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TVARS Board asks for too little, TVA to give even less

I made the following statement during the September 12, 2013 TVARS board meeting. It will be included in both the transcript and in the official minutes:

The minutes of the July 19, 2013 board meeting that we are voting to approve indicate that four TVARS board members voted to recommend that TVA contribute $285 million to its employees' pension plan next fiscal year. Two TVARS board members voted against it because they thought it was too much to ask TVA to pay. $285 million is clearly not enough, but I was the only one who voted against it for that reason.

Our members can see from TVA’s financial statements that last fiscal year TVA contributed nothing to its employees' pension plan while it contributed $8 million to its executives' supplemental pension plan. Our members can see that TVA's reported pension expense was $530 million. Our members can see from the TVARS annual report that TVARS paid approximately $600 million in benefits to approximately 23,100 retired employees and beneficiaries. Our members can read the report from TVA’s Office of Inspector General which states that the employees’ pension plan ended the year with a shortfall of $4.9 billion and with a funding status of only 59 percent.

Our members can see from public financial statements that many of our competitors have been improving the funding status of their plans in the last few years by making the necessary contributions while TVA has not. From 2010 to 2012, the latest three years for which data is available, TVA contributed $270 million and TVARS' funding status fell from 66 percent to 59 percent. AEP contributed $1.2 billion and their funding status improved from 80 to 90 percent. Southern Company contributed $1.1 billion and their funding status fell from 102 to a still respectable 91 percent. Our members can see that TVA's funding status is much worse than that of these two major competitors and that in spite of that, TVA chose to contribute much less.

In 2009, four members of the TVARS board voted to reduce benefits and accept a one billion dollar contribution, calling the contribution a pre-funding through 2013. It clearly was not a pre-funding contribution though when you consider that it was needed to bring the funding status of TVARS up to 72 percent at the end of 2009. It was clearly a catch-up contribution needed to partially remedy past inadequate funding.

Our members can see from reading our minutes that the system’s actuaries did not take the responsibility for recommending a $285 million contribution. The TVARS board is responsible for this recommendation, and it is already very clear that it is not enough. Our actuary simply said that given the assumptions supplied by the TVARS board, there is an 80 percent chance the system will reach 100 percent funding status if TVA makes certain contributions over each of the next 20 years. The assumptions included an increasing discount rate which would significantly help improve the funding status. The specified contributions began with $285 million next year and increased each year thereafter at an assumed rate of payroll growth. TVA has already demonstrated that they do not intend to contribute this much. The TVA board has subsequently approved a contribution for next fiscal year of only $250 million.

See the transcript of the July 19, 2013 board meeting here.

Comments

  1. Leonard - well stated. The tvars board let us down. When TVA reported $530,000,000 as expense in 2012 but contribituted $0, it was clear that something was not right.

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  2. It is outrageous that they will not bring our fund up to a respectable amount, but it's down right criminal that they continue to contribute large percentages to their system.

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  3. Looks like TVA and TVARS are still at it robbing TVA retirees. The United States General Accounting Office needs to audit this financial behavior.

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  4. This is bad plus the rumors that the CEO wants to lay off another 4000 employees. Before they do that they better contribute adequate funds on a continuing basis to compensate for this increased demand on the already inadequate system.

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  5. How low can the funding go before there is a legal requirement for TVA to correct it? If the discount rate is over estimated would TVA just be required to make another large contribution to correct it. The danger seems to be when TVA would be divested and a condition comparable to Detroit would exist.

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    1. Unbelievably, TVA does not appear to be bound by any legal requirements to fund the pension as other companies are. I too am worried that if TVA is divested, a Detroit type scenario could occur. In the meantime it still is not good for us to remain in such poor financial health. It is as if we are asking for continued benefit reductions and/or a Detroit type scenario at some point. I am still very disappointed that a majority of the TVARS board does not have the courage to ask for a contribution significant enough to at least start to put the system on a path to financial health.

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