Fiscal health of TVA pension fund improves

Nov. 15--The fiscal health of one of the South's biggest retirement plans improved in the past year with more market gains and increased employer contributions.

But the Tennessee Valley Authority's pension fund is still $4.6 billion short of what actuaries estimate the retirement plan should have to fully fund all of its future obligations.

In its year-end financial report released Wednesday, TVA said its retirement plan is now more than 63 percent funded, up from less than the 55 percent funding level a year ago, and the highest level of funding for the plan since 2010.

TVA's pension fund provides retirement benefits to more than 24,000 TVA retirees and their family members and covers nearly 10,000 current TVA employees. The fund currently has nearly $8 billion in assets, but actuaries calculate the fund should have $12.6 billion to fully meet all of its future funding obligations.

"Strong financial performance in 2017 allowed TVA to contribute $800 million into the TVA retirement system -- $500 million more than what was planned," TVA President Bill Johnson said. "That additional funding has put us on a more confident path and will help ensure a secure retirement for our current employees and for TVA's strongest advocates -- our 24,000 retirees."

TVA Chief Financial Officer John Thomas said the utility has set a goal of reducing its overall debt to $21.8 billion by 2023 (down from $26 billion) and to fully fund the employee pension fund in 15 more years through annual contributions of at least $300 million. TVA expects to trim its annual capital spending by at least $1 billion a year over the next several years, freeing up more funds to pay down its debt and other long-term financial obligations.

Already, the actuarial confidence of fully paying out all of the promised retirement benefits to TVA employees and retirees has improved from about 50 percent to 63 percent at the end of September "and is about 70 percent today," Thomas said Wednesday.

The time to fully fund the pension plan under TVA's current scenario has been cut from 20 years to 15 years with the extra contributions and earnings in the past year, Johnson said.

"It's a little early to tell [if extra funds will be pumped into the pension plan this year], but I think the extra $500 million that we contributed [in 2017] made a significant improvement," he said. "If there were opportunities with strong financial performance, we would certainly assess that and talk with the board."

TVA froze its retirement plan to new participants two years ago, moving new and existing employees to matching 401(k) and other contribution plans which will also help to limit future liabilities for the TVA pension.

TVA directors balked at putting extra funds into the pension at the end of fiscal 2016, but the board agreed this summer to take an extra $500 million from its 2017 net income to supplement its $300 million annual contribution. TVA made the extra payment this year after the Government Accountability Office raised concerns about the underfunding of the TVA pension plan.

"The pension plan is still significantly underfunded, but I am encouraged that TVA seemed to heed the advice of the GAO to improve its funding status," said Dan Pitts, a TVA retiree who has analyzed the funding shortfall and published articles in Pensions & Investments magazine.

Pitts and other retirees remain concerned about the TVA pension because the government plan does not enjoy the insurance backing of the Pension Benefit Guarantee Corp., afforded to similar private pension plans.

Contact Dave Flessner at [email protected] or at 423-757-6340.

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This story was updated Nov. 15 at 11:59 p.m. with more information.

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