published Friday, December 3rd, 2010

TVA fund for retirees grows

The Tennessee Valley Authority pumped a record $1 billion into its employee pension fund last year and has enjoyed its best investment earnings in more than three years.

But the plan is still $3.6 billion short of what is needed to fund its future obligations fully, according to a new financial report.

Employees and retirees, upset by benefit cuts adopted to shore up the fund, are suing TVA for what they claim is a broken commitment by the federal utility.

Now, nearly 23,000 retirees receive benefits of about $600 million per year, according to the utility.

In a year-end regulatory filing, TVA reported that its employee pension fund had only $6.8 billion of the $10.4 billion needed for full funding.

The utility said it earned $700 million on investments in fiscal 2010, beating the S&P average return of 10.2 percent in the 12-month period by earning 11 percent on its holdings.

"We invested a billion dollars in our pension fund a little over a year ago in anticipation and hope that we would have some market recovery, and we've certainly seen that," Chief Financial Officer John Thomas said in a recent briefing with reporters. "It was a good year for investments."

But it wasn't enough to offset more than $3 billion in investment losses from 2007 to 2009.

TVA is still paying all benefits to its retirees and doesn't anticipate any problem meeting its obligations in the near term, spokesman Scott Brooks said.

But with earnings below historic averages in recent years, TVA reduced its expected long-term return from 5.75 percent to 5 percent. That means it must put more money aside to pay for future benefits.


* $6.8 billion: Value of TVA's retirement system fund as of Sept. 30

* 11: Average percent return on TVA retirement fund investments, boosting fund assets by $700 million during fiscal 2010

* $3.6 billion: System shortfall as of Sept. 30

* $1 billion: Money added in fiscal 2009 to shore up the fund

* $585 million: Benefits paid in fiscal 2010

* 34,000: Number of TVA employees and retirees covered

Source: Tennessee Valley Authority

Along with the $1 billion contribution, TVA directors voted in 2009 to cap cost-of-living increases in the next three years and cut the way the value of some funds is calculated for employee payouts. They voted not to make any more contributions for three years.

Upset by the cut in benefits and lack of ongoing contributions, retirees sued TVA in March. Although the initial lawsuit against the Retirement System trustees was rejected, another class- action suit was filed in September.

"I strongly believe the benefit cuts are illegal," said Dennis P. To, a 33-year employee who retired last year and now is president of a group known as Save Our Retirement.

"What TVA did goes against the fundamental principle of retirement vesting, and no other company could get away with what TVA has done," To said.

He and others complain that TVA suspended pension contributions from 2001 to 2003 when the fund had more than enough money, while expanding contributions to the Senior Executives Retirement Plan for the agency's top managers.

"It is totally disgusting and reprehensible that there is a system in place at TVA whereby the TVA executive managers get financially rewarded for taking money out of widows' pensions," Save Our Retirement organizer Jim Hovious wrote in a recent IBEW 365 publication.

Save Our Retirement collected contributions from about 550 TVA employees and retirees to help pay for the suit.

Filed by Nashville attorney Joe Leniski, the lawsuit claims the utility violated its contracts, IRS rules and fiduciary duties by trimming cost-of-living adjustments in its retirement plan.

TVA officials insist that the plan never guaranteed any cost-of-living increases and that in today's low inflationary market, none would have been provided to retirees this year anyway.

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mrredskin said...

Why is there a picture of the Hoover Dam with "TVA" underneath it?

December 3, 2010 at 8:06 a.m.
TwinkleTN said...

I know a few TVA employees and all of them are ardent Tea Party members. Aren't they for smaller government? I guess it doesn't matter when it is their benefits that are on the line. Everybody else has lost similar retirement programs. TVA Tea Party members just want to raise my electric bill to support them. Put your retirements where your mouths are.

December 3, 2010 at 1:05 p.m.
chatchootn said...

Twinkle: the TVA retirement system has absolutely nothing to do with smaller government or the Tea Party.

The TVA retirement benefit package is a legally binding contract between TVA and its employees and retirees. TVA has no more legal right to unilaterally change its retirement contract than it has to unilaterally change the terms of its long-term coal and nuclear fuel contracts. Just as you cannot unilaterally decide to stop paying your mortgage or car payment simply because you'd prefer to spend that money on yourself.

Perhaps a better question regarding TVA electric rates is not the cost of the TVA retirement system, but an out-of-control executive compensation "system" where the CEO can more than triple his own compensation in 5 years, from $1M to $3M+, while having the most expensive ($1.2B) environmental incident in TVA history.

December 3, 2010 at 2:20 p.m.
mrredskin said...

Twinkle: I know a few TVA employees, and they get as annoyed as I do when internet trolls come onto message boards and make generalizations.

chatchoo: TVA has a board of directors... federally appointed, if you weren't aware. The CEO doesn't set his own salary. For what it's worth, compare his salary to his private sector counterparts at Duke, Southern, etc...

December 3, 2010 at 4:33 p.m.
chatchootn said...

mrredskin: If you had ever worked with the current TVA executives, you would know that the CEO does set his compensation. The part-time TVA Board is simply a rubber-stamp.

December 3, 2010 at 5:46 p.m.

I’ll bet that billion dollar contribution to TVA’s retirement fund came from the billion dollars worth of 50-year non-guaranteed bonds TVA just sold. One of the best kick the can down the road federal operations around, TVA continues to jiggle the books to make things look better than they are.

They’re masters of this deceit and when TVA CEO Tom Kilgore whines about the possibility of a “surcharge” for electricity transmission on TVA’s grid, he evasively states that TVA is not a drain on the budget and that they already charge for other’s use of TVA’s wires. Whoa!

Number one, where does the extra income go for use of TVA’s wires? The answer to that one is very revealing. In a note to a TVA response to questions about the Green Power Switch money, TVA said, ““Cash from sales of electricity go to TVA’s account with the U.S. Treasury.”

As to the “drain” on the federal budget, it’s the ratepayers who Kilgore needs to worry about because TVA continues to “drain” their pocketbooks while they have no say about it. Can’t blame Kilgore for standing up for his $3.6 million salary though, I’d do the same.

In other words, the payment for electricity by ratepayers actually goes first to the U.S. Treasury. If that is not a federal tax, I don’t know what one is. With that logic, it would be possible for Treasury simply to divert cash to where it is most needed and let the TVA bleed. Did I hear someone say TARP again? (Urp)

Ernest Norsworthy .

December 3, 2010 at 7:53 p.m.
chatchootn said...

Accepted mrredskin’s suggestion to compare TVA executive compensation with The Southern Company and Duke Energy.

Below is latest 10-K info from each company. TVA has less full-time employees, less total revenue, and less net income.

The one thing TVA’s executives are leading their peer group in: $1.2B environmental disasters that their ratepayers are paying for.

The Tennessee Valley Authority Key Executives Salary, Bonus, etc. for 2010: (source: Tennessee Valley Authority 2010 10-K) - President and CEO: $3.6M - Group President of Strategy and External Relations: $2.33M - Chief Operating Officer: $2.39M - Chief Nuclear Officer: $1.85M - Chief Financial Officer: $1.54M - Senior VP, Nuclear Operation: $1.42M Full Time Employees: 12,457 Total Revenue: $10.713B Net Income: $972M

The Southern Company (SO) Key Executives Salary, Bonus, etc. for 2009: (source: The Southern Company 2009 10-K) - Pres, Chief Exec. Officer, & Director: $1.49M - VP and Chief Financial Officer: $762K - VP: $659K - VP: $451K - VP: $495K Full Time Employees: 26,112 Total Revenue: $15.642B Net Income: $1.900B

Duke Energy Key Executives Salary, Bonus, etc. for 2009 (source: Duke Energy 2009 10-K): - President and CEO: $6.93M - Group Exec. and Chief Financial Officer: $3.14M
- Group Exec., Pres of US Franchised Electric & Gas and Chief Operating Officer of US Franchised Electric & Gas: $4.35M - Group Exec. and Chief Legal Officer,: $3.57M - Group Exec and Pres of Commercial $2.35M Full Time Employees: 18,680 Total Revenue: $12.731B Net Income: $1.085B

December 3, 2010 at 7:56 p.m.
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