail" offer no certainty these days.

The former head of human resources at Slater sees one irony in this. Former workers at his company bargained for and won their pensions in part because of the pattern set at GM and two much larger steelmakers, Stelco of Hamilton and Algoma of Sault Ste online payday loans. Marie.

Those companies won special concessions during the major recession of the early 1990s that spared them from funding their pensions to withstand a company failure. That made employees’ benefits more vulnerable, and the potential cost of government-backed pension guarantees more expensive. But it helped lower their payroll costs.

"I certainly wouldn’t be seeking to attach blame to unions for fighting for their members for what they believe they can get," says Paul Davis, who was also Slater’s senior vice-president and general counsel. "The one thing that was clear: Certain organizations in Ontario because of their size had different (pension) funding rules than relatively smaller companies like Slater; far more generous requirements.

"Therefore they gave their union members stronger benefits and those (employees) in smaller companies fought for the same level."

The cost of pensions is not what sunk Slater, which had 2,395 employees, including 657 in Welland. It failed in a period of falling steel prices, competition from subsidized imports and a downturn in the aerospace industry after the 2001 terrorist attacks in the United States.

But its pension obligations were substantial: A whopping $488 million, according to the company’s 2002 annual report – more than its $183.5 million in shareholder equity and $166 million of debt combined.

And pension obligations become more costly when a company fails. Everyone who can takes a pension as soon as permitted.

While Slater’s shortfall was large, Davis says the company met all of its legal funding requirements. Pension regulators did try to prosecute the fund actuary for using a standard practice of deferring or smoothing investment losses over several years, but a judge found no fault. Civil lawsuits over the funding issue are still in the courts.

Union leaders could have anticipated that nearly every pension plan would suffer investment losses in 2001 and 2002. They could have bargained for extra funding at the expense of lower wages, but they did not.

Even when there is a shortfall, pension laws permit companies several years to close the gap. Ottawa agreed – before everything was stalled by prorogation of Parliament – to give certain pension plans up to 10 years to close a funding gap, and provinces may be asked to do the same.

GM is the only remaining company in Ontario that is not required to fund pensions for the possibility of a company failure. It has 15 years to eliminate the smaller shortfall based on the assumption it will keep operating in Canada.

The process of winding up the pension plans of defunct companies is long and involved. Hamish Dunlop of the consulting firm Morneau Sobeco says the final wind-up report on the Slater plan has been filed with the Financial Services Commission of Ontario, but it has not been approved.

Morneau Sobeco has been paying pensions from available funds, including money from the provincial guarantee fund. Dunlop says it’s possible payments under Ellsworth’s and Bibeau’s pension could be increased to reflect a 73 per cent shortfall, up from 65 per cent.

Employees who received a lump sum transfer instead of a pension would have been entitled to more room to contribute to registered retirement savings plan. But Ellsworth says that doesn’t help if you can only find a low-paying job.

Things are looking up for him since he was hired this fall at MMFX. The company has a union, and matches employees who contribute 6 per cent of their pay to a pension investment account with a life insurance company.

A growing number of employers have gone with this type of plan as the cost of traditional defined-benefit pension plans has risen. The trend could pick up after the current economic crisis has wiped out billions of dollars of pension assets.

"Because of my age, I have stuck with all no-risk investments," says Ellsworth. "I am not taking any more chances. I have seen a financial planner. I should be fine as long as my health holds out.

"If can work to 65, I should be all right."

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Sales of mobile phones are shrinking faster than expected as consumers are cutting spending, the world’s top mobile phone maker Nokia said on Thursday in its second warning in three weeks.

“Consumers are continuing dramatically to cut back their spending,” Nokia Chief Financial Officer Rick Simonson said at the company’s investor day in New York, adding that he was under “no illusions” that the market would recover any time soon. “We’re facing it across the world. What’s recently accelerated is the slowdown in emerging markets,” he said.

Nokia said handset market volumes are expected to fall by at least 5 percent next year, something many analysts were already expecting. But it sees its market share rising, helping to lift its stock 4 percent to 11.02 euros in Europe. Nokia’s U.S. shares were up 54 cents or 4 percent at $13.84 on the New York Stock Exchange in afternoon trading.

Some analysts are worried, however, that handset sales could fall a lot further next year, as even Nokia acknowledged that it does not have very good visibility of the market for 2009.

“We’re surprised they didn’t cut (its forecast) more for 2009,” said Charter Equity Research analyst Ed Snyder. “I don’t think we’ll see February 1 without another cut.”

Nokia said it does not plan to give any more financial updates or estimates until it reports earnings in January.

It said that its key devices and services unit operating profit margin should be 13-19 percent next year, with the help of the cost-cutting to which it alluded throughout the analyst day cash advance loan.

“This would obviously be good news if met; investors have started to prepare for worse,” said analyst Tero Kuittinen from Global Crown Capital.

In addition to ailing consumer demand, operator and retail distributors will go through a period of destocking, resulting in lower sales volumes of manufacturers than purchase volumes by consumers in the first half of 2009, Nokia said.

TOUGHEST YEAR AHEAD

The mobile phone market has grown at well over 10 percent for years, having dipped only in 2001, amid that year’s economic downturn; but it will face a new challenge next year.

“Next year will be the most challenging year the mobile industry has ever faced,” said Ben Wood, research director at CCS Insight.

But Nokia said it was in a good position to weather the downturn because of the large scale of its global business.

“2009 will be challenging for our industry; however we have a strong, enviable base to build on, and I believe we will continue to strengthen our position on many fronts,” Nokia Chief Executive Olli-Pekka Kallasvuo said in a statement.

“Building on our operational flexibility, Nokia is acting to reduce costs appropriately in the current slowing environment,” he said. 

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NEW YORK — Stocks slid the most since October on Monday, wiping out more than half of last week’s rally, on growing concern the global economic slump is deepening and consumers access to credit is shrinking.

General Electric Co. and Caterpillar Inc. lost more than 9.7 percent following a report that manufacturing contracted at the fastest pace in 26 years. American Express Co. and JPMorgan Chase & Co. fell more than 15 percent on Oppenheimer & Co. analyst Meredith Whitney’s prediction that credit card companies will cut available lending by 45 percent, or more than $2 trillion.

"The economic news is going to continue to get worse before it gets better," Leo Grohowski, the New York-based chief investment officer for the wealth management unit of Bank of New York Mellon Corp., which oversees $158 billion, told Bloomberg Radio. "The biggest single challenge in terms of the economy is the state of housing, and it still remains precarious."

The Standard & Poor’s 500 index sank 8.9 percent to 816.21, with financial stocks in the index tumbling a record 17 percent as a group. The Dow Jones industrial average plunged 679.95 points, or 7.7 percent, to 8,149.09 with all 30 companies declining. The Nasdaq composite index declined 9 percent to 1,398.07.

The U.S. economy entered a recession last December, the panel at the National Bureau of Economic Research that dates American business cycles said Monday.

The S&P 500 has tumbled 44 percent this year as credit losses and writedowns at the world’s largest financial firms approach $1 trillion and analysts forecast the slump will be one of the worst in the post-World War II era.

GE, the world’s biggest maker of power-generation equipment, slid $1.67 to $15.50. Caterpillar, the largest maker of bulldozers, retreated $4.41 to $36.58.

The Institute for Supply Management’s manufacturing index dropped more than forecast to 36.2, the lowest since 1982. A reading of 50 is the line between expansion and contraction.

"The bad news is still very clearly front and center," Jeffrey Palma, head of global equity strategy at UBS Securities LLC, told Bloomberg Television. "Anyone who is looking for good news on the economy is going to have to wait a while longer free credit report."

American Express slid $3.67 to $19.64. JPMorgan lost $5.54 to $26.12.

"Card companies will reduce lending by more than $2 trillion over the next 18 months in a dangerous and unprecedented move for U.S. consumer spending," Oppenheimer’s Whitney said.

Goldman Sachs Group Inc. and Morgan Stanley plunged 17 percent and 23 percent respectively after Credit Suisse Group AG said the slowdown in investment banking and trading will force the New York firms to report fourth-quarter losses and weaker results for 2009.

Energy producers in the S&P 500 slid 10 percent as oil tumbled more than $5 a barrel and the Organization of Petroleum Exporting Countries said slowing global growth means demand will be much lower than expected a month ago. Crude oil for January delivery declined 9.5 percent to $49.28 a barrel in New York, the lowest closing level in more than three years. OPEC deferred a decision to reduce output until its next meeting, Dec. 17.

Hess Corp., the fifth-biggest U.S. oil company, dropped 19 percent to $43.71. Anadarko Petroleum Corp., the nation’s second-largest independent oil producer, lost 8.4 percent to $37.60. Merrill Lynch cut its recommendation on 11 energy stocks, including Schlumberger Ltd., whose shares lost 17 percent to $42.08.

Freeport-McMoRan Copper & Gold Inc., the world’s largest publicly traded producer of copper, retreated 13 percent to $20.91. U.S. Steel Corp., the biggest U.S.-based steelmaker by 2007 sales, dropped 16 percent to $25.64.

Limited Brands Inc. had the biggest drop in at least 26 years, tumbling 19 percent to $7.57. Citigroup Inc. analysts cut the owner of the Victoria’s Secret lingerie chain to hold from buy, citing a 31 percent rise in the stock from Nov. 20 to Nov. 28.

S&P 500 retailers slumped 9.3 percent, the most since 1998.

Mentor Corp. soared 89 percent to $30.58. Johnson & Johnson, the world’s largest health care company, will acquire the breast implant maker for $1.07 billion in cash. J&J slipped 5.6 percent to $55.33.

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Ryanair (RYA.I: Quote, Profile, Research, Stock Buzz) revived its tense courtship of Irish rival Aer Lingus (AERL.I: Quote, Profile, Research, Stock Buzz) on Monday, bidding 750 million euros ($970 million) or just half of what it offered two years ago in an approach thwarted by European regulators.

The European Commission rejected Ryanair’s 2006 offer on the grounds it would create a near-monopoly in European flights out of Dublin.

This time, analysts believe a recent spate of airline mergers means the chances of success are greater, even if a takeover would still prove highly contentious in Ireland.

Ryanair (RYA.L: Quote, Profile, Research, Stock Buzz), which already owns 29.82 percent of Aer Lingus (AERL.L: Quote, Profile, Research, Stock Buzz), said the all-cash offer at 1.40 euros per share represented a 28 percent premium over the average closing price for Aer Lingus shares in the 30 days to November 28, 2008.

Aer Lingus, which strongly opposed the last approach from its neighbor at Dublin Airport, said shareholders should take no action pending further announcements by the company.

The European Commission declined to comment.

By 8:45 a.m. EST, in London, shares in Aer Lingus were trading 14.3 percent higher at 1.28 euros, below a session high of 1.36 euros. Ryanair’s shares traded 2 percent lower at 2.87 euros, while the wider Irish market .ISEQ was 0.5 percent higher.

Ryanair Chief Executive Michael O’Leary said the economic and regulatory environment had changed markedly since Ryanair’s last move on Aer Lingus was blocked by regulators payday loans cash.

“It (Aer Lingus) is increasingly viewed as a small, peripheral airline that has been bypassed by EU consolidation,” he told broadcaster CNBC.

The takeover would create a fourth major European airline group after the creation of Air France-KLM (AIRF.PA: Quote, Profile, Research, Stock Buzz), Lufthansa (LHAG.DE: Quote, Profile, Research, Stock Buzz)’s buy of Swiss and British Airways’ (BAY.L: Quote, Profile, Research, Stock Buzz) planned tie-up with Iberia (IBLA.MC: Quote, Profile, Research, Stock Buzz), Ryanair said.

FIFTY PERCENT CHANCE

For its latest bid to succeed, Ryanair would also have to overcome opposition from the Irish government and Aer Lingus employees, who respectively own 25 and 14 percent in the airline and rejected Ryanair’s last offer.

Transport Minister Noel Dempsey said he would evaluate the offer once Aer Lingus’s board had received a formal bid, adding that the government had been holding a “strategic” stake in Aer Lingus partly to prevent hostile bids.

“There is no restriction … shares can be bought and sold,” Dempsey added.

O’Leary said he believed Aer Lingus staff would be more receptive this time given recent job losses at the airline. But the IMPACT union representing Aer Lingus cabin crew and pilots said it had major concerns over jobs prospects and competition. 

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