The TVARS Board approved a July through August 2018 window during
which Cash Balance employees who had less than 10 years of service as of
10/1/16 may elect to transfer their Cash Balance accounts to the 401(k). Cash Balance
employees who had 10 or more years of service as of 10/1/16 may elect to
receive 401(k) only benefits going forward. If they elect to receive 401(k)
only benefits going forward, they may also elect to transfer their Cash Balance
account to the 401(k).
Please be careful and understand all that you are giving up if you
make any of these elections. They are completely voluntary. No changes will be
made if you do nothing. Look for a letter from Fidelity soon to explain this in
more detail. Please study it carefully. Two different letters will be sent. One
to those who had less than 10 years, and another to those who had 10 or more
years. If you choose to make any changes, they will become effective October 1,
2018.
I have put together below a list of frequently asked questions and
answers to help you better understand your alternatives. I have made every
effort to ensure that this information is correct. Please let me know if you
identify any errors and I will correct them immediately. Please also let me
know if you have additional questions. Should there be any conflict between the
information in this document and the plan
provisions, the plan
provisions and not
this document shall be controlling.
I know that earnings or losses on my 401(k) depend on my
investment choices. What will I earn on my Cash Balance pension if I keep it?
The interest crediting rate for those hired prior to 1996 remains
as it was when the Cash Balance pension started at CPI plus 3% with a minimum
of 6% and a maximum of 10%. The reduced interest crediting rate for those hired
on or after 1/1/96 is now CPI plus 2% with a minimum of the assumed investment
rate of return minus 2% and a maximum of the assumed investment rate of return
minus 0.5%. The interest crediting rates in effect for 2018 are the minimums of
6% for those hired prior to 1996 and 4.75% for those hired 1/1/96 or later.
If I transfer my Cash Balance to my 401(k), can I keep my fixed
and variable funds with TVARS?
No, you would also have to transfer your fixed and variable funds,
which consist of your after-tax contributions and tax-deferred earnings on
those contributions. The fixed fund earns CPI plus 2% with a minimum of the
assumed investment rate of return minus 2% and a maximum of the assumed
investment rate of return minus 0.5%. The current fixed rate of interest
is 4.75%. If hired before 1996, you would give up the ability to convert your
fixed and variable funds to an annuity at retirement using an interest rate of
8 3/8%.
What happens to my Supplemental Benefit if I transfer my Cash
Balance?
Your right to the Supplemental Benefit will be waived, and as a
result, you will also no longer be eligible for the TVA Health-Care Credit,
which helps to offset the cost of TVA-provided retiree health insurance in
addition to the Supplemental Benefit.
What is the Supplemental Benefit?
The Supplemental Benefit is an additional monthly benefit paid in
addition to your regular monthly pension amount if you meet the eligibility
requirements.
How much is the Supplemental Benefit?
If you are eligible and had less than 10 years of service
as of 10/1/16, the amount paid depends upon your full years of actual System service as of 10/1/16. The monthly supplemental benefit is $11.5757
per whole year of actual System service as of 10/1/16 plus a
pro-rated amount of $94.20. For example, the monthly benefit with 5 years of
service is $57.8785 plus $47.10, or $104.9785. These amounts may be eligible
for cost-of-living adjustments (COLAs) either immediately upon retirement or
termination, or later, based on the age requirements specified in
the system’s rules and regulations.
If you are eligible and had 10 or more years of service as
of 10/1/16, the amount paid depends upon your full years of actual System service at retirement or termination. The monthly supplemental benefit is
$11.5757 per whole year of actual System service plus $94.20. For example, the
monthly benefit with 10 years of service is $115.757 plus $94.20, or $209.957.
With 20 years of service, the monthly benefit is $325.714. These amounts may be
eligible for cost-of-living adjustments (COLAs) either immediately upon
retirement or termination, or later, based on the age requirements specified in
the system’s rules and regulations.
Who is eligible to receive the Supplemental Benefit?
Retiring or terminating employees with a Cash Balance account (or
those in the Original Benefit Structure) who have achieved actual age 55 (or 50
if retired or terminated due to an involuntary reduction-in-force) and 10 years
of actual System service at retirement or termination.
So if I had less than 10 years of service as of 10/1/16, I won’t
be eligible for the Supplemental Benefit whether I transfer or not?
You could still qualify for the Supplemental Benefit if you do not
transfer because the service eligibility requirement is 10 years at retirement
or termination, not 10 years as of 10/1/16. The amount of your Supplemental
Benefit was frozen on 10/1/16, meaning the years of service used to calculate
your benefit will remain the same as of October 1, 2016.
So if I had more than 10 years of service as of 10/1/16, and I
elect to receive the 401(k) only for future benefits but do not transfer my
Cash Balance, my Supplemental Benefit will not be affected?
No, Your Supplemental Benefit will freeze, meaning the years of
service used to calculate your benefit will remain the same as of October 1,
2018, the effective date of your election to receive 401(k) only for future
benefits. You will not lose the benefit you’ve already accrued, provided you
meet the eligibility requirements at the time of retirement or termination of
employment.
Leonard, thank you SO much for posting this information. It is incredibly helpful.
ReplyDeleteFor TVA to propose this, or any changes to the Retirement System, it can only be to benefit the company and so to the detriment of the employee/retiree. Just like the choice given to employees in 1996 to remain in the original retirement system or voluntarily transfer to the new Cash Balance system. It's nothing like as good as the original retirement system, but the Cash Balance retirement benefit is effectively an annuity for life. Compare its effective interest rate to anything that can be obtained outside TVA before taking them up on this offer.
ReplyDeleteEveryone should understand that the indicated 401K benefits associated with Options 1 and 2 would REPLACE their current TVA 401K match arrangement. This is not stated in the material received and some people have erroneously assumed it would be in ADDITION to the 401K match they have now.
ReplyDelete