He retired after being fired from being a DC in Minnesota.
I read this earlier today on espn.com:
Cottrell ready to return to the sideline: The hiring of Phillips in Dallas could, directly or circuitously, mean the return of longtime defensive coordinator Ted Cottrell to the league in 2007. Inexplicably out of the coaching ranks in 2006, after he was part of the purge of the Mike Tice staff in Minnesota following the 2005 campaign, Cottrell worked in the league office last season. While hearing appeals and doling out fines and suspensions was interesting, coaching is in Cottrell's blood and it's what he would prefer to do in 2007. Cottrell and Phillips have a longtime friendship. And Cottrell is expert in the 3-4 scheme that Phillips will retain with the Cowboys. He could be a wonderful mentor to current Dallas secondary coach Todd Bowles, who many feel is being groomed to be the coordinator, this year or very soon. And Phillips and Cottrell recently spoke about the possibility of working together again.
But here's another possible twist: Cottrell, 59, and a 23-year NFL veteran, could actually succeed Phillips as the San Diego defensive coordinator, rather than join him on the Dallas staff. The departure of Manusky to San Francisco means that Schottenheimer has no heir apparent to Phillips. And few guys currently available possess the degree of expertise that Cottrell has with the 3-4 front, which the Chargers aren't about to abandon. So one way or another, the move of Phillips could pave the way for Cottrell, one of the NFL's really good guys over the past two decades, to get back into coaching in 2007.