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Update on Implementation of Hovious/Muzyn TVARS Proposal

Jim Hovious and I outlined a TVARS proposal in a letter to TVA’s Trades and Labor Council on February 1, 2016.  Please see letter here.  A key element of our proposal, a suggested revision of the minimum contribution formula, appears to be falling into place.  A compromise minimum contribution formula has been found which produces an average 20-year minimum required annual contribution of about $350 million.  The compromise formula produces a contribution somewhat lower than would be required under ERISA, yet somewhat higher than would be required under government pension rules.  The formula provides funding for all current benefits without the need for any benefit reductions. (Note 1)

Our proposal seeks no reductions in vested benefits, so its implementation would be unlikely to jeopardize member interests in the current lawsuit. (Note 2)  It does not include governance changes which would diminish TVARS’ independence and member influence, such as TVA control of TVARS’ asset allocation and term limits on TVARS directors.  It only includes governance changes which would enhance TVARS independence and protect or increase member influence.  These include direct retiree election of two TVARS board directors, a recall election process, and guidelines to reduce seventh director conflicts of interest.
     
The other five directors of the TVARS Board have yet to fully express their support for our proposal.  Please continue expressing your support for our proposal so that the TVARS board will approve it and put an end to the uncertainty currently surrounding our pension benefits.

Leonard Muzyn


Note 1:  The major difference between ERISA and government pension funding requirements is the time allowed to achieve fully funded status.  ERISA pensions generally must fund significant deficits within 7 years, while government pensions generally must fund them within 20 years.  This compromise formula utilizes 7 years for parts of the deficit, and 20 years for other parts. The current formula specified in the TVARS’ rules assumes 30 years for the entire deficit.  It appears that the compromise formula would produce a little higher contribution in the early years, and a little lower contribution in the later years, but it averages to about $350 million and assumes no benefit reductions.
Note 2:  Our original proposal included only one benefit reduction.  That was the elimination of TVARS benefits based on pay in excess of executive level federal pay caps.  It appears that these may be considered vested benefits according to TVARS’ rules.  If this holds, I could no longer support their elimination.   However, I would then be very supportive of amending the rules to require TVA to provide separate funding for these past and future benefits.

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