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TVARC Action Alert: GAO Says Fully Fund TVA Pension Plan

From: Mike Moseley, President, TVARC
Subject: TVARC Action Alert: GAO Says Fully Fund TVA Pension Plan

The Tennessee Valley Authority Retirees Coalition (TVARC) requests support from TVARC members, members of TVA Retiree Chapters, our Unions, readers and senders of Facebook and Twitter messages and other contacts to send a message to our Tennessee Valley members of Congress. Please read this message and then go to to respond to this important Action Alert.

Background  The U.S. Government Accountability Office (GAO) was asked by Congress to review the Tennessee Valley Authority’s (TVA) plan for debt reduction and to make recommendations: the first was that TVA must better communicate its plans for overall debt reduction and second, the GOA specifically recommends that TVA take steps to have its retirement system adopt funding rules designed to ensure the pension plan’s full funding. (See the GAO’s Report here.)

The Te…
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GAO to TVA: Work with TVARS Board to Adopt Proper Funding Rules

Recommendations for Executive Action  We recommend that the Board of Directors ensure that TVA take the following two actions:

better document and communicate its goals to reduce its debt and unfunded pension liabilities in its performance plans and reports, including detailed strategies for achieving these goals.propose, and work with the TVARS board to adopt, funding rules designed to ensure the plan’s full funding.
Click here to read the full GAO report publicly released on April 24, 2017.

Additional Excerpts TVA agreed with the first recommendation and neither agreed nor disagreed with the second. GAO believes that action is needed as discussed in the report.

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 be…

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 reductionsgain of $733 million due to investment returnsloss 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.

Eight-Year Funding Plan a Disaster; Twenty-Year Plan Will Fix It?

In eight years, with a 4-3 majority of the TVARS Board voting to reduce benefits in 2009 and again in 2016, TVA's pension funded ratio declined from 77% to 55%. TVA has now embarked upon a twenty-year funding plan which was approved by a 4-3 majority of the TVARS Board in 2016 along with the most recent benefit reductions.

Loyalton, CA reduced their retirees' pensions by 60%. They are 40% funded. See the Fox Business video here. Note that Loyalton pulled out of CalPERS and has quit meeting its funding obligations to CalPERS. That is what led to the cuts.

TVA Workforce Pension Benefit Reductions / Golden Parachute for TVA's CEO

The TVARS Board approved the following 2017 benefit reductions on December 8, 2016 in order to comply with the rule amendments passed 4-3 by the TVARS Board in a special-called meeting on August 8, 2016.  See the transcript of the special-called meeting here.

17% reduction of the annual compounding rate in the cash balance pension formula (6% reduced to 5% for employees first hired on or after 1/1/96)1.24% supplemental benefit 2017 COLA, as well as all future supplemental benefit COLAs, eliminated for most retireesReduced maximum supplemental benefit to apply to all current and future retirees1.24% pension COLA reduced to 0.99% for retirees6% fixed fund interest rate during employment reduced to 5% for employees who have balances based on their own contributions in the fixed fund
In contrast to reduced retirement benefits for TVA employees and retirees, on December 12, 2016 the TVA Board gave TVA's CEO a golden parachute.  If President-Elect Trump appoints TVA Board members who dec…