TVA shores up retirement fund, pledges full plan funding by 2036

Staff photo by Olivia Ross / TVAs board of directors listens to speakers during a public listening session last week at the Chattanooga Convention Center. The TVA board was recently briefed on the status of the TVA Retirement System, which is still judged to be underfunded but in a stronger position than in the past.

TVA's retirement fund, which was judged four years ago to have a funding shortfall of more than $5.3 billion, has boosted its financial standing and should pay all retirees their promised benefits, Tennessee Valley Authority officials say.

In a presentation to the TVA board last week, Chief Financial Officer John Thomas said the financial status of TVA's pension fund has improved as the utility switched new hires to another retirement plan while continuing to contribute to the defined benefit plan to shore up its financial standing.

"Our plan is that by 2036 it will be 100% funded," Thomas told the board.

TVA Chair Bill Kilbride said there are adequate reserves to pay all existing retirees and the accounting shortfall is based on deficiencies in meeting financial commitments to retirees in the future.

TVA has committed to provide at least $300 million a year for the pension program until it is fully funded. In 2017, TVA contributed $500 million to help strengthen the pension fund.

With new employees of TVA now covered by a separate 401(k) retirement saving program and no new workers joining TVA's retirement system, the fiscal health of the pension fund should improve and be fully funded in the next decade, Kilbride said.

"That's our practice, that's our intent and that's our commitment," Kilbride said during the TVA quarterly board meeting last week in Chattanooga.

Thomas said TVA's assessment of its retirement fund is that it is now about 81% funded. Four years ago, TVA calculations showed the employee retirement fund had 60% of the funds required to meet all future obligations, which was $5.3 billion less than what was projected to be needed at that time.

  photo  Staff Photo by Dave Flessner / TVA Chief Financial Officer John Thomas discusses the utility's finances during a board meeting in Chattanooga on Thursday.

As fewer people are covered by the plan and interest rate increases have boosted the expected financial return on pension assets, the financial condition of the retirement plan has improved, officials said.

The TVA Retirement System, which is a separate legal entity from TVA and is governed by its own seven-member board of directors, calculates the financial condition of the pension program differently based on an alternative approach to investment earnings. But the TVA Retirement System also projects there should be sufficient funds to pay all promised benefits for the more than 23,000 TVA retirees and their beneficiaries who rely on the pension benefits for their monthly income.

In fiscal 2022, the retirement system paid $736 million to retirees and beneficiaries. Mark Meigs, executive secretary for the TVA Retirement System, said the pension fund expects investment earnings of about 6.5% this year. The cost of living adjustment for TVA retirees provided a 6% increase in benefits, Meigs said.

"We're making great progress toward being fully funded, and we're excited about the future of TVA's retirement system," Meigs said in a telephone interview Monday.

Meigs said the TVA Retirement System ended last year with nearly $8.3 billion in assets and nearly $10 billion in projected liabilities, but he said the health of the pension fund should improve in the next few years. Four hundred employees at TVA are still fully in the defined benefit retirement plan, which TVA ended for employees hired after July 1, 2014.

The 401(k) savings program, which most existing TVA employees are covered by, has grown its total savings to about $3.2 billion, Meigs said.

In the 401(k) savings plan, individual employees or retirees make choices about where to invest their retirement savings, but there is no guaranteed monthly benefit check as there is in a traditional pension plan.

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

  photo  Staff Photo by Robin Rudd / The Tennessee Valley Authority offices, located at Market and West 11th streets, is seen before dawn on March 5.