TVA boosts pension funding

When TVA pumped $1 billion into its pension plan two years ago, utility officials said the record contribution and accompanying cutbacks in retiree cost-of-living increases should shore up the retirement plan through 2013.

But only two years later, the Tennessee Valley Authority is preparing to pour another $270 million into the plan this month and up to $300 million more next year after the market failed to do as well as projected, TVA Chief Financial Officer John M. Thomas said.

The additional money TVA is putting in its pension plan next year is one of the key drivers in the $234 million rate increase TVA directors approved in August that will raise utility bills by 2 percent in the fiscal year that begins Oct. 1.

Even with the extra funds in the plan, TVA's actuaries calculate the plan still is not adequately funded for the long term because of a drop in the long-range earnings projections on its investments.

"I think when the billion dollars was put in the plan in 2009 there was an anticipation that we would have rather robust earnings conditions [coming off a plunge in the market in 2008] and the first year we earned more than 11 percent," Thomas said. "But we haven't had the amount of earnings we would have expected in 2011, and that's why it's prudent to put this extra money in the plan."

In its latest quarterly financial report, TVA said the stock market downturn this summer had cut the value of the retirement system holdings by $477 million, or 7 percent, from June 30 until the report was issued Aug. 7.

But in a report to the TVA Retirees Association this summer, TVA President Tom Kilgore said the utility is working "to ensure that the system remains financially strong" even though the plan is underfunded.

"There should be no concern or question about TVA's commitment to retirees or our determination to see the system restored to a strong financial footing," Kilgore said in a newsletter to retirees.

Reversal of Fortune

TVA's retirement system, one of the nation's largest, was overfunded by about $2 billion as recently as 1997. TVA cut contributions in half during the 1990s and quit making any contributions for six years when investment income kept the fund with more money than what actuaries calculated was needed for the future.

But after the stock market began to fall in 2007, the once-rich pension plan shrunk by $3 billion below what actuaries said it needed to meet future obligations. TVA Inspector General Richard Moore said in 2010 that TVA didn't contribute enough to avoid "the perfect storm" created by a plunge in the market and the size of TVA's workforce, combined with retirees' longer lives.

Thomas said TVA is being more conservative in projections today and he stressed that the fund has adequate holdings to continue to pay benefits to the nearly 23,000 TVA retirees in the plan as well as future obligations for TVA's 12,000 employees counting on the fund for eventual retirement benefits.

TVA recently reduced its earnings projections for the plan from 7 percent annual return to 5 percent yearly return, which widened the funding shortfall for the plan by an estimated $2.2 billion but better reflects the market outlook, Thomas said.

"Because of the concerns that I have about the volatility in the markets today -- and we've certainly seen that over the past month -- I thought it was prudent that we put in $270 million in fiscal 2011, which we will do in September, and allocate up to $300 million for another contribution in 2012," he said.

Suing to regain COLAs

Despite the extra employer contribution, TVA is still facing a lawsuit over its decision in 2009 to limit the cost-of-living increases granted by the retirement plan through 2013.

Jim Hovious, an organizer for a group of TVA employees and retirees known as Save Our Retirement, said the change in TVA's retirement plan to suspend any cost-of-living increase in 2010 and 2012 and cap such increases in 2009, 2011 and 2013 violated TVA's pact with its employees.

"They are trying to undo the past 45 years of history and establish the precedent that COLAs (cost of living adjustments) are not vested benefits, even though COLAs based on the Consumer Price Index have been paid to TVA retirees since the Lyndon Johnson administration," he said.

But so far, the 2009 cap on the cost-of-living adjustments hasn't hurt retirees since inflation has been so low. In a report to the TVA board last month, Thomas noted that the actual consumer price index has minus 0.63 percent in 2010 so the freeze on benefits didn't limit what retirees would have otherwise received.

But in 2012, TVA won't provide any cost-of-living increase in benefits, which could reduce what retiree would otherwise receive.

On March, 2010, eight current and former participants in TVA's retirement system filed a lawsuit in U.S. District Court in Nashville claiming the changes TVA adopted in the pension plan violated the workers' statutory and constitutional rights. Final motions and depositions are scheduled in 2012, according to TVA.

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