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TVA's 2016 Pension Funded Status


Per TVA's 2016 10-K financial statement, the pension funded ratio improved slightly in 2016 primarily due to these three major components:

  • gain of $960 million due to pension benefit reductions
  • gain of $733 million due to investment returns
  • loss of $1.2 billion due primarily to the reduction in the discount rate from 4.50% to 3.65%

Per TVA's sensitivity analysis, a quarter point change in the discount rate can be expected to change the pension liability by $388 million. While a reduction in the discount rate works to worsen the pension funded ratio, an increase in the discount rate would work to improve it.

Comments

  1. AnonymousMarch 31, 2017 at 10:12 PM

    Thanks for this info Leonard

    ReplyDelete
  2. AnonymousApril 22, 2017 at 9:41 PM

    Leonard, when Trump appoints 5 board members in May who who will force the sale of TVA to Duke/Southern Company, do you think the funding of TVA pensioners is more likely to improve or to disappear?

    ReplyDelete
    Replies
    1. Leonard J. Muzyn, Jr., CFAApril 23, 2017 at 9:12 AM

      If that happens, my best guess is that it won't disappear, but it probably would take yet another haircut. TVA leadership has already given us two haircuts and has gotten praise for it from TVARA leadership and others. Another haircut would further reduce the "pension risk" a TVA acquirer would take on. I still hope for another option - that President Trump reform TVA and run it more efficiently as a Federal agency without SERPs and golden parachutes for top executives. Perhaps roll us into the federal pension system. I am sure it is no surprise to you that I am so idealistic.

      Delete

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