TVA Board approves TVARS contribution
At its Aug. 20 meeting, the TVA Board approved a contribution to the TVA Retirement System of $1 billion for fiscal year 2010 and as an advance on its contributions through fiscal year 2013 to help stabilize the TVA Retirement System for the short-term and strengthen it for the future.
With the economic downturn, the TVA Retirement System is facing financial pressure, like most other retirement systems across the nation. The System’s challenges are compounded given its maturity — the System has about 12,000 active employees compared to 23,000 retirees.
To address these challenges and help guarantee the long-term health of the TVARS Plan, TVA management and the TVA Retirement System Board have been working for months on possible solutions and alternatives. TVARS engaged Mercer, the System’s actuary, in January 2009 to help identify ways to secure the long-term sustainability of the System.
“Through the funding approved Aug. 20 and the Retirement System’s liability reductions, the TVA Board and the Retirement System board members are able to help protect the sustainability of the Retirement System and balance the interests of retirees, current employees, TVA’s customers and the overall financial condition of TVA,” says Tammy Wilson, TVA’s vice president for Retirement Services.
This $1-billion infusion will be used to fund the vested benefits of the System. This will provide the System with an immediate 20-percent increase in assets. A billion dollars invested will help stabilize the fund, increasing it to a funded ratio of about 78 percent, up from its current funding ratio of 65 percent.
The $1-billion contribution, along with the liability reductions of about $300 million, will reduce the System deficit from about $3 billion to $1.7 billion.
“One billion dollars today with some temporary changes in the cost-of-living adjustments will give the System the cash it needs to make about $575 million in annual benefit payments without liquidating securities,” says Frank Alford, chair of the TVARS Board. “If you are waiting on the market to recover, accepting $1 billion from TVA versus the previously recommended $300 million clearly is a better option.”
Several years ago, when the Retirement System was more than fully funded — up to 156 percent in 1997 — benefits were expanded. This resulted in about $2 billion in additional liabilities to the System. Also during this period, TVA had five years in which it made zero contributions to the System — 1997, 1999, and 2001 through 2003. The System had an average funding ratio of 117 percent during those years. With the current economy, some benefit changes are necessary in order for the Retirement System to be able to meet future financial obligations.
Temporary changes for current retirees
Retirees will see the following temporary changes in how their COLA (cost-of-living adjustment) will be determined. These changes apply only to the next four years:
• For calendar year 2010, the COLA will be zero.
• For calendar year 2011, the COLA will be the change in the Consumer Price Index (CPI), capped at 3 percent.
• For calendar year 2012, the COLA will be zero.
• And for calendar year 2013, the COLA will be the change in the CPI, capped at 2.5 percent.
At the end of this four-year period, the current COLA benefit of CPI, capped at 5 percent, will be restored. These changes were made temporary to consider the possibility of the markets recovering after four years.
Changes for current employees retiring on or after Jan. 1
Current employees who retire on or after Jan. 1, 2010, will be eligible to receive a COLA at actual age 60. In addition, the interest crediting rate for the Fixed Fund balances and future contributions will be reduced to 6 percent from 7.25 percent, effective Jan. 1, 2010. No change was made to the 8 3/8 percent Fixed Annuity Fund conversion rate or any other benefits.
Investment professionals added to serve as advisers
The TVARS Board has also approved changes to the System Rules to add investment professionals to its investment committee as advisers. This is in addition to Wilshire Consulting, the System’s current financial advisers.
Contact Retirement Services with questions
The TVA Retirement System is very important to all employees and retirees. While any change in benefits is difficult, both TVA and the TVARS Board are committed to stabilizing the financial soundness of the system for the future benefit of members and beneficiaries.
Employees who have questions about these changes can contact Retirement Services by e-mail at firstname.lastname@example.org or by phone at 865-632-2672, 1-800-824-3870 or the TTY line at 865-632-7576.