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.
BY THE NUMBERS
* $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.