From: Muzyn, Leonard J Jr
Sent: Friday, April 12, 2013 12:39 PM
To: Bays, Leslie P; Hairston, Peyton T Jr; Hoskins, John M; Stokes, Allen E; Troyani, Anthony L Jr; Wilson, Tammy W
Cc: Brackett, Patrick D
Subject: 2014 TVARS Contribution
Fellow TVARS Board Members:
From the beginning of 2003* through 2012, TVARS has been substantially underfunded. However, during this ten year period, TVA collected $605,000,000 from ratepayers to cover pension costs that were then diverted to non-pension activities. $522,000,000 of this amount occurred in 2012 alone. These numbers are detailed in a letter from Dan Pitts dated January 20, 2013. (See Dan's letter here.) TVA has twice responded to Dan Pitts' letter and did not, in either instance, take exception to the data in his analysis. (See TVA's responses here and here.)
Per TVARS rules, the TVARS board must soon recommend a contribution from TVA to be made in 2014. I believe a very reasonable starting point for discussions on the recommended contribution amount would be to add the $605,000,000 diverted to non-pension activities to the funds TVA expects to collect from ratepayers to cover pension costs in 2013. If TVA collects an amount in 2013 similar to the last two years, this total amount would be about one billion dollars. I suggest we officially request the budgeted 2013 pension expense from TVA in order to more precisely determine this amount.
I believe that the contribution amount we recommend for 2014 should at least equal the sum of the diverted funds prior to 2013 and the funds collected in 2013. Otherwise, I am concerned that our membership may be given the impression that the TVARS board is supporting or condoning TVA’s practice of charging ratepayers amounts intended for pension funding significantly in excess of those actually contributed to TVARS. This might also lead to accusation by the ratepayers that the TVARS board condones TVA’s practice of diverting ratepayer funds meant to be contributed to the pension to other unspecified uses.
If the sum of the diverted funds prior to 2013 and the funds collected in 2013 is found by our actuaries to be sufficient to meet TVARS funding requirements for 2014, I believe we would all be very comfortable recommending this amount as the 2014 contribution. We would have a very logical and defensible basis for our recommendation.
I understand that you probably are thinking that this contribution amount is insufficient given John Thomas’ statement that appeared in the Chattanooga Times Free Press on October 8, 2012 that the fund has a “$3.5 billion gap” (See article here.), and Bill Johnson’s message in the April 10, 2013 TVA Today Update that TVA will work with the federal government in conducting “a strategic review of options for addressing TVA’s financial situation, including the possible divestiture of TVA, in part or as a whole.” (See message here.)
I believe asking for a $3.5 billion contribution in 2014 would be too burdensome for the ratepayers. I commit to you that I will begin immediately to work to obtain support from the membership for each of us in supporting a 2014 contribution of approximately one billion dollars as discussed above, along with a clear statement being put into the TVARS rules that the COLAs are non-forfeitable benefits. I believe including such a statement in the rules will allow the membership to be comfortable with us asking TVA for a much lower contribution than would be necessary if TVARS were terminated as part of a divestiture of TVA.
Leonard Muzyn
*Please note that all years referenced in this e-mail are TVA's fiscal years, from October 1 through September 30.
From: Dennis To [mailto:dpto1953@gmail.com]
Sent: Friday, April 12, 2013 5:26 PM
To: Dennis To
Subject: TVA's Divestiture - Proposed Resolution on COLA Vesting and "Poison Pill" Anti-Takeover Provision
Yes, I’m very much in support of your recommendations. I do believe that as part of the divestiture strategy, TVA would likely consider terminating the retirement system in order to facilitate their negotiations with potential buyers. If TVA terminates TVARS, I think they would want to (a) eliminate all COLA obligations to current (and future) retirees and (b) “freeze in place” all retirement benefits accrued by current employees. I estimate that the COLA elimination combined with the benefit freeze would reduce the overall pension liabilities to the potential buyer by about $2B.
I expect TVA to use the Aug 20, 2010 Board resolution (which declared future COLAs to be non-vested) to justify the COLA elimination. I question the legality of such action in that it violates the fundamental principle of pension vesting as widely recognized throughout the nation and repeatedly upheld by prior court rulings. (I am not aware of a single court case where pension COLA was ever ruled to be non-vested.)
If TVA is sold to a non-federal entity, that would expose retirees to risk of bankruptcy. Furthermore, the new owner might from time to time use the threat of bankruptcy filings (or other means at their disposal) to extract pension and annuity payment concessions from retirees. As you suggested, I believe that the TVARS Board should adopt a resolution to ascertain that COLAs are non-forfeitable or vested benefits that cannot be taken away from current retirees. This would be consistent with the fundamental principle of retirement whereby the rules and regulations in effect at time of retirement are considered to be the equivalent of a legally binding contract between the employer and the retiree. Not only would this resolution protect the retirement benefits of retirees and employees, it would also serve to protect the interest of current employees. The $2B in COLA liabilities would serve as a “poison pill” to discourage the potential buyer from wanting to buy TVA.
Given that CEO Bill Johnson will soon be working on the divestiture initiative, it is very critical that such a resolution be adopted as soon as possible (before something bad is to happen to TVARS or TVA). I think the TVARS Board owes it to the membership to take this action, and the TVARA owes it to the retirees to support the TVARS Board in this matter. If the TVARS Board decides to proceed with this approach and needs some assistance with the basis and justification for such a resolution, I am prepared to do my best to assist. I also strongly encourage all retirees and employees to petition the TVARS Board in support of passing such a resolution.
Dennis P. To
Phone (VN) 0129 238 2078
Phone (USA) 423-591-0445
Email dpto1953@gmail.com
From: dan pitts [mailto:danpitts99@gmail.com]
Sent: Friday, April 12, 2013 6:13 PM
To: Dennis To
Subject: Re: TVA's Divestiture - Proposed Resolution on COLA Vesting and "Poison Pill" Anti-Takeover Provision
Upon reading the above dissertations, its abundantly clear that TVARS and the TVA Board should agree that the COLA is a vested benefit.
Confirmation of the COLA's validity would accomplish two worthy objectives:
(1) TVA retirees would receive the COLAs that they are due, and
Sent: Friday, April 12, 2013 12:39 PM
To: Bays, Leslie P; Hairston, Peyton T Jr; Hoskins, John M; Stokes, Allen E; Troyani, Anthony L Jr; Wilson, Tammy W
Cc: Brackett, Patrick D
Subject: 2014 TVARS Contribution
Fellow TVARS Board Members:
From the beginning of 2003* through 2012, TVARS has been substantially underfunded. However, during this ten year period, TVA collected $605,000,000 from ratepayers to cover pension costs that were then diverted to non-pension activities. $522,000,000 of this amount occurred in 2012 alone. These numbers are detailed in a letter from Dan Pitts dated January 20, 2013. (See Dan's letter here.) TVA has twice responded to Dan Pitts' letter and did not, in either instance, take exception to the data in his analysis. (See TVA's responses here and here.)
Per TVARS rules, the TVARS board must soon recommend a contribution from TVA to be made in 2014. I believe a very reasonable starting point for discussions on the recommended contribution amount would be to add the $605,000,000 diverted to non-pension activities to the funds TVA expects to collect from ratepayers to cover pension costs in 2013. If TVA collects an amount in 2013 similar to the last two years, this total amount would be about one billion dollars. I suggest we officially request the budgeted 2013 pension expense from TVA in order to more precisely determine this amount.
I believe that the contribution amount we recommend for 2014 should at least equal the sum of the diverted funds prior to 2013 and the funds collected in 2013. Otherwise, I am concerned that our membership may be given the impression that the TVARS board is supporting or condoning TVA’s practice of charging ratepayers amounts intended for pension funding significantly in excess of those actually contributed to TVARS. This might also lead to accusation by the ratepayers that the TVARS board condones TVA’s practice of diverting ratepayer funds meant to be contributed to the pension to other unspecified uses.
If the sum of the diverted funds prior to 2013 and the funds collected in 2013 is found by our actuaries to be sufficient to meet TVARS funding requirements for 2014, I believe we would all be very comfortable recommending this amount as the 2014 contribution. We would have a very logical and defensible basis for our recommendation.
I understand that you probably are thinking that this contribution amount is insufficient given John Thomas’ statement that appeared in the Chattanooga Times Free Press on October 8, 2012 that the fund has a “$3.5 billion gap” (See article here.), and Bill Johnson’s message in the April 10, 2013 TVA Today Update that TVA will work with the federal government in conducting “a strategic review of options for addressing TVA’s financial situation, including the possible divestiture of TVA, in part or as a whole.” (See message here.)
I believe asking for a $3.5 billion contribution in 2014 would be too burdensome for the ratepayers. I commit to you that I will begin immediately to work to obtain support from the membership for each of us in supporting a 2014 contribution of approximately one billion dollars as discussed above, along with a clear statement being put into the TVARS rules that the COLAs are non-forfeitable benefits. I believe including such a statement in the rules will allow the membership to be comfortable with us asking TVA for a much lower contribution than would be necessary if TVARS were terminated as part of a divestiture of TVA.
Leonard Muzyn
*Please note that all years referenced in this e-mail are TVA's fiscal years, from October 1 through September 30.
Sent: Friday, April 12, 2013 5:26 PM
To: Dennis To
Subject: TVA's Divestiture - Proposed Resolution on COLA Vesting and "Poison Pill" Anti-Takeover Provision
Yes, I’m very much in support of your recommendations. I do believe that as part of the divestiture strategy, TVA would likely consider terminating the retirement system in order to facilitate their negotiations with potential buyers. If TVA terminates TVARS, I think they would want to (a) eliminate all COLA obligations to current (and future) retirees and (b) “freeze in place” all retirement benefits accrued by current employees. I estimate that the COLA elimination combined with the benefit freeze would reduce the overall pension liabilities to the potential buyer by about $2B.
I expect TVA to use the Aug 20, 2010 Board resolution (which declared future COLAs to be non-vested) to justify the COLA elimination. I question the legality of such action in that it violates the fundamental principle of pension vesting as widely recognized throughout the nation and repeatedly upheld by prior court rulings. (I am not aware of a single court case where pension COLA was ever ruled to be non-vested.)
If TVA is sold to a non-federal entity, that would expose retirees to risk of bankruptcy. Furthermore, the new owner might from time to time use the threat of bankruptcy filings (or other means at their disposal) to extract pension and annuity payment concessions from retirees. As you suggested, I believe that the TVARS Board should adopt a resolution to ascertain that COLAs are non-forfeitable or vested benefits that cannot be taken away from current retirees. This would be consistent with the fundamental principle of retirement whereby the rules and regulations in effect at time of retirement are considered to be the equivalent of a legally binding contract between the employer and the retiree. Not only would this resolution protect the retirement benefits of retirees and employees, it would also serve to protect the interest of current employees. The $2B in COLA liabilities would serve as a “poison pill” to discourage the potential buyer from wanting to buy TVA.
Given that CEO Bill Johnson will soon be working on the divestiture initiative, it is very critical that such a resolution be adopted as soon as possible (before something bad is to happen to TVARS or TVA). I think the TVARS Board owes it to the membership to take this action, and the TVARA owes it to the retirees to support the TVARS Board in this matter. If the TVARS Board decides to proceed with this approach and needs some assistance with the basis and justification for such a resolution, I am prepared to do my best to assist. I also strongly encourage all retirees and employees to petition the TVARS Board in support of passing such a resolution.
Dennis P. To
Phone (VN) 0129 238 2078
Phone (USA) 423-591-0445
Email dpto1953@gmail.com
From: dan pitts [mailto:danpitts99@gmail.com]
Sent: Friday, April 12, 2013 6:13 PM
To: Dennis To
Subject: Re: TVA's Divestiture - Proposed Resolution on COLA Vesting and "Poison Pill" Anti-Takeover Provision
Upon reading the above dissertations, its abundantly clear that TVARS and the TVA Board should agree that the COLA is a vested benefit.
Confirmation of the COLA's validity would accomplish two worthy objectives:
(1) TVA retirees would receive the COLAs that they are due, and
(2) Potential TVA buyers would not be inclined to take the aptly described "poison pill".
This is a no-brainer.
Regards, Dan Pitts
Please please TVARS Board do the right thing and you can fix the wrongs that have been going on for so long. Thousands have given their entire lives/careers for TVA and they deserve to not be lied to anymore or robbed of the money we all deserve and were promised. Your responsibility is to protect our retirement, ALL of you... management too. TVA used us as an excuse to raise revenue by raising rates, and then not using it for what they told the public it was for. So in essence, they have lied to all of us. Please make it right now by making the COLAs vested benefit and restoring the money that should go back into our retirement. Sincerely, third-generation TVA employee and future TVA retiree.
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