Cost-of-living increases and matching contributions for some supplemental retirement benefits may be capped this fall for Tennessee Valley Authority employees and retirees as part of a plan to help shore up TVA's underfunded TVA Retirement Plan.
The TVA Retirement System (TVARS) board voted during a specially called meeting this week to adopt changes proposed by TVA management for the pension plan that covers more than 33,000 TVA workers, retirees and family members. By a 4-3 vote, the TVARS board agreed to amend the retirement and 401(k) plan provisions in exchange for an agreement by TVA to pump at least $300 million a year into the retirement plan.
By limiting future inflation-adjusted increases and supplemental benefit payments, by moving new employees after July 2014 to a 401(lk) matching plan rather than in the pension plan and by increasing TVA annual contributions to $300 million a year, TVA projects it can restore its defined benefit retirement plan to fiscal health over the next two decades.
At the start of the current fiscal year, TVA's retirement system was $6 billion short of what actuaries determined it needed to meet all of its current and future funding obligations. The $6.8 billion in the pension plan was only 53 percent of the $12.8 billion actuaries determined was needed.
TVA is proposing to cut 0.25 percent off of the previous cost-of-living increase in future pension benefits and to cap any overall inflation adjustment to no more than 6 percent a year. The proposed changes, unless vetoed by the TVA board, are expected to become effective at the start of the next federal fiscal year.
TVA agreed last month to sweeten its original offer to the TVARS board by increasing its guaranteed annual contribution from $275 million to $300 million and making other requested changes proposed by the retirement system board.
TVA President Bill Johnson said the pension changes won't reduce any current benefits but simply reduce the rate of growth for future retirement benefits. Such changes will cut TVA's future funding obligation by $700 million.
Even with the proposed changes, Johnson said TVA benefits will still compare favorably with most of its peers in the utility industry.
"What we're trying to do here is to preserve TVA, keep our competitive rates and make sure we have overall competitive wage packages and this seems like a good opportunity to meet all these goals," Johnson said last month when he presented TVA's latest pension reform plan to the Retirement System board.
But employees and retirees opposed to any cuts in TVA's pension plan continue to question why TVA is having to trim benefits after the plan was overfunded a decade ago and TVA briefly suspended making any contributions to the retirement system. Opponents of the pension cuts organized the Tennessee Valley Authority Retirees Coalition that is working with the National Legislative Retiree Network to urge Congress to intervene and put TVA under federal pension requirements for defined benefit plans.
Some TVA employees also continue to pursue a lawsuit against the TVA Retirement System for previous changes adopted in 2009 to cut TVA's funding liability for the pension plan.
Throughout the 1970s and 1980s, TVA contributed from 10 to 11.5 percent of its payroll into the retirement system, matched with participant contributions of 4 to 6 percent. In 1991, TVA cuts its contribution to only 6.7 percent of payroll and even eliminated any contribution in 1997 when the plan was deemed to be overfunded.
"Had TVA continued the previous higher level of contributions, investment gains would have been even greater and the pension would have been much better able to survive future market declines," the TVA Retirees Coalition said in a report prepared about the funding status of the pension plan.
TVA is not subject to federal regulations for private pension plans and its benefits are therefore not guaranteed by the Pension Benefit Guarantee Corp., like similar defined benefit plans by investor-owned utilities.
In a notice to employees and retirees Tuesday, TVARS said the amendments proposed by TVA management and approved by the retirement system board have yet to be written and included in the retirement plan.
"Once the amendments have been finalized, TVARS will formally present them to TVA and post them to participants on the TVARS website (www.TVARS.com)," the employee notice said. "If TVA does not veto the amendments within 30 days of receipt, the amendments automatically go into effect. The effective date of the changes is Oct. 1, 2016."
TVA spokesman Jim Hopson said TVA and the retirement system board have made a number of counter offers to reach an agreement that officials hope will maintain most benefits while helping to bring the pension back to financial strength.
"We mutually tried to come to a compromise that is in the best interests of everyone involved - not only current TVA employees, but also our retirees and our ratepayers," TVA spokesman Jim Hopson said. "We believe that the compromise that was proposed and is now adopted by the TVA Retirement System board is fair to all of those stakeholders."
Contact Dave Flessner at dflessner@timesfreepress.com or 423-757-6340.