Nortel to Thin Ranks

Nortel (NT Quote) will end its traditional pension plan and eliminate about 1,100 jobs as the Canadian telecom-gear maker continues with its cost-cutting endeavors.

The changes to the pension plan should lower annual expenses by $100 million starting in 2008 and produce savings of more than $400 million in cash by 2012.

Starting Jan. 1, 2008, Nortel said employees currently in defined-benefit pension plans will be switched to defined-contribution retirement programs. Post-retirement healthcare benefits will be terminated for workers who aren't at least 50 and have five years of service on July 1 this year.

Nortel is actually ending 1,900 positions worldwide, but the company will create around 800 new jobs, for a net loss of 1,100. Nortel also explained that it will "flatten the organization and shift to a culture marked by agility and accountability."

Total costs of the organizational changes will be about $100 million during the next two years. A charge of $35 million will be recorded in the second quarter. Nortel said it will save about $100 million next year and around $175 million annually starting in 2008 from the cuts.

Shares of Nortel lost 7 cents, or 3.3%, to $2.08 Tuesday.