With a $6 billion shortfall in its pension plan at the end of fiscal 2016, the Tennessee Valley Authority has only a 50-50 chance of fully funding its retirement system over the next two decades, even after TVA agreed two years ago to boost contributions and trim future benefits, according to a new study.
In a report to Congress this week, the Government Accountability Office said TVA needs to do more to better communicate its debt reduction plans and address billions of unfunded pension obligations.
"While TVA's debt has remained relatively flat, its unfunded pension liabilities have steadily increased over the past 10 years," said Frank Rusco, director of the GAO's Natural Resources and Environment division. "No mechanism is in place to ensure (TVA) fully funds the pension liabilities if, for example, plan assets do not achieve expected returns."
As of Sept. 30, 2016, TVA's pension fund was $6 billion short of what actuaries estimate it needs to fully fund future benefits to its participants. The $7.1 billion in the retirement system is only 54 percent of the $13.1 billion that actuaries estimate is needed to pay all of the future fund obligations.
TVA has moved over the past three years to boost its annual pension contributions, cap some retiree benefit increases and shift new employees from the pension program to a new 401(k) matching plan for retirement benefits. TVA President Bill Johnson told employees in 2015 the 20-year plan "would put us on a path to create a stronger, better-funded system" to ensure future benefits for TVA's 24,000 retirees and future benefits for another 10,000 existing employees.
GAO said the TVA plan does not guarantee it will be adequately funded for the long-term, however.
As a government pension program, TVA's retirement program is not subject to the Employee Retirement Income Security Act (ERISA), which sets minimum standards for pension plans in the private sector. TVA retirement benefits also are not guaranteed by the Pension Benefit Guarantee Corp., like other defined benefit plans offered by private employers.
"Without a mechanism that ensures TVA's contributions will adequately adjust for actual plan experience, unfunded liabilities could remain and future ratepayers may have to fund the pension plan even further to pay for services provided to prior generations of ratepayers," the GAO concluded in its report on TVA debt and unfunded pension obligations.
TVA's total debt in bonds, notes and financing obligations totaled $26 billion at the end of fiscal 2016, or only $4 billion below the utility's $30 billion Congressionally imposed debt ceiling. But TVA is on a path to cut its debt to about $22 billion by 2023.
But TVA has yet to make similar progress on its pension fund, although it did end last year at a slightly higher funding ratio than the previous two years.
Congress increased TVA's debt ceiling four times from 1966 to 1979, raising the limit from $750 million to $30 billion. TVA's debt rose steadily until five years ago, but Congress has shown no inclination to again raise TVA's debt ceiling.
The GAO stopped short of recommending that TVA put more funds in the pension plan or make other specific pension system changes. But the government auditors said TVA "has not reported required performance information" required under federal accounting rules.
But TVA insists it has adequately disclosed the financial status of its finances, including its pension fund. Former TVA Director Pete Mahurin, who left the TVA board at the end of 2016 and previously served as chairman of its finance committee, said the pension shortfall was a major concern to him when he first joined the TVA board but changes made by TVA are addressing the long-range problem.
TVA spokesman Jim Hopson on Friday voiced similar confidence in the steps TVA is taking to shore up the underfunded retirement system.
"We have a solid, long-range financial plan and are on track to meet the fiscal 2023 commitments and targets we have communicated through publicly available presentations, Securities and Exchange Commission filings and financial statements," Hopson said in a statement. "TVA remains committed to taking the prudent fiscal actions necessary to ensure the continuation of our mission of service to the people of the Tennessee Valley."
TVA's pension plan is operated by the TVA Retirement System (TVARS), which is governed by a seven-member board.
"I look forward to working with TVA to improve the funding for TVARS," said Leonard Muzyn, one of the elected members of the TVARS board who has repeatedly urged TVA to boost its contributions to the retirement plan.
Contact Dave Flessner at dflessner@timesfreepress.com or at 423-757-6340.