Per TVA’s Office of Inspector General, TVA’s qualified employee pension plan administered by TVARS was only 59 percent funded at the end of fiscal year 2012. TVA needed to contribute an additional $4.9 Billion to make the pension 100% funded. TVARS’ funding ratio has declined over the last several years, while the funding ratios of most of TVA’s competitors have significantly improved. The main cause of this appears to be TVA’s continued reluctance to properly fund the pension. For example, TVA budgeted $530 million to cover the pension in fiscal year 2012, but contributed none of those funds to its employees’ pension. However, TVA did give $8 million to the SERP (supplemental executive retirement plan).
All companies in private industry in the United States which have pension plans, including TVA’s major competitors, follow laws established by the Employee Retirement Income Security Act (ERISA) and the Pension Protection Act (PPA). Under these laws, the contribution each year must include a level amount which would fully amortize the funding shortfall within no more than seven years. TVARS has been using a much longer amortization period when determining the contribution amount. This has contributed to the further deterioration of the pension fund. It should be noted that the contribution amounts established by these laws are minimum amounts. Many companies contribute more than these minimum amounts.
TVA is not subject to ERISA and PPA, but TVARS board members have the responsibility (fiduciary duty) to act on behalf of the pension plan participants in a way that demonstrates total trust, good faith and honesty. In order for the TVARS board to be able to fulfill its fiduciary duty, I believe the starting point for negotiations on the contribution should be at least the amount necessary to meet the minimum requirements under ERISA and PPA. Simply “rubber stamping” TVA’s suggested contribution amount falls seriously short of demonstrating that the TVARS board is putting forth sufficient effort to meet its fiduciary duty.
Therefore, I believe it would be prudent to determine the fiscal year 2014 contribution that would be required for TVARS to meet the minimum standards set by ERISA and PPA. I ask again that this contribution amount be included in the board book as part of the funding policy study which we will discuss in the upcoming quarterly board meeting on June 27 and 28.