Pension pain: TVA retirement plan $4.8 billion underfunded

Pension pain: TVA retirement plan $4.8 billion underfunded

November 18th, 2014 by Dave Flessner in Business Around the Region

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TVA pension fund

• Assets: $7.2 billion, up $300 million from the previous year because of investment earnings and payments into the fund

• Obligations: $12.3 billion, up $700 million from the previous year because lower interest rates reduced the present day value of current holdings

• Funding level: 61 percent of what is needed, down from 63 percent the previous year

• Unfunded liability: $4.8 billion, up from $4.2 billion the previous year

• Discount rate: 4.45 percent, down from 5 percent the previous year, yielding a $700 million drop in the estimated value of the fund

• 2014 contributions: $256 million

• 2014 payments to beneficiaries: $653 million

Source: Tennessee Valley Authority

TVA boosted its net income and employee pay while paying down its debt in fiscal 2014.

But for all its financial success, the federal utility failed to close a $4.8 billion shortfall in the pension program for nearly 36,000 current and retired TVA employees and their families. In fact, under an updated calculation made in 2014 to reflect the lower interest rate environment, TVA's underfunded pension plan appears to have gotten even worse in the past year.

"Most companies are increasing their pension funding levels, and it is very disturbing that TVA is going in the other direction," said Dan Pitts, a TVA retiree who works as an independent financial services broker in Knoxville. "With the improvements we saw in the investment markets this year, you would have expected to see better improvement, even if you change the discount rate assumption for future earnings. TVA simply needs to put more money into the fund."

Pitts compared the employee pension funds of seven major electric utilities last year in a study for the trade publication Pension and Investments. TVA had the worst funded pension among those utilities.

TVA insists it has adequate reserves to pay out all of the promised benefits. But in its annual financial report released Monday, TVA disclosed that its retirement plan had only 61 percent of the amount actuaries estimate it needs to fully fund future obligations. A year ago, the plan was 63 percent funded. Two years ago, the fund was only 59 percent funded.

TVA Chief Financial Officer John Thomas blamed the apparent worsening shortfall in 2014 on a change in financial assumptions used to calculate the value of the plan assets. Earlier this year, TVA lowered the discount rate, which reflects the expected long-term investment earnings of plan assets, from 5 percent to 4.45 percent to reflect the drop in interest rate and investment yields in recent years.

"We have a long-term funding plan that is in place," Thomas said. "We'll make long-term ongoing contributions to the plan and expect to have good overall investment returns. We expect that this will achieve a more fully funded status, but this will be over the long term and it will take a while to get there."

TVA contributed $256 million to its pension plan in 2014 and is planning to contribute about $275 million more in fiscal 2015.

"We actually improved the overall condition of the pension fund," Thomas said.

TVA paid out $653 million in benefits to retirees last year. TVA says investment returns more than made up for the difference between what TVA contributed and what it paid to beneficiaries.

But Pitts said TVA won't adequately replenish its pension fund until more funds are put in the plan by TVA.

"You can't put in less than you take out year after year and expect the fund to regain its fully funded status," he said.

Unlike private pension plans, the TVA retirement program is not backed by the U.S. Pension Benefit Guaranty Corp., Pitts said.

Contact Dave Flessner at or 757-6340.