TVARS 2018 Accountability Improvement Plan

November 28, 2017

DeWitt Burleson, TVARA Valley Wide President

TVARA Board Directors

TVARA Chapter Officers

Dear Mr. Burleson, Directors, and Chapter Officers,

Few have recognized just how underfunded TVARS has become and that your TVARS benefits have already eroded. This was brought about by inadequate TVARS funding requests and TVA under-funding over the last 10 years. TVA planning does not fully recognize the need for adequate annual TVARS retirement funding. Without adequate funding requests and a TVA catch-up plan, we both fear and anticipate additional cuts. Most at risk are long term TVA employees and retirees who depend on a pension.

A TVARS Board Member’s job is to clearly represent funding needs and the benefits required for all members, not just a specific group. We are asking whether retirees support the priorities in this plan. Broadly stated these priorities fall into two groups, governance and funding. Current governance allowed the funding to fall to 53% without sounding an alarm. It took an independent GAO report to clearly state the funding level and make recommendations. Now that we have that report it is time to address both the governance issues and funding. We believe funding cannot be successful without governance improvements and funding requests which are accurate.

In the last 19 months, the TVARS Board approved reducing your future TVARS benefits by $960 million to close this gap. Even after this reduction, the shortfall was $6.0 billion from an actuarial need of $13.1 billion for a funded ratio of 54%. After the GAO report, TVA made a “pre-payment” this year which decreased the shortfall to $4.6 billion for a funded ratio of 63%. We believe a “pre-payment” is not a plan.

The cornerstone of our plan is to have the retiree TVARS director (7^th member) be elected by retirees. Please see below for more details on our 5 Point TVARS 2018 Accountability Improvement Plan (AIP).

As stated in the most recent TVARS director’s campaign statement:

Underfunding retirement is interest-free borrowing from you. I support the GAO recommendations and will work to develop accurate, best practice funding and reporting for TVARS. Help us have a retirement system that is there for us and those we love.

Funding issues require three votes to be put on the Board Agenda, and four votes for approval. You haven’t had those votes. Benefits without advocates go away.  Benefits matter when you were hired, employed, and when you retire. Keep your benefits. “The workman is worthy of his hire”.

Time is short. The next term for the 7^th member begins this coming October. In order to create a retiree elected 7^th member, we believe a new retiree board director election plan must be in place by March 2018. If you agree that a retiree elected board director will help your voice be heard, you need to lobby the TVA and current retiree 7^th member board directors to vote for a rule change to make the election of the 7^th member happen.

We believe your support will be critical. Please help us obtain comments on this plan. We recommend discussions at your next TVARA meetings and we look forward to your comments. We hope to make TVARS better for all employees and retirees.

Sincerely,

Sam DeLay, TVARS Board Director

Jim Hovious, TVARS Board Director

Leonard Muzyn, TVARS Board Director

5 Point TVARS 2018 Accountability Improvement Plan (AIP)

  

1)     Amend the rules regarding the retiree TVARS Board Director (7th member) to:

a.      Call for an election for the term beginning November 1, 2018. Similar to the nominating and election process for the current employee directors, nominations are to be made by petitions signed by at least 25 retiree members. All retiree members are to be eligible for nomination and to vote.

b.     Ensure that there is no appearance of conflict of interest. As with the employee elected directors, the retiree director shall receive only reimbursement of travel expenses from TVARS. The practice of paying the retiree director an additional $10,000 per year for service on the TVARS board from the pension fund will be discontinued. The retiree director shall also be prohibited from contracting with, or having other financial relationships with, TVARS or TVA during their term, as well as for a period afterwards.

2)     TVARS to use the discount rate currently used by the GAO, TVA, and TVA’s actuary in its financial reporting to avoid confusion of reporting under two different accounting methods, and to give a more realistic picture of the financial health of the System.

3)     TVARS to follow the recommendations in the March 2017 GAO report with regards to properly funding TVARS:

a.      “According to TVA’s analysis, there is a 50 percent chance that annual contributions of $300 million could eliminate the $6 billion funding shortfall at the end of 20 years and a 50 percent chance that a funding shortfall would remain. TVA’s analysis assumes an annual return of 7 percent on pension plan assets, but depending on market conditions, assets could yield higher or lower than expected returns”

b.     “TVA aims to eliminate its $6 billion in unfunded pension liabilities within 20 years, according to TVA officials, but no mechanism is in place to ensure TVA fully funds the liabilities if, for example, plan assets do not achieve expected returns.”

c.      “TVA officials told us that the agency does not plan to contribute more than the TVARS Rules require and that it plans to continue to treat its unfunded pension liabilities as regulatory assets, deferring pension costs for recovery through rates in the future. However, the TVARS Rules do not provide for fully funding pension benefits over the service of TVA employees covered by the plan…”

d.     “A Blue Ribbon Panel commissioned by the Society of Actuaries believes that plans’ risk management practices and their ability to respond to changing economic and market conditions would be enhanced through the use of amortization periods shorter than the 30-year period commonly used today. The panel recommended amortization periods of no more than 15 to 20 years for gains and losses.”

e.      “In the private sector, ERISA generally requires a 7-year amortization of shortfalls for private sector single employer pension plans.”

f.       “The open amortization period utilized by the TVARS formula-based contribution requirement does not ensure TVA’s contributions will adequately adjust for plan experience and does not ensure full funding of the pension liabilities.”

g.     “…a closed amortization period would be a better practice if the goal is to fully fund pension liabilities.”

4)     TVARS meetings to be open to the public so that interested retirees may attend and see for themselves what TVARS is considering and the reasoning behind each director's vote.

5)     Amend the rules so that only TVA employees who are not covered by the Supplemental Executive Retirement Plan be allowed to sit on the TVARS Board as fair representatives for thousands of non-executive employees.