Nov. 9th Court Appearance at 10am

[remberger]

On October 17, I filed Docket 1358 a Motion to Compel Avaya to disclose its Methodology... The same day Avaya posted Docket 1356 Avaya's Supplemental Disclosure intended to fulfill Judge Bernstein's "suggestion" that Avaya tell us how the numbers were calculated. A hearing was scheduled for November 9 on my original motion. I have studied Docket 1356 and found that it was insufficient for me to replicate Avaya's number. I also believe that Avaya's methodology relies on a statute that does not apply to supplemental pensions and uses a methodology from that statute for a purpose other than what it was meant for.

Today I filed an Amended Motion to Compel... that explains my rationale and asks the court to remedy the situation. That motion is posted below Attachment A with the US treasury rates and Attachment be with a document from AON are not included because I only have them as a PDF or JPEG files. I will provide them to anyone interested if you drop me an e-mail.

Avaya's lawyers have contacted me twice, once to get me to delay the hearing or drop the original motion and a second time, today to get me to delay the hearing or drop my new motion. Failing that they asked if they could only argue the original motion. I said that would extend beyond the plan objection date and so I declined.

As part of my discussion with Avaya's lawyers they said they will be sending letters out to those of us who requested the details of our individual calculation. They reviewed my numbers with me. They reviewed my birth date, my wife birth date, the survivor option we elected, and my monthly pre-tax supplemental pension amount. All appeared correct then they said there is this annuity factor, in my case 15.67 that they multiply the monthly pension by and then multiply that by 12. Of course the magic is how you calculate the annuity factor. They couldn't explain that. The wizard is still behind the curtain.

For those of you planning to attend I think this will be interesting. If Avaya is successful in delaying this hearing I will post it here and e-mail those of you who sent me e-mails. Otherwise I'll see you in court.

Bob Emberger

_____________________________________________
Amended Motion to Compel Avaya to Disclose Methodology and Factors Used in Calculating its Value for the Supplemental Pensions of Avaya Retirees
(supersedes Docket 1358)

ROBERT EMBERGER

Creditor, Retiree from Avaya

1032 Resolution Drive

Bethlehem, PA 18017

Telephone: (484) 281-3744

Email: remberger@live.com
Filing PRO SE


UNITED STATES BANKRUPTCY COURT SOUTHERN DISTRICT OF NEW YORK
In re:
Chapter 11

Avaya Inc., et al.,1 Case No. 17-10089 (SMB)
Debtors. (Jointly Administered)









1 The Debtors in these chapter 11 cases include, along with the last four digits of each Debtor's federal tax identification number, include: Avaya Inc. (3430); Avaya CALA Inc. (9365); Avaya EMEA Ltd. (9361); Avaya Federal Solutions, Inc. (4392); Avaya Holdings Corp. (9726); Avaya Holdings LLC (6959); Avaya Holdings Two, LLC (3240); Avaya Integrated Cabinet Solutions Inc. (9449); Avaya Management Services Inc. (9358); Avaya Services Inc. (9687); Avaya World Services Inc. (9364); Octel Communications LLC (5700); Sierra Asia Pacific Inc. (9362); Sierra Communication International LLC (9828); Technology Corporation of America, Inc. (9022); Ubiquity Software Corporation (6232); VPNet Technologies, Inc. (1193); and Zang, Inc. (7229). The location of Debtor Avaya Inc.'s corporate headquarters and the Debtors' service address is: 4655 Great America Parkway, Santa Clara, CA 95054.

Amended Motion to Compel Avaya to Disclose Methodology and Factors Used in Calculating its Value for the Supplemental Pensions of Avaya Retirees
(supersedes Docket 1358)

PLEASE TAKE NOTICE that on 8 September 2017, attorneys for Avaya filed Docket 1104, FIRST AMENDED JOINT CHAPTER 11 PLAN OF REORGANIZATION OF AVAYA INC. AND ITS DEBTOR AFFILIATES and Docket 1106, DISCLOSURE STATEMENT FOR THE FIRST AMENDED JOINT CHAPTER 11 PLAN OF REORGANIZATION OF AVAYA INC. AND ITS DEBTOR AFFILIATES.

PLEASE TAKE FURTHER NOTICE that on 8 September 2017, attorneys for Avaya filed Docket 1103, NOTICE OF HEARING TO CONSIDER CONFIRMATION OF THE CHAPTER 11 PLAN FILED BY THE DEBTORS AND RELATED VOTING AND OBJECTION DEADLINES, and that filing specifies key dates including 27 October 2017 as the voting deadline, 1 November 2017 for Plan Objections and 15 November 2017 for commencement of the Confirmation Hearing.

PLEASE TAKE FURTHER NOTICE that on 17 October 2017 I, Robert Emberger, filed Docket 1358, Motion to Compel Avaya to Disclose Methodology and Factors Used in Calculating its Value for the Supplemental Pensions of Avaya Retirees.

PLEASE TAKE FURTHER NOTICE that on 17 October 2017, attorneys for Avaya filed Docket 1356, DEBTORS’ SUPPLEMENTAL DISCLOSURE REGARDING CALCULATION OF SCHEDULED CLAIMS WITH RESPECT TO THE AVAYA INC. NON-QUALIFIED SUPPLEMENTAL PENSION PLAN.

PLEASE TAKE FURTHER NOTICE that on 24 October 2017, attorneys for Avaya filed Docket 1372, SECOND AMENDED JOINT CHAPTER 11 PLAN OF REORGANIZATION OF AVAYA INC. AND ITS DEBTOR AFFILIATES.

PLEASE TAKE FURTHER NOTICE that on 24 October 2017, attorneys for Avaya filed Docket 1375, DISCLOSURE STATEMENT SUPPLEMENT FOR THE SECOND AMENDED JOINT CHAPTER 11 PLAN OF REORGANIZATION OF AVAYA INC. AND ITS DEBTOR AFFILIATES and that filing specifies new key dates including 16 November 2017 as the new voting deadline, 16 November 2017 as the new Plan Objection deadline, and 21 November 2017 for Confirmation Hearing.

WHEREAS Avaya’s Supplemental Disclosure in Docket 1356 does not disclose the step by step procedures used to value my Supplemental Pension and is insufficient to replicate the calculations made by Avaya to arrive at its value for my Supplemental Pension or the Supplemental Pension of any of the 830 Avaya retirees who have Supplemental Pension claims, and

WHEREAS in its Supplemental Disclosure (Docket 1356) Avaya relies on United States Code Annotated, Title 26. Internal Revenue Service Code (Refs & Annos), Subtitle A. Income Taxes (Refs & Annos), Chapter 1. Normal Taxes and Surtaxes (Refs & Annos), Subchapter D. Deferred Compensation, Etc. (Refs & Annos), Part I. Pension, Profit-Sharing, Stock Bonus Plans, Etc. (Refs & Annos), Subpart B. Special Rules (Refs & Annos) as the underlying basis for its methodology, and

WHEREAS United States Code Annotated, Title 26. Internal Revenue Service Code (Refs & Annos), Subtitle A. Income Taxes (Refs & Annos), Chapter 1. Normal Taxes and Surtaxes (Refs & Annos), Subchapter D. Deferred Compensation, Etc. (Refs & Annos), Part I. Pension, Profit-Sharing, Stock Bonus Plans, Etc. (Refs & Annos), Subpart B. Special Rules (Refs & Annos) applies to qualified pensions, and

WHEREAS the Avaya Supplemental Pension Plan is not a qualified pension. It is paid for out of current period earnings and reported to retirees on a W-2 for tax purposes, and

WHEREAS Avaya’s Supplemental Disclosure in Docket 1356 proposes discount rates of “an interest rate of 1.39% per year for the first five years, 3.27% for the next 15 years, and 4.18% thereafter” and does not disclose the source or effective date of its proposed discount factors, and

WHEREAS the US Treasury rates in effect on 19 January 2017 were 0.83% for 1 year, 1.25% for 2 years, 1.53% for 3 years, 1.97% for 5 years, 2.28% for 7 years, 2.47% for 10 years, and 2.77% for 20 years (source: https://www.treasury.gov/resource-cente ... &year=2017) (see Attachment A), and

WHEREAS Avaya has used the “Mortality tables for valuation dates occurring during 2017 and
distributions subject to § 417(e)(3) with annuity starting dates occurring during stability periods beginning in 2017”, and

WHEREAS the “Updated Static Mortality Tables for Defined Benefit Pension Plans for 2017 Notice 2016-50” explicitly states on page 1 that “Section 412 of the Code provides minimum funding requirements that generally apply for defined benefit plans” and again on page 4 that “This notice sets forth the mortality tables for minimum funding and present value requirements for 2017”, and that funding requirements for a plan in agggregate are not the same as individual claim valuation, and

WHEREAS the Financial Accounting Standards Board promulgates standards for Generally Accepted Accounting Principles (GAAP), and

WHEREAS Financial Accounting Standard (FAS) 158 “Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans - an amendment of FASB Statements No. 87, 88, 106, and 132(R)” is the applicable standard, and

WHEREAS in FAS 87 FASB states “The Board believes that the terms of the plan that define the benefits an employee will receive (the plan's benefit formula) provide the most relevant and reliable indication of how pension cost and pension obligations are incurred. In the absence of convincing evidence that the substance of an exchange is different from that indicated by the agreement between the parties, accounting has traditionally looked to the terms of the agreement as a basis for recording the exchange. Unlike some other methods previously used for pension accounting, the method required by this Statement focuses more directly on the plan's benefit formula as the basis for determining the benefit earned, and therefore the cost incurred, in each individual period.”, and


WHEREAS “The Society of Actuaries' (SOA’s) Retirement Plans Experience Committee (RPEC) has released the final report of the RP-2014 mortality tables. The primary focus of this study was a comprehensive review of recent mortality experience of uninsured private retirement plans in the United States. The RP-2014 mortality tables presented in this report and the Mortality Improvement Scale MP-2014 presented in the companion report form a new basis for the measurement of retirement program obligations in the United States.” Furthermore, “the Retirement Plans Experience Committee of the Society of Actuaries (RPEC) is pleased to present this annual update to the RPEC_2014 model and its corresponding mortality improvement scales. This new version of the model reflects historical U.S. population mortality experience through 2015. For clarity, the updated mortality improvement scale based on this 2017 version of the model is called Scale MP-2017.”, and

WHEREAS Aon, Avaya’s administrator of pension services, recognizes and recommends the use of the Society of Actuaries’ tables (see Attachment B), and

WHEREAS, at a hearing on 5 October 2017 regarding Docket 1255 Notice of Proposed Supplemental Order Regarding Assigned Mediation, the Court “suggested” that the attorneys for Avaya publish the methodology and factors used in calculating Avaya’s value for the Supplemental Pensions, and

WHEREAS Mr. Ryan Preston Dahl, Esq, attorney for Avaya, immediately after the hearing on 5 October 2017 suggested that I e-mail him with any questions regarding the valuation of my Supplemental Pension, and

WHEREAS I e-mailed Mr. Ryan Preston Dahl, Esq in the evening of 5 October 2017 with a list of questions regarding my Supplemental Pension, a copy of which appears as Attachment C, and

WHEREAS to date I have not received a reply from Mr. Ryan Preston Dahl, Esq, and

WHEREAS attorneys for Avaya, in Docket 1356 stated, “The calculation determined with respect to any individual Beneficiary on account of such Beneficiary’s ASPP Claim will be made available to that Beneficiary upon written request to the undersigned counsel by the Beneficiary or such Beneficiary’s duly authorized representative.”, and

WHEREAS I sent on 18 October 2017 to each of Avaya’s attorneys listed in Docket 1356, both by e-mail and by US mail, a request for Avaya to provide me the calculation (see Attachment D), and

WHEREAS I have not received the calculation from Avaya, and

WHEREAS once Avaya discloses its calculations, it may be appropriate for me to amend my claim to account for the methods and factors disclosed by Avaya, (other Avaya retirees may also wish to amend the claims they have already filed), and

WHEREAS the attorneys for the “Official Committee of Unsecured Creditors” have not filed an objection to the adequacy of the Disclosure Statement filed in Docket 1106, the Supplemental Disclosure filed in Docket 1356, or the Second Amended Disclosure Statement filed in Docket 1375, and

WHEREAS Avaya retirees Supplemental Pension claims are in excess $80 million, which represents over 26% of all General Unsecure Claims represented by the “Official Committee of Unsecured Creditors”,


THEREFORE, I respectfully request the Court to order Avaya to do the following:

1) Fully disclose the methodology and common factors used to value the Supplemental Pensions of all Avaya retirees. The methodology disclosure should include all steps necessary to replicate the valuation. This disclosure should occur at least 7 days prior to the cutoff of Plan Objections.

2) Fully disclose to each Avaya retiree in writing the specific factors used to calculate that employee’s Supplemental Pension value. That disclosure should include the age or birth date of the retiree and his/her spouse, if applicable, the survivor option elected by the retiree, the monthly or annual gross value to the Supplemental Pension, the anticipated tax withholding from the lump-sum settlement, if any, and the amount calculated by Avaya for the value of the Supplemental Pension. The purpose of this disclosure is to assure that no errors were made in the calculation of the settlement. Such disclosure to be made as soon after the methods and factors are published as practical.

3) Answer directly and unambiguously the following questions:
a. Does the valuation of the Supplemental Pension include any valuation for the survivor option elected? If so, how was the valuation of the survivor option calculated?
b. Does the valuation of the Supplemental Pension include any valuation for the “bump up” provisions of the plan? If so how was the valuation of the “bump up” calculated?
c. Does Avaya intend to withhold Federal Income Tax from its lump sum settlement of individual supplemental pension claims when they are settled? If so how will Avaya calculate the amount withheld?
d. Does Avaya intend to withhold State Income Tax from its lump sum settlement of individual supplemental pension claims when they are settled? If so how will Avaya calculate the amount withheld?
e. If Avaya does withhold Federal and or State Income Tax from its lump sum settlement of individual supplemental pension claims, has Avaya adjusted its valuation of my supplemental pension claim to offset the loss of tax free earnings on the taxes withheld up front?

4) To the extent that Avaya’s current methodology does not fully and fairly value my pension (and the pension of the other 830 Avaya retirees), including valuation of the survivor option, the “bump up” provision, and the State and Federal Income Tax impacts, direct Avaya to immediately make those adjustments, review them with the attorneys and financial advisors for the “Official Committee of Unsecured Creditors” to complete an appropriate due diligence review, and then (Avaya) publish them a new supplemental disclosure.

5) Notwithstanding the planned hearing on 21 November 2017, change the bar date for Avaya retirees who have claims on file for Supplemental Pensions, and who wish to amend their claims after Avaya provides the disclosures requested in items above. The new bar date for amended claims should be 21 days after Avaya mails its individual disclosures to the Avaya retirees.


Discussion

To date, Avaya has not provided sufficient information for myself or any retiree to independently verify the amounts calculated for our Supplemental Pension. Before we vote on the plan, we have a reasonable expectation that the numbers provided were correct. Normally, I would have expected the attorneys for the “Official Committee of Unsecured Creditors” to perform some sort of due diligence on the calculations, but to date none has occurred. I believe we have a right to that information before we vote for the plan and before the date for plan objections passes.

In an attempt to fulfill the informal request to disclose the supplemental pension assumption made by the Court at its 5 October 2017 hearing, Avaya crafted its Supplemental Disclosure (Docket 1356) dated 17 October 2017. That disclosure is deficient in three respects. First, it provides insufficient detail for an independent person to recreate Avaya’s valuation. Second, it does not date and source the interest rates used in its present value discount calculations. Finally, and perhaps most important, it takes a process/formula from a statute that is not applicable and then misuses that process/formula by applying it to claim valuation instead of its intended purpose of aggregate claim funding. Avaya primarily relies on Title 26 of the US Code in crafting its methodology. Specifically, Avaya uses §417 of that Title. However, §417 applies to qualified plans and qualified survivor annuities. The Avaya Supplemental Pension Plan is not a qualified plan. At the end of each year I receive a W-2 for my Supplemental Pension, not a 1099-R. A more relevant source might be found in GAAP accounting. FAS 158 and its predecessors are probably more applicable. In either case, whether you rely on §417 or FAS 158, the formulas applied therein are designed to establish a total firm liability. They were not designed to calculate pension specific claim values. Avaya relies on the mortality table from §417. If §417 is not applicable, then the mortality tables from the Society of Actuaries (including their updates to bring them current to 2017) are more consistent with GAAP. AON, Avaya’s pension administrator appears to concur with that opinion (see Attachment B).

Finally, we get to the issue of taxes. If taxes are due on the final settlement when it is paid, whether Avaya withholds taxes or not, we lose the tax benefit earning interest on the money withheld. It is a quantifiable and real impact. The amount forgone by each pensioner varies based on his or her marginal tax bracket and the state in which they reside. This impact could be mitigated if the settlement were eligible to be rolled into an IRA, but at this point that does not appear to be an option. The Court expressed some skepticism at its 5 October 2017 about tax impact because effective rates vary from individual to individual. However, my professors at RPI told me that just because something is difficult to quantify, that doesn’t make zero the correct answer. I believe that in the end, Avaya will end up withholding a statutory 20% Federal Income Tax on all of the pension settlements. If so, the 20% would be a reasonable estimate to perform the appropriate gross up calculation. Each individual retiree could negotiate with Avaya at settlement if they believe their marginal rate is higher. A similar estimate could be made for any state taxes due.

I have been corresponding with Ms. Erica Richards, Esq., an attorney with the firm representing the “Official Committee of Unsecured Creditors”. I have asked her to have her firm perform an appropriate due diligence review on behalf of all Avaya retirees. While I am not a lawyer, accountant, actuary or statistician, I have a pretty good working knowledge of what is going on. However, an independent review by experts appears to me to be warranted.

In my opinion, Avaya has nothing to lose by fully and fairly valuing our pensions. If their current methodology understates the pension values by 20%, for example, that would add approximately $16 million to the $305 million in unsecured claims. It would reduce the payout percentage for that pool from 18.9% to 17.9%. If Avaya does not restate its values, the pool of funds may be reduced or exhausted before our individual claims are heard. A restatement of the retiree claims by Avaya now assures that all Avaya retirees receive fair and equitable treatment.


I leave it to the Court to decide what is the proper thing to do in this case.

Respectfully submitted,

Dated October 30, 2017
Bethlehem, Pennsylvania

/s/ Robert Emberger
________________
Robert Emberger
1032 Resolution Drive
Bethlehem, PA 18017
Telephone: (484) 281-3744
e-mail: remberger@live.com

Copies via e-mail to:

United States Bankruptcy Court, Southern District of New York
The Honorable Stuart M. Bernstein, bernstein.chambers@nysb.uscourts.gov
United States Bankruptcy Court

Kirkland & Ellis LLP – New York – attorneys for the Debtors
Jonathan Henes, P.C., Esq jonathan.henes@kirkland.com
Christopher J. Kochman, Esq christopher.kochman@kirkland.com

Kirkland & Ellis LLP – Chicago – attorneys for the Debtors
Patrick J. Nash, P.C., Esq patrick.nash@kirkland.com
Ryan Preston Dahl, Esq rdahl@kirkland.com

The United States Trustee for Region 2
Susan D. Golden, Esq susan.golden@usdoj.gov

Morrison & Foster LLP – attorneys to the Official Committee of Unsecured Creditors
Lorenzo Marinuzzi, Esq Lmarinuzzi@mofo.com
Johnathan I. Levine, Esq JonLevine@mofo.com
Erica Richards, Esq Erichards@mofo.com

Davis Polk & Wardell LLP – attorneys to the DIP Agent
Damian Schaible, Esq damian.schaible@davispolk.com

Akin Gump Strauss Hauer & Feld LLP – attorneys to the Ad Hoc First Lien Group
Philip Dublin, Esq pdublin@akingump.com
Naomi Moss, Esq nmoss@akingump.com

Stroock & Stroock & Lavan LLP – attorneys to the Ad Hoc Crossover Group
Kristopher M. Hansen, Esq khansen@stroock.com
Sayan Bhattacharyya, Esq sbhattacharyya@stroock.com


Attachment A

(Attachment is a screen print of Treasury Rates effective on January 19, 2017)

https://www.treasury.gov/resource-cente ... &year=2017

Attachment B

AON's letter on Mortality Rates


Attachment C

RE: Follow up from today’s Avaya bankruptcy hearing
Robert Emberger
Thu 10/5, 8:33 PM
rdahl@kirkland.com

Mr. Dahl,

I was a pleasure to meet you today at the Avaya Bankruptcy hearing. I appreciate you volunteering to get information for me. If you could get the specific assumptions and values used by Avaya in calculating the value of my pension, I would appreciate it.

Specifically, I am looking for the following kinds of information:

1. The gross monthly (or annual) value of my supplemental pension. (This is to make sure we agree on the same starting number.)

2. The survivor assumption used.

3. The life expectancy for my wife and myself. I would like the specific source of those numbers. Life expectancy is also calculated from a specific point in time. I would like to know what point in time was.

4. If an actuarial table was used, what is the table? How old is it? Please provide me a copy of that table.

5. My pension has a “bump up” provision. If my wife dies before I do, the pension “bumps up” to the higher monthly rate as if I had elected the no-survivor option. What is the monthly rate that Avaya assumed my pension would bump to? How was this provision accounted for?

6. What discount rate was used for future payments? What was the source of the rate? What was the effective date for these rates, i.e. were these the rates in effect on the date Avaya filed bankruptcy?

7. How to the payments Avaya has already missed figure into the calculation?

8. What health and life style factors were considered, if any?

9. Right now, I do not pay federal income tax on my pension until I receive it. If Avaya settles my pension in a lump sum, that lump sum will be taxed immediately. How did Avaya gross up my pension so that the post-tax income stream matches the current monthly after tax amount I receive today?

Thank you for volunteering to get this information for me.

Bob Emberger
remberger@live.com


Attachment D
Request for details on the calculation of ASPP
Robert Emberger <remberger@live.com>
Wed 10/18/2017 9:45 AM
To: jonathan.henes@kirkland.com <jonathan.henes@kirkland.com>; patrick.nash@kirkland.com <patrick.nash@kirkland.com>;
rdahl@kirkland.com <rdahl@kirkland.com>;
james.sprayregen@kirkland.com <james.sprayregen@kirkland.com>; Bradley.giordano@kirkland.com <Bradley.giordano@kirkland.com>;

October 18, 2017
1032 Resolution
Bethlehem, PA 18017

James H.M. Sprayregen, P.C.
Jonathan S. Henes, P.C.
KIRKLAND & ELLIS LLP
KIRKLAND & ELLIS INTERNATIONAL LLP
601 Lexington Avenue
New York, New York 10022

Patrick J. Nash, Jr., P.C.
Ryan Preston Dahl
Bradley Thomas Giordano
KIRKLAND & ELLIS LLP
KIRKLAND & ELLIS INTERNATIONAL LLP
300 North LaSalle Street
Chicago, Illinois 60654

RE: Request for details on the calculation of ASPP

Dear Sirs:

Pursuant to Docket 1356 DEBTORS’ SUPPLEMENTAL DISCLOSURE REGARDING CALCULATION OF SCHEDULED CLAIMS WITH RESPECT TO THE AVAYA INC. NON-QUALIFIED SUPPLEMENTAL PENSION PLAN, please provide me with the data and calculations used by AON on behalf of Avaya to calculate the value assigned to my Avaya Supplemental Pension Plan claim. Please provide sufficient information and instructions for me to replicate the calculation on my own.

In addition to this e-mail, a signed copy of this letter has been sent to each of your offices via first class US mail. A reply via e-mail to remberger@live.com is preferred.

Thank you,



/s/ Robert Emberger
Robert Emberger

[remberger]

My Amended Motion to Compel Avaya to Disclose ... has been posted to the Docket as number 1438. The hearing is confirmed for November 9 at 10am.

Bob Emberger

[remberger]

Official Committee of Unsecured Creditors OPPOSES my motion to compel.

Here is their response:

__________________________________

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MORRISON & FOERSTER LLP 250 West 55th Street
New York, New York 10019 Lorenzo Marinuzzi
Todd M. Goren Erica J. Richards
Counsel for the Official Committee
of Unsecured Creditors of Avaya Inc., et al.
UNITED STATES BANKRUPTCY COURT SOUTHERN DISTRICT OF NEW YORK
) Inre: )
1) AVAYA INC., et al., )
Chapter 11
Case No. 17-10089 (SMB) (Jointly Administered)
1
Hearing Date: November 9, 2017 at 10:00 a.m. (Eastern) Objection Deadline: November 2, 2017 at 4:00 p.m. (Eastern)
) Debtors. ) ) )
RESPONSE OF THE OFFICIAL COMMITTEE OF UNSECURED CREDITORS TO MOTION TO COMPEL AVAYA TO DISCLOSE METHODOLOGY AND FACTORS USED IN CALCULATING ITS VALUE FOR THE SUPPLEMENTAL PENSIONS OF AVAYA RETIREES
The Debtors in these chapter 11 cases, along with the last four digits of each Debtor’s federal tax identification number, include: Avaya Inc. (3430); Avaya CALA Inc. (9365); Avaya EMEA Ltd. (9361); Avaya Federal Solutions, Inc. (4392); Avaya Holdings Corp. (9726); Avaya Holdings LLC (6959); Avaya Holdings Two, LLC (3240); Avaya Integrated Cabinet Solutions Inc. (9449); Avaya Management Services Inc. (9358); Avaya Services Inc. (9687); Avaya World Services Inc. (9364); Octel Communications LLC (5700); Sierra Asia Pacific Inc. (9362); Sierra Communication International LLC (9828); Technology Corporation of America, Inc. (9022); Ubiquity Software Corporation (6232); VPNet Technologies, Inc. (1193); and Zang, Inc. (7229). The location of Debtor Avaya Inc.’s corporate headquarters and the Debtors’ service address is: 4655 Great America Parkway, Santa Clara, CA 95054.
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The Official Committee of Unsecured Creditors (the “Committee”) of Avaya Inc. (“Avaya”) and the other debtors and debtors-in-possession in the above-captioned chapter 11 cases (collectively, the “Debtors”) hereby submits this response (the “Response”) to the Motion to Compel Avaya to Disclose Methodology and Factors Used in Calculating its Value for the Supplemental Pensions of Avaya Retirees (the “Motion”) [Docket No. 1358], as amended [Docket No. 1438] (the “Amended Motion”). In support of the Response, the Committee respectfully states as follows:

RESPONSE
1. By the Motion, Mr. Emberger requested that the Debtors provide certain disclosures regarding the methodology and assumptions used by the Debtors to calculate claims arising under the Avaya Supplemental Pension Plan (the “ASPP”) for each affected beneficiary, as set forth in the Debtors’ Amended Schedules of Assets and Liabilities [Docket No. 590]. Mr. Emberger also requested that the Court compel the Committee’s professionals to perform diligence on the Debtors’ ASPP claims calculations before the deadline for filing objections to the plan of reorganization, and make public the results of that diligence.

2. On October 17, 2017, the Debtors filed the Debtors’ Supplemental Disclosure Regarding Calculation of Scheduled Claims With Respect to the Avaya Inc. Non-Qualified Supplemental Pension Plan [Docket No. 1356] (the “ASPP Supplement”), which details the general methodology used by the Debtors to calculate the ASPP claims. At Mr. Emberger’s request, the Committee’s professionals reviewed and analyzed the methodology detailed in the ASPP Supplement. Based on the information available, the Committee’s professionals concluded that the methodology used by the Debtors to calculate the ASPP claims appears to be reasonable, appropriate, and consistent with applicable law. That conclusion is based on, among other things, the following factors:
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•
•
•
•
3.
issue with the methodology outlined in the ASPP Supplement. To the extent Mr. Emberger disagrees with the methodology or the Committee’s conclusions, he is free to raise those issues with the Court when and if the Debtors or any other party in interest objects to his proof of claim.

4. The Committee respectfully submits that it is not the Committee’s role to assist individual creditors in prosecuting their claims against the Debtors’ estates—indeed, taking such a position would present an inherent conflict of interest. The Committee serves as a fiduciary for all general unsecured creditors, who, under the Debtors’ proposed plan of reorganization, will
1 Again, since the ASPP mirrors the Debtors’ qualified pension plan with regard to actuarial assumptions to be used in determining the amount of benefits due under the ASPP (see Sections 3.2 and 6.1 of the ASPP), it is the methodology set forth in the qualified pension plan that is relevant.
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Although the ASPP is not a “qualified” plan, it is nonetheless governed by the Employee Retirement Income Security Act of 1974, as amended (“ERISA”). The plan administrator (i.e., the Avaya Benefits Committee) has broad discretion under sections 6.1 and 9.3 of the ASPP to determine which actuarial assumptions to use, and federal courts have held that, for ERISA plans, deference is to be given to the plan administrator’s determinations on benefits payable unless such determinations are “arbitrary and capricious.”
Although the ASPP is not a “qualified” plan, the ASPP specifically provides that the same methodology that is to be used under the Avaya qualified pension plan should be used to determine benefits under the ASPP. As a result, assumptions that might otherwise be applicable under GAAP or guidance from the Society of Actuaries are not relevant.
United States Treasury rates have no direct correlation to pension plan interest rates. Rather, the Internal Revenue Code (“IRC”) governs the interest rates used to value pension liabilities. The Internal Revenue Service provides guidelines on the appropriate interest rates and a “corridor” within which a plan’s actuary has discretion based on certain plan-specific variables.1 The sections of the IRC that specify how interest rates and mortality tables are determined and utilized are cited in the ASPP Supplement.
Nothing in the Bankruptcy Code or applicable non-bankruptcy law requires that ASPP claims be “grossed up” to offset withholding taxes. To the contrary, the Debtors’ proposed plan of reorganization, tax regulations and the ASPP itself require that such taxes be withheld, and dictate the applicable tax rates.
On October 30, 2017, Mr. Emberger filed the Amended Motion, in which he takes
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receive recoveries from a fixed pot of value. As a result, an increase in the amount of one creditor’s claim will necessarily reduce the recoveries of all other creditors. The Committee can, however, opine on the reasonableness of the Debtors’ general methodology, which it has done, and will update its opinion if additional information becomes available. If Mr. Emberger or other retirees want a professional opinion regarding the merits of their individual claims against the Debtors, they must, unfortunately, retain their own independent advisors.
5. In light of the additional disclosures provided by the Debtors, and the fact that the Committee has reviewed the ASPP claims methodology and has provided its preliminary views regarding the reasonableness of that methodology as detailed herein, the Committee submits that the Motion is moot and requests that it be denied.
Dated: November 2, 2017 New York, New York
Respectfully submitted,
/s/ Lorenzo Marinuzzi MORRISON & FOERSTER LLP Lorenzo Marinuzzi
Todd M. Goren
Erica J. Richards
250 West 55th Street
New York, NY 10019 Telephone: (212) 468-8000 Facsimile: (212) 468-7900
Counsel for the Official Committee
of Unsecured Creditors of Avaya Inc., et al.
ny-1303810
3

[remberger]

I have submitted another motion, asking that the court appoint a separate "Official Committee of Avaya Salaried Retirees" to protect our interests. I am basing my request in part on the reply that the "Official Committee of Unsecured Creditors" posted to the docket yesterday. My filing went out by e-mail today with delivery of a hard copy to the Court by Tuesday. I don't know if/when this additional motion will be heard.

Bob Emberger

_______________________

[ Title page omitted here. Contact me if you want a copy before it is posted on Prime Clerk]

Motion to Establish an Official Committee of Avaya Salaried Retirees and Appoint Counsel

WHEREAS the 830 Salaried Retirees of Avaya have general unsecured claims of over $80 million against Avaya and that $80 million is over 25% of all general unsecured claims, and

WHEREAS the interests of the 830 Salaried Retirees of Avaya are aligned with respect to the evaluating the methods and factors used in used by Avaya in calculating the present value of the Avaya Supplemental Pension Plan, and

WHEREAS the interests of the 830 Salaried Retirees of Avaya are also aligned on OPEB issues, and

WHEREAS in Docket 1282 Objection to Notice of Proposed Supplemental Order Regarding Assigned Mediation, I requested that the Court appoint one or more Avaya Retirees, or representatives thereof, to the Mediation process, on the basis that subsequent filings (including Docket 1208) were likely to raise a conflict of interest within the “Official Committee of Unsecured Creditors”, and

WHEREAS the Court ruled in Docket 1282 that the interests of the Avaya Salaried Retirees would be adequately represented by the “Official Committee of Unsecured Creditors” in the mediation process, and

WHEREAS subsequent to the hearing on 5 October 2017 I have filed Docket 1358 the Motion to Compel Avaya to Disclose Methodology and Factors Used in Calculating its Value for the Supplemental Pensions of Avaya Retirees and Docket 1438 which amends that motion, and

WHEREAS the “Official Committee of Unsecured Creditors” issued Docket 1442 Response of the Official Committee of Unsecured Creditors to Motion to Compel Avaya to Disclose Methodology and Factors Used in Calculating its Value for the Supplemental Pensions of Avaya Retirees, and in their response, they take issue with my objections to the methodology in Avaya’s supplemental disclosure, and

WHEREAS the “Official Committee of Unsecured Creditors” does not recognize the commonality of pension valuation and other post-employment issues across the entire sub-class of Avaya Salaried employees, suggesting that my issue (and by implication the issues of all Avaya Salaried Retirees) be adjudicated on a case by case basis “if and when the Debtors or any other party in interest objects to his proof of claim”, and

WHEREAS the “Official Committee of Unsecured Creditors” opines that “the Committee’s professionals concluded that the methodology used by the Debtors to calculate the ASPP claims appears to be reasonable, appropriate, and consistent with applicable law.” At no time do they suggest that the methodology is Fair and Equitable to the Avaya Salaried Retirees, and

WHEREAS the “Official Committee of Unsecured Creditors”, in their response, acknowledge that taking a role to assist individual creditors (and by implication the sub-class of Avaya Salaried Retirees as a group) in prosecuting their claims against the Debtors estate “would present an inherent conflict of interest”.

THEREFORE, in recognition of that inherent conflict of interest, I request the Court designate an “Official Committee of Avaya Salaried Retirees” as a separate subclass of Unsecured Creditors and that separate counsel be appointed for the purpose of establishing whether Avaya’s valuation methodology Fairly and Equitably treats the sub-class of Avaya Salaried retirees. Furthermore, the proposed counsel shall be permitted to make motions and file plan objections such as those I previously filed in Docket 1208.

DISCUSSION

I recognize and appreciate the Courts reluctance to establish an “Official Committee of Avaya Salaried Retirees”. The cost is significant and it is late in the process. However, as a group the Avaya Salaried Retirees have been significantly under represented. If I had not appeared in Court on 5 October 2017 for Docket 1282, Avaya would not have disclosed their methodology. Certainly the “Official Committee of Unsecured Creditors” was not pushing for it.

There are other issues as well. The PBGC has estimated that about 70 retirees will exceed the maximum under law. Has Avaya notified those retirees so they can establish claims? Has the “Official Committee”?

Avaya states in its plan that it intends to continue OPEB. However, the disclosure also says, “Pursuant to the Plan, OPEB will continue in accordance with, and subject to, their terms and applicable non-bankruptcy law or be modified or terminated in accordance with applicable non- bankruptcy law.” If Avaya emerges from bankruptcy and immediately terminates or modifies OPEB using other non-bankruptcy law, that would seem to skirt the spirit, if not the letter, of Chapter 11 bankruptcy. Did the “Official Committee of Unsecured Creditors” represent the Avaya Retirees well in mediation if they did not insist on a moratorium of such changes for some period of time? If Avaya could not commit to a 5-year moratorium, for example, Avaya Salary Retirees would be better off if OPEB were terminated in bankruptcy. At least we would get a partial recovery. Of course, once again, that would be a conflict of interest with the other parties the “Official Committee” represents. I will be raising this issue on my behalf, as well as on behalf of the other Avaya Retirees, when I revise my Plan Objection.

Also outstanding is my Plan Objection (Docket 1208), which I intend to modify before the filing date. I will be pressing for fair and equitable treatment based on economic impact to the creditors, rather than cash cost to Avaya. Once again, the “Official Committee of Unsecured Creditors” will have to confront the conflict of interest issue.

The Court has received a large number of ex-parte letters from Avaya Retirees. We are frustrated and we want to be heard. I am doing the best I can, both for me and my fellow retirees. I have heard from retirees who have had to sell their homes because of the loss of their supplemental pension. Others have had to go back to work. Forming an ad hoc group and hiring our own counsel is not a viable option. I am not a lawyer, accountant, actuary or statistician. It certainly would be nice if someone more qualified could stand up and speak for us.

Conclusion

I appreciate the Court’s patience in this matter. I urge you to consider the arguments presented above. If the Court cannot find a way to support a full-fledged “Official Committee of Avaya Salaried Retirees”, perhaps there would be an alternative that the Court could suggest that would either restrict the scope of such a committee or limit its funding so that the timing of the current proceeding would not be significantly impacted.

Dated 3 November 2017
Bethlehem, Pennsylvania Respectfully submitted,


/s/ Robert Emberger
_______________________
Robert Emberger
1032 Resolution Drive
Bethlehem, Pennsylvania 18017
Telephone (484) 281-3744
e-mail: remberger@live.com

Copies via e-mail to:

United States Bankruptcy Court, Southern District of New York
The Honorable Stuart M. Bernstein, bernstein.chambers@nysb.uscourts.gov
United States Bankruptcy Court

Kirkland & Ellis LLP – New York – Counsel to the Debtors
Jonathan Henes, P.C., Esq jonathan.henes@kirkland.com
Christopher J. Kochman, Esq christopher.kochman@kirkland.com
James H. M. Sprayregan, PC james.sprayregan@kirkland.com

Kirkland & Ellis LLP – Chicago – Counsel to the Debtors
Patrick J. Nash, P.C., Esq patrick.nash@kirkland.com
Ryan Preston Dahl, Esq rdahl@kirkland.com
Bradley Thomas Giordano Bradley.giordano@kirkland .com

The United States Trustee
Susan D. Golden, Esq susan.golden@usdoj.gov

Morrison & Foster LLP – Counsel to the Official Committee of Unsecured Creditors
Lorenzo Marinuzzi, Esq Lmarinuzzi@mofo.com
Johnathan I. Levine, Esq JonLevine@mofo.com
Erica Richards, Esq Erichards@mofo.com

Davis Polk & Wardell LLP – Counsel to the agent under the Debtors’ Cash Flow Credit Agreement
Damian Schaible, Esq damian.schaible@davispolk.com
Aryeh Falk aryeh.falk@davispolk.com

Akin Gump Strauss Hauer & Feld LLP – attorneys to the Ad Hoc First Lien Group
Philip Dublin, Esq pdublin@akingump.com
Naomi Moss, Esq nmoss@akingump.com

Stroock & Stroock & Lavan LLP – attorneys to the Ad Hoc Crossover Group
Kristopher M. Hansen, Esq khansen@stroock.com
Sayan Bhattacharyya, Esq sbhattacharyya@stroock.com

Skadden, Arps, Slate, Meagher & Flom LLP – Counsel to the agent under the Debtors’ Domestic ABL Credit Agreement
J. Eric Ivester eric.ivester@skadden.com
Christopher M. Dressel Christopher.dressel@skadden.com

Morgan, Lewis & Bockius LLP – Counsel to the indenture trustee under the Debtors’ 7.00% Senior Secured Notes
Glenn E. Siegel glenn.siegel@morganlewis.com Joshua Dorchak joshua.dorchak@morganlewis.com
Rachel Jaffee Mauceri rachel.mauceri@morganlewis.com


Copies via First Class US Mail to
Avaya Inc.
4655 Great American Parkway
Santa Clara, CA 95054
Attn: Amy Fliegelman Olli

Citibank, National Association – Administrative agent under the Debtors’ Cash Flow Credit Agreement
Citibank, National Association
Attn.: David Leland
1615 Brett Road OPS III
New Castle, Delaware 19720

Citicorp USA, Inc, - Administrative agent under the Debtors’ Domestic ABL Credit Agreement
Citicorp USA, Inc.,
Attn: Brendan Mackay
390 Greenwich St., 1/F
New York, New York 10013

The Bank of New York Mellon Trust Company, N.A. – Indenture trustee under the Debtors’ 7.00% Senior Secured Notes
The Bank of New York Mellon Trust Company, N.A.
Attn: J Christopher Howe
525 William Penn Place, 38th Floor
Pittsburgh, PA 15259

[Vbaumwald]

Bob you are awesome....way to go.
Vickie

[stacyann13]

Again, Thank you Bob for everything. I sent the valuation from Avaya for my ASPP to my financial consultant at Morgan Stanley. My claim is for 1.181M and their valuation is for $748K. Here is what I have heard back from MSSB..

"It appears that Avaya is saying that you can buy an annuity for $748K that would offer equivalent benefits to the unsecured pension valued at $1.181M. As of today, an immediate annuity funded with $748,000 would pay a monthly income of $3951.54 for the rest of your life.

I then advised MSSB that $3951.54 is $587.46 per month less than the supplemental pension payment I was receiving. I asked if MSSB had any comments on the methodology Avaya used. They didn’t have any explanation for the difference in amounts. MSSB told me that the amount they (MSSB) quoted is as high as you’ll find available currently and that" It looks like Avaya is assuming a much higher interest rate is available for annuities than is, in fact, available."

[teetime36]

I received the pink "General Unsecured Ballot for Voting to Accept or Reject the Second Amendment Joint Chapter 11 Plan for Reorganization of Avaya and its Debtor Affiliates" ballot yesterday. Payment for my Supplemental Pension stopped earlier in 2017. Regarding the Amount of Claim on my Ballot (e.g. Class 6, Voting Amount $356,299.30), is this amount relative to the Supplemental Pension claim only, with my primary pension continuing on, or is this Voting amount relative to settlement of my entire pension? Also, would this be a one-time payout or a new monthly amount for pension payments. The documents being provided are overwhelming....

[dwhisenant]

teetime,

The vote is to approve or disapprove of the Amended Plan from Avaya. Your defined pension will be protected, so your amount listed is for your claim filed with Primeclerk only. You MAY get around 18% of A NUMBER to be determined, not necessarly what your claim amount is for. This will be a lump sum payout and taxable as income in the year you recieve the lump sum. Using YOUR numbers, not the numbers to be determined after the plan is approved, you would get around $64,000 as a lump sum. However, don't expect your claim of $356,299.30 to stand at that number. Avaya will lower that number by using present value calculations, resulting in a much lower payout. Also, if the claims excede $305M, we will all get less than 18% of the Avaya number.

So you are not voting on a number, you are voting on the plan which offers 18% of a to be determined present value number. What we will actually get will not be determined until after the plan is accepted by a majority of votes or a court orderd cram down. In other words we are voting on a lot of unkowns and just trusting that something good will happen in our benefit.

[teetime36]

Thank you dwhisenant. Taking the time to reply is much appreciated, thank you! I better understand it now with your help! The bankruptcy and the unwanted entertainment it is providing was a complete surprise! Hoping for the best.....I am!

[remberger]

An update on the November 9th hearing.

For those of you who read the last chapter of a novel first, I lost the motion to disclose.

Now for the rest of you, here are the details:

1) I would like to acknowledge Mike Pennotti, Aimee Milano, and Stacy Schultze who all attended the hearing. It is fantastic to have the support of fellow retirees.

2) I had prepared written testimony (a copy is at the end), but I elected to go with an oral presentation, hoping I could get farther before the Judge started questioning me

3) I thought I had some winning points, specifically it looks like both the PBGC and Avaya used different statutes, mortality tables and interest rates to value the qualified pensions. I also tried to push the point that, to the extent that any commercial creditors have claims that need to be discounted, the same discount rate needs to apply to both them and us.

4) The Judge Bernstein ruled on the narrow points of law (frankly as he should), rather than the equity of my arguments.
a. I have no standing to argue on behalf of all Avaya retirees, I can only press issues which affect my claim.
b. Avaya has disclosed the information I asked for, I may not like it, but it was disclosed
c. Avaya has not challenged my claim (yet) and I will have the ability to return to Court if they do and press my claim then (Essentially this was the argument of both Avaya and the “Official Committee”

5) Judge Bernstein said that if multiple retirees wanted to get together and press their case as a group, they could form an Ad Hoc group and hire a lawyer. If you look at what Morrison Foerster or Kirkland bill in a month, you can see the expense is huge. MOFO billed more last month than my claim will be settled for. My arguments are all longshots, they are not something I am willing to bet the farm on.

6) This was the second time that Judge Bernstein mentioned the Ad Hoc group. It is clear he is not disposed to setting up an “Official Committee for Avaya Retirees”. I have decided to withdraw my motion to establish an “Official Committee for Avaya Retirees”. I feel the need to pick and choose my battles. I hope to establish some goodwill with the Court by dropping one I know I can’t win.

7) Where I go from here:
a. I intend to update my Objection to Confirmation of the Amended Plan. That update must be filed by next Friday. I order to preserve my standing to present the Objection, I believe I must vote “No” on the plan.
b. Avaya filed Docket 1440 schedule Docket 1305 to approve the PBGC settlement. Objections are also due by next Friday. I am trying to get additional information from Avaya regarding how they valued our qualified pensions (See my Testimony below).
c. I will be updating my personal claim to reflect a more realistic valuation

8) Other things I have learned:
a. Avaya gave me the exact details on how they calculated my claim. They used the rightmost column on the mortality table they sent out for both me and my wife. They also used the interest rates they disclosed. They made an adjustment to each year’s calculation in case we died in the middle of the year. The calculations they made for my claim did include both the proper survivor option and the bump up. They did not include any value for the loss of earnings on the taxes paid on the lump sum.
b. PA Senator Casey’s staff has been in touch with me. They are going to try to get the Dept of Labor to write a letter I can use with the IRS to support that the settlement should be rolled into an IRA. They said it could take 30 days for an answer. I will post the result if I hear anything back.
c. Mike Pennotti’s Congressman is approaching the IRS directly on his behalf to see if he can roll his settlement into an IRA

9) Advice:
a. Each retiree must be sure that they have accurately evaluated what their claim is worth. It is not too late to amend your claim if you believe it is undervalued.
b. If you do not know how a mortality table works, drop me an e-mail. I will try to answer as many as I can, but I will be giving priority to amending my plan objection

Here is my (undelivered) written testimony:
________________________________________________
Testimony of Robert Emberger
to the
United States Bankruptcy Court for the Southern District of New York
The Honorable Stuart M Bernstein presiding
November 9, 2017

Your Honor, my full name is Robert Morand Emberger, Junior. I am 67 years old and I reside at 1032 Resolution Drive, Bethlehem, PA 18017. I am a retiree of Avaya and I am here, today, representing myself, but I believe that I speak on behalf of many of the 830 Avaya retirees, many of whom have written the court. (A least one other retiree is here today to provide moral support.)

In Docket 1438 “Amended Motion to Compel Avaya to Disclose Methodology and Factors Used in Calculating its Value for the Supplemental Pensions of Avaya Retirees”, I challenged the basis of the formulas that Avaya partially disclosed in Docket 1356, “Debtors’ Supplemental Disclosure Regarding Calculation of Scheduled Claims with respect to the Avaya Inc. Non-Qualified Supplemental Pension Plan.”

I have continued to do research since my filing and before the Court rules, I would like to ask Avaya four questions:

1 I wrote to Michael Strollo, a financial analyst at the PBGC to ask how they valued the liability for the qualified pension, to see if it was the same as Avaya used in valuing our supplemental pension. His reply (attachment A) cited a different statute, a different mortality table, and different interest rates than Avaya cited in its supplemental disclosure. So, I looked at Docket 1305 “Notice of Debtors’ Motion for Entry of an Order Approving Stipulation of Settlement with Pension Benefit Guarantee Corporation and Granting Relief” (A portion is attachment B). In it (on Docket page #10, Faxed page #18 of 215), Avaya states, “PBGC’s claims for unfunded liability are higher than the Debtors’ calculations because the PBGC calculates those claims on a termination basis in accordance with the regulations under Title IV of ERISA.” On the next page Avaya states, “In contrast, the Debtor’s projected unfunded amounts are estimates of the financial position for accounting purposes, governed by FASB ASC 175 and related updates.” Neither estimate relies on the statute that Avaya uses in its “Supplement Disclosure.”

The question: Did Avaya use the same methodology for valuing its non-qualified plan as Avaya and the PBGC did for the qualified plan?

2 At the hearing on 5 October 2017, I believe the Court asked how Avaya valued other forward looking liabilities, and the attorneys for Avaya said they used present value calculations.

The question: Did Avaya use the same interest rates to discount other commercial claims as it used in calculating the value of supplemental pensions?

3 Jeremy Evans, an attorney for Avaya, called me to discuss my motion to compel. I pointed out that the information sent in my response to my request for the calculation details was insufficient, and I wished to proceed with my motion. Subsequent to that discussion, Stephen Iacovo, also with Kirkland, sent me an Excel spreadsheet with the details of my calculation (attachment C). (Of note, Avaya has not provided this information to any other retiree.) It is clear that Avaya assigns no economic value to the earnings loss due to the anticipated 20% withholding for Federal Income Tax. (The argument here is the same argument made by investment advisors who urge people to put money in an IRA).

The Questions:
(a) Does Avaya intend to withhold federal income tax from the lump sum settlements when they are made?
(b) Does Avaya acknowledge that some economic value to the retiree is lost when settlement is made in a lump sum?

I thank the Court for its patience with me. I hope the answers to these questions shed some additional light on the question of disclosure.