Nortel pensioners rally on Parliament Hill in October to highlight the impact of Nortel's financial woes on their severance packages, pensions and disability payments. (Sean Kilpatrick/Canadian Press)

The Ontario government is reassuring former Nortel employees who worked in the province that the first $1,000 of their monthly pension payments will be guaranteed under an emergency pension insurance fund.

The government will pay into Ontario's Pension Benefits Guarantee Fund to cover any future claims, said Finance Minister Dwight Duncan on Sunday. The fund insures the first $1,000 of an employee's monthly pension in case the employer goes bankrupt.

Nortel's pension deficit was estimated to be between $2.5 billion and $2.8 billion when it filed for bankruptcy protection in January 2009.

Duncan's comments come even as his government has previously acknowledged that with only about $100 million in assets, the pension guarantee is dramatically underfunded.

It's not immediately clear how much Duncan's guarantee will cost the province.

"Governments of every political stripe since this [provincial guarantee] fund was created in 1981 have failed to ensure that it was properly funded. Yet employees thought they had this protection," Duncan told CBC News on Sunday.

He said his pledge "means that the government will uphold its obligations under the existing Pension Benefit Guarantee Act and it gives them the assurance that at the very least, the first $1,000 of their pension is protected."

Ontario is the only province that has a pension benefits guarantee fund, which is funded by corporate contributions. The fund only applies to retirees who worked in Ontario — not the 30 per cent of Nortel workers from Montreal, Calgary or Halifax.

Nortel's pension plan is only about 69 per cent funded, according to Don Sproule, chairman of the national committee for members of the firm's pension plan. That has left 31 per cent up in the air and in the hands of bankruptcy courts, which consider retirees and workers seeking severance or disability payments a lower priority than other creditors.

Nortel filed for bankruptcy protection last January and began selling off its units one by one.

Sproule has said about 17,500 retired Nortel employees have been affected by the bankruptcy.

Duncan's move comes two days after Bob Chiarelli, Liberal candidate in Ottawa West-Nepean, called on the McGuinty government to ensure there are sufficient funds in the Pension Benefits Guarantee Fund to provide a pension top-up to Nortel pensioners.

A provincial byelection is to be held in the riding on March 4.

NDP Leader Andrea Horwath voiced her skepticism at the timing of Sunday's announcement, noting pensioners at the Ottawa-based firm have been after both federal and provincial levels of government for more than a year to get some help.

"The only new thing, the only new piece of info here, is that there's a byelection on and it's where a lot of those Nortel workers live," she said.

With files from The Canadian Press