Benefits Changes Not Significant for Retirees
By SUZAN BOWMAN, TVARA Valleywide President
[Leonard Muzyn’s comments are in brackets.]
What a wild ride 2016 has been so far!
As I write this, we were just notified that the TVA Retirement System Board voted to accept TVA’s latest proposal on changes in retirement benefits (see article on this page).
The actual wording of the amendments had not been finalized at this time. [Am I the only person concerned that a vote was taken before the actual wording was available?] Overall, the changes are not going to have significant impact on TVA retirees. [An average loss of almost $10,000 per retiree is not significant? Maybe it’s all relative. Some retirees do receive very large pensions and this proposal did hit future retirees, or current employees, harder.]
You should not see any changes in your current check amounts. [A reduction in next year’s increase may feel OK now because it is a year away, but it is still a reduction.] More good news is that the COLA is now vested per TVA, [We have yet to see the wording and TVA can still terminate the system at any time.] and the cap for the COLA rose to 6 percent [I suggested increasing the cap to TVA a few years ago, and I am glad they offered this. I suggested it because I thought TVA would agree to it because, based on current inflation forecasts, it is not expected to increase benefits.] with a minus -.25-percent CPI. [Looks like such a small reduction, but given current inflation forecasts and the compounding effect, this reduction is likely to be significant.] [TVA did NOT take my suggestion to at least leave the COLA untouched on a core dollar amount adjusted per pension type. This would better protect lower income retirees.] Currently, the Rules & Regulations set the COLA cap at 5 percent.
The supplemental benefit did see a reduction in calculation. TVA also increased the amount it will guarantee to contribute to the fund to $300 million per year. [A guaranteed $300 million per year on a fund that is $6 billion underfunded and paying $700 million per year in benefits does not give me much comfort. Enough said. I don’t think anyone needs to be a math major to understand this.]
These changes take effect on Oct. 1, 2016 (see the chart on page 2 in this newsletter for further explanation of changes).
Many retirees are relieved by this news, and some are still very upset. However, not one person I spoke with over the past six months wanted the system to be terminated. [Not one person I spoke with over the last six years wanted the system to be terminated. They understand that reducing benefits makes it cheaper for TVA to terminate the system. That is why they are upset.]
Even if the lawsuit that was filed in 2010 is decided favorably toward retirees upon appeal, the TVARS Board can make changes to the Rules & Regulations at that time to support the court’s decision. [I may be naïve and idealistic, but wouldn’t it be better for the TVARS board to properly do its job to protect benefits it has determined are vested instead of relying on the courts?]
As you recall, after TVA’s proposed changes were announced in December 2015, the TVARA chapter presidents met with TVA President/Chief Executive Officer Bill Johnson and other TVA representatives and TVARS Board members to discuss the proposed changes. I sent a letter (on behalf of the TVARA presidents) to the TVARS Board rejecting the proposed changes. [Thank you Suzan for allowing me to present to the TVARA presidents in Nashville on January 6th.]
When I spoke to the TVA Board in February to encourage its members to reconsider the changes, they said they were committed to find solutions to the underfunding problems. [There are only two ways to solve the underfunding problems. One is to properly fund the pension. The other is to reduce benefits. A $700 million total decrease in benefits coupled with $300 million per year funding does not solve the $6 billion underfunded problem on a pension that pays out $700 million per year in benefits.]
This is the fix we have for now, and this decision will at least allow us to move forward. [This proposal sets us up for more benefit reductions in the future and/or a terminated system. This proposal does not contain a commitment from TVA to keep the system. If avoiding system termination was a major reason for accepting this proposal, shouldn’t the proposal contain a commitment from TVA to keep the system?]
http://tvara.org/graphics/uploadfile/3244/15660/june_2016_.pdf
By SUZAN BOWMAN, TVARA Valleywide President
[Leonard Muzyn’s comments are in brackets.]
What a wild ride 2016 has been so far!
As I write this, we were just notified that the TVA Retirement System Board voted to accept TVA’s latest proposal on changes in retirement benefits (see article on this page).
The actual wording of the amendments had not been finalized at this time. [Am I the only person concerned that a vote was taken before the actual wording was available?] Overall, the changes are not going to have significant impact on TVA retirees. [An average loss of almost $10,000 per retiree is not significant? Maybe it’s all relative. Some retirees do receive very large pensions and this proposal did hit future retirees, or current employees, harder.]
You should not see any changes in your current check amounts. [A reduction in next year’s increase may feel OK now because it is a year away, but it is still a reduction.] More good news is that the COLA is now vested per TVA, [We have yet to see the wording and TVA can still terminate the system at any time.] and the cap for the COLA rose to 6 percent [I suggested increasing the cap to TVA a few years ago, and I am glad they offered this. I suggested it because I thought TVA would agree to it because, based on current inflation forecasts, it is not expected to increase benefits.] with a minus -.25-percent CPI. [Looks like such a small reduction, but given current inflation forecasts and the compounding effect, this reduction is likely to be significant.] [TVA did NOT take my suggestion to at least leave the COLA untouched on a core dollar amount adjusted per pension type. This would better protect lower income retirees.] Currently, the Rules & Regulations set the COLA cap at 5 percent.
The supplemental benefit did see a reduction in calculation. TVA also increased the amount it will guarantee to contribute to the fund to $300 million per year. [A guaranteed $300 million per year on a fund that is $6 billion underfunded and paying $700 million per year in benefits does not give me much comfort. Enough said. I don’t think anyone needs to be a math major to understand this.]
These changes take effect on Oct. 1, 2016 (see the chart on page 2 in this newsletter for further explanation of changes).
Many retirees are relieved by this news, and some are still very upset. However, not one person I spoke with over the past six months wanted the system to be terminated. [Not one person I spoke with over the last six years wanted the system to be terminated. They understand that reducing benefits makes it cheaper for TVA to terminate the system. That is why they are upset.]
Even if the lawsuit that was filed in 2010 is decided favorably toward retirees upon appeal, the TVARS Board can make changes to the Rules & Regulations at that time to support the court’s decision. [I may be naïve and idealistic, but wouldn’t it be better for the TVARS board to properly do its job to protect benefits it has determined are vested instead of relying on the courts?]
As you recall, after TVA’s proposed changes were announced in December 2015, the TVARA chapter presidents met with TVA President/Chief Executive Officer Bill Johnson and other TVA representatives and TVARS Board members to discuss the proposed changes. I sent a letter (on behalf of the TVARA presidents) to the TVARS Board rejecting the proposed changes. [Thank you Suzan for allowing me to present to the TVARA presidents in Nashville on January 6th.]
When I spoke to the TVA Board in February to encourage its members to reconsider the changes, they said they were committed to find solutions to the underfunding problems. [There are only two ways to solve the underfunding problems. One is to properly fund the pension. The other is to reduce benefits. A $700 million total decrease in benefits coupled with $300 million per year funding does not solve the $6 billion underfunded problem on a pension that pays out $700 million per year in benefits.]
This is the fix we have for now, and this decision will at least allow us to move forward. [This proposal sets us up for more benefit reductions in the future and/or a terminated system. This proposal does not contain a commitment from TVA to keep the system. If avoiding system termination was a major reason for accepting this proposal, shouldn’t the proposal contain a commitment from TVA to keep the system?]
http://tvara.org/graphics/uploadfile/3244/15660/june_2016_.pdf
Thank you Leonard. You have just confirmed what I thought when I read the news letter.
ReplyDeleteOh Leonard. You continue to show your ignorance. You really don't understand how pension accounting works.
ReplyDeleteWhy don't you tell your followers what the pension underfunding looks like when the artificially low interest rates rise (as is expected by the recent Federal Reserve comments). I know you have seen the data. How much underfunded is the plan once the discount rate is back to 7-8%? Why don't you tell your followers what happens if the plan becomes overfunded once these rates return to normal? Isn't it true that the money cannot be refunded to the ratepayers until the last beneficiary dies (and maybe not even then)? Why don't you tell your followers how much money the plan has spent paying attorneys and advisors to look at scenarios that are pointless because of your absurd rants? That is money that could have been used to pay benefits.
It is sad that you have devoted so much time to something without actually understanding it.
Ben, If the discount rate went back to 7%, the fund would be about $3 billion short instead of $6 billion. I don't think ratepayers are in any danger of having their money locked up until the last beneficiary dies. The government and actuaries have determined that more funding is needed. Both ERISA and other federal government plans require that their plans be much better funded than TVA's is.
DeleteAdditionally, if locking up money needlessly were the issue, why would TVA take $300 million in benefits from its employees and retirees in 2009, and $700 million more this year?
The reason the system has to pay lawyers and actuaries to run studies is TVA. I am part of a minority of the TVARS board fighting for a properly financed pension and to retain benefits that employees were promised and earned. I cannot cause a penny to be spent on studies and lawyers. I voted against TVARS hiring a lawyer in the first place, and a majority of the TVARS board decides to pay to have a study run every time TVA comes up with an idea of how they would like to change the pension.
This relates to Ben Johnson's comment. If the discount rate rises to to 7%, pension expense is likely to be negative for one or more years, which would reduce TVA's revenue requirements, and, of course, rates charged to its customers. This action would essentially be the same as paying back excess contributions. In fact, this has already occurred during several years in the 1998 - 2002 time frame. Mr. Johnson can validate this info by reviewing TVA's published financial statements available in the TVA library.
Delete