TVA and TVARS Proposals Don’t Meaningfully Improve Pension Funding
May 6, 2016
Dear Member of Congress:
This is in reference to recent proposals and discussions related to the funded status of the TVA employees’ defined benefit pension plan (the plan). We appreciate your interest and support for TVA pension plan participants and a prosperous TVA.
There is widespread concern among retirees and employees that none of the proposals offered by TVA and TVARS results in a meaningful improvement in the pension’s funded status (currently 53%) level for 10-15 years. Delaying proper funding of the plan will leave their plan pensions vulnerable to the equity markets and TVA’s operational risks.
While extreme market volatility is a major concern, equally worrisome are catastrophic events that could impede TVA’s ability to fund the plan. Examples from recent years include the Kingston ash spill ($1.2 billion) , Watts Bar Nuclear Plant cost overruns ($2.2 billion) , and trading losses on TVA’s natural gas hedging program ($1.1 billion) . A nuclear incident could force a shutdown and/or costly modifications of TVA’s generating facilities, resulting in a serious disruption of operations and the ability to fund this plan.
An added concern is that TVA’s management, as part of its recent proposal to TVARS is insisting that plan assets be used to pay lump sum benefits. If the TVA retirement plan was covered by ERISA, along with requiring more adequate ongoing plan funding than is being proposed by TVA, ERISA rules would prohibit a lump sum offer, draining plan assets, when a plan is funded below 80% (see 53% below). This has been recently reinforced by a Treasury ruling prohibiting lump sum offers to those in pay status. This is more evidence that a Federal agency with a profile of over $11 billion in wholesale sales has no business being insulated from the real world by Congress. This TVA single-payer defined benefit pension plan should be ERISA protected.
Reaching a stronger funded-level sooner would not only benefit the plan and its participants, but TVA and its ratepayers would benefit as well. The TVA Board should view a more rapid funding of the plan as a cushion that would soften the blow when the next stock market or operational catastrophic event occurs and that would provide a much needed layer of protection to ratepayers and plan participants.
In recent years, many corporations have used borrowed funds to make substantial contributions to their pensions. A Reuter’s news article from April 2012 stated:
“…Faced with ballooning deficits in their pension funds, US companies are increasingly turning to the bond market to help plug the gap, taking advantage of super-low borrowing costs…” The article goes on to state that several large corporations have used longer-dated bond maturities of up to 30 years in order to capitalize on the value of all-time low rates.
TVA’s financial standing has significantly improved and its capital expenditures are expected to decline by over $2.0 billion over the next three years. TVA should use some of this cash to make a large single payment to the plan to make up a portion of the 47% plan shortfall.
We recognize that TVA is subject to a statutory debt limit imposed by Congress and that its business plan has guidelines that limit the use of long term debt. However, due to extremely low rates available on long term debt, we believe it would be imprudent for TVA to dismiss the use of long term debt as part of its strategy to solve the pension funding challenge. Congress has the ability to sanction this action.
Funding the plan faster with a significant contribution may not cost TVA and its ratepayers any extra money. In fact, according to TVA’s 2015 SEC 10-K, it appears an up-front contribution could improve TVA’s cash flows and reduce the rates TVA charges its customers.
In today’s bond markets, TVA may be able to borrow funds at a rate of 3.5% to 4% (maybe less) and repay the debt over 20, 30, or even 50 years. According to TVA’s 2015 SEC 10-K (page 71), TVA management states the expected rate of return on pension assets will be 7.0%. It appears the combination of these factors presents an extraordinary opportunity for TVA, its ratepayers, and its plan participants.
If TVA used just half of its $2.0 billion capital savings or made a $1.0 billion contribution to the plan from the $3-$4 billion available from its ability to borrow under the federal debt limit, the plan funded status would immediately jump from 53% to 66% - a much needed improvement.
Assuming TVA borrowed $1.0 billion at 3.5% for 30 years, the annual required payment on the loan would be about $ 54 million. Since TVA believes the rate of return on plan assets will be 7%, the return on the $1.0 billion would be about $70 million per year, or $16 million more than the required payment. This $16 million a year plus earnings, based on the expected rate of return of 7%, would add another $1.5 billion into the plan over 30 years. Any amount borrowed at a 3.5 % rate for 30 years would increase earnings, would have a positive effect on utility rates and would help secure pension benefits.
Implementing the above actions, in addition to TVA’s current proposal on the table (less a lump sum offer) would immediately improve the funded status of the pension plan and TVA’s cash flow, decrease TVA’s pension costs, decrease TVA’s revenue requirements, and result in a decrease in the rates TVA must charge its customers. This is an opportunity for Members of Congress to support a “win-win-win” solution.
We respectfully request that your office encourage the TVA Board, not with-standing a TVA-TVARS short term patch agreement, to take immediate action to implement one or both of these remedies and to invoke ERISA rules into TVARS rules to create a win-win-win for all parties.
Mike Moseley, President Bill Kadereit, President
Tennessee Valley Authority Retiree Coalition National Retiree Legislative Network
Email: firstname.lastname@example.org Email: email@example.com
TVARC Board and Members
TVARA Presidents and Members
Members of Congress in the Seven-State TVA Operating Areas
Members of Congressional Oversight Committees
Members of the TVA Caucus
NRLN'S KADEREIT WRITES TO SPEAKER RYAN
July 26, 2016
The Honorable Paul Ryan, Speaker
Office of the Speaker
U.S. House of Representatives
H-232 The Capitol
Washington, DC 20515
Dear Mr. Speaker:
On behalf of the more than 2 million retirees whose interests are represented by the National Retiree Legislative Network (NRLN), I am writing to you to express our extreme disappointment with the position you have taken as the leader of the U.S. House of Representatives on three Medicare issues. (1) We are disappointed that you have not supported legislation to allow Medicare to negotiate lower prescription drug prices. (2) You have not convinced the Republicans on the House Energy and Commerce committee to pass H.R. 2228, the Safe and Affordable Drugs from Canada Act of 2015. (3) You have supported the House Republicans’ health care reform plan proposal to gradually transform Medicare to a system of premium support or subsidies that in reality support insurance company costs and profits.
You and most of your colleagues are ignoring the desire of the vast majority of Americans who believe that Medicare should be allowed to negotiate lower prices for prescription drugs. A poll conducted in July 2015 showed that allowing Medicare to negotiate lower drug prices is supported by 87 percent of Americans. The poll of 1,800 Americans was conducted by the respected Kaiser Family Foundation, a nonprofit, nonpartisan organization focused on health care.
Your successor as Chairman of the House Ways and Means Committee, Kevin Brady, is a particular disappointment to NRLN members due to his unyielding opposition to allowing Medicare to negotiate for lower prescription drug prices. Retirees wonder whether Chairman Brady and other Representatives in leadership positions have had their judgement clouded on prescription drug price gouging due to the huge contributions received in 2016 campaign and PAC leadership contributions from the Pharmaceuticals/Health Products industry. We are aware of the 2004-2007 period letters from the CBO to a select few in Congress. Chairmen Brady has
referred to the letters as though they are new news, but the messages are without data, are
pre the generic product competition beginning and in fact the entire dialogue is very
You and Chairman Brady are also out of sync with Donald Trump, your party’s nominee for
President. The Associated Press quoted Trump in January telling a crowd in Farmington,
N.H., that Medicare, a huge buyer of prescription drugs, could "save $300 billion" a year if it
negotiated discounts. "We don't do it," Trump said. "Why? Because of the drug companies."
We are confident that the savings is more than 10% of U.S. sales.
According to latest available figures, prescription drugs accounted for $97 billion in
Medicare spending in 2014, an increase of 16.9 percent primarily because of the use of
expensive new specialty drugs. In its June 2016 report to Congress, the Medicare Payment
Advisory Commission (MedPAC), a Congressional agency charged with making regular
recommendations on Medicare, warned that rising drug costs and other factors have helped
drive Medicare Part D spending up nearly 60 percent from 2007 to 2014.
Americans—with 10,000 more people turning age 65 every day in the U.S—are outraged that
they are losing access to lifesaving and life-enhancing treatments because they have
become more and more unaffordable. More than 75% of Americans now say their top health concern is the rising price of prescription drugs, according to the Kaiser Family
The callous and unnecessary price gouging prevalent in the pharmaceutical industry is
placing Americans – especially retirees – in grave danger due to unaffordability of
prescription drugs. As the country’s main payer for prescription drugs, by not negotiating for a
lower price Medicare is de facto setting the high price of prescription drugs. You, Chairman
Brady, and your colleagues need to stop putting a false spin on the competitive bidding.
Competitive bidding is not price setting if two or more prescription drug products can treat the
same health care problem. Medicare is essentially forfeiting its buying power and ability to
save billions for its beneficiaries and taxpayers. On this score, candidate Trump and every
American businessman (except for drugmakers) would have to agree.
You should use your House leadership position to gain passage of H.R. 3061, the Medicare
Prescription Drug Price Negotiation Act that the Republican Chairmen have bottled up in
the House Committees on Energy and Commerce and Ways and Means since July 2015.
In an article published in July 2015 in the journal Mayo Clinic Proceedings, more than 100 prominent oncologists called for support of a grassroots movement to stem the rapid
increases in the prices of cancer drugs, including by letting Medicare negotiate prices with pharmaceutical companies and letting patients import less expensive medicines from
The Wall Street Journal in a December 1, 2015 article reported that drug prices in the U.S.
are shrouded in mystery, obscured by confidential rebates, multiple middlemen and the strict
guarding of trade secrets. But for certain drugs—those paid for by Medicare Part B—prices
are public. By stacking these against pricing in three foreign health systems, as discovered in
nonpublic and public data, The Wall Street Journal was able to pinpoint international drugcost
differences in France, England and Canada’s Ontario province. Here are a dozen
examples from the study to show how much less the drug price is in Canada compared to the
USA. (The package size/dose are the same.)
The need for importation arises in large part because U.S. drug companies sell into
Canadian, European and other foreign markets where arbitrarily low pricing is set (price
setting) by socialized health care systems. American drugmakers should either eat all their
losses or not sell at a loss in these markets and then cross-subsidize by overpricing in
America. If they can’t compete then they should exit these markets or seek trade assistance.
Overcharged Americans are paying for prescription drugs in socialized medicine countries.
This brand of leadership is supporting socialized medicine in foreign countries and is feigning
conservative business beliefs while effectively shipping purchasing power and federal tax
revenue to socialized countries.
I and other NRLN members have met with you in the past and you told us that you favor reimportation
of prescription drugs and have voted for it. Your home state of Wisconsin has not
prohibited importation from Canada. The federal government should not prohibit the states
whose residents could save money and spend it on things to spur our economy. We have
surveyed our members and met with the FDA and know first-hand that a valid 90-day U.S
prescription can be filled in Canada and that it is allowed to be imported personally or ordered
online and shipped via mail (inspected). When will you lead the House to officially legalize
these sales? As the top leader in the House, I urge you to do more to advance legislation to
obtain safe and more affordable prescription drugs from our northern neighbor. Help the FDA
do its job to protect against false labeling and low quality products. These things can easily
be done. Stop protecting the pharma! Pass H.R. 2228, the Safe and Affordable Drugs from
Speaker Ryan, you have been a proponent for a number of years of efforts to abolish
traditional Medicare for future retirees. The short coming of the “premium support” plan that
you have championed is that the individual would have to cover any difference between the
subsidy and actual cost. The “voucher” plan would be the biggest corporate welfare program
ever for health insurance and pharmaceutical companies. Is it rational for some members of Congress to speak about conservative values and small government while at the
same time supporting plans that subsidize corporate net income in a free competitive market? The way to get the budget reduced is to pull back subsidies in order to create a level playing field, not increase them.
A key question is how the premium support voucher's value would be adjusted over time. Republicans claim their plan would give seniors the choice of remaining in regular Medicare. What Republicans don’t say is that their plan would make Medicare so expensive that millions of seniors would likely be forced to switch into the private Medicare plans. Americans’ tax dollars will morph from support for Medicare to insurance and drug company giveaways.
Republicans contend that the voucher plan will save Medicare for future retirees because the
program faces long-term financial instability. The NRLN believes Congress should instead
be looking for ways to eliminate the subsidies to insurance companies and attack the
real problems of high cost, overhead and health care industry inefficiencies. If
necessary, increase the payroll tax rate until baby boomers move through, then lower
it (sunset rule) back to where it was.
The NRLN supports reducing the budget deficit but we believe it is imperative that Medicare
be preserved for future generations. We reject the assumption that “privatization” with
government subsidies for insurance carriers will lower Medicare’s cost of health care.
Mr. Speaker you are in the position to make a positive difference in the lives of retirees by
providing leadership to pass legislation allowing Medicare to negotiate for lower drug prices,
make it possible to import safe and more affordable drugs from Canada and protect
traditional Medicare for decades to come. Please support America’s seniors.
Bill Kadereit, President
National Retiree Legislative Network
NRLN Action Alert
Congress Must See that TVA Funds Pension Plan and Receives ERISA Protection
This Action Alert is to urge all 8,000 members of the NRLN grassroots organization in the seven states in which the Tennessee Valley Authority (TVA) operates to send sample letters to their members of Congress. I am asking this on behalf of the NRLN’s latest Chapter, the Tennessee Valley Authority Retirees Coalition (TVARC), whose members urgently need your support. Their pension plan is dangerously underfunded and the participants have no PBGC protection available to them. Read More....
Click here to go directly to the sample letters to members of Congress.
TVA IN THE NEWS...
TVA pension fight angers workers, retirees
By Jamie McGee; The Tennessean ~ Apr 25, 2016
The headline that ran in 1999 painted a rosy picture: “TVA pension plan booming as investments thrive.” Tennessee Valley Authority Retirement Board directors credited a “prudent” investment strategy and explained the power provider could eliminate contributions and still meet its future retirement expenses.
And it did, reducing what had been close to $50 million in annual payments to nearly zero for six years, according to a 2010 audit of the government-owned corporation.
That same pension program is in trouble today, falling $6 billion short of its obligations to retirees. As Tennessee Valley Authority executives seek to reduce pension payments, retirees and employees are calling foul.
To the Editor: Putting Pensions at Risk at T.V.A.
New York Times – March 10, 2016
Re “The Last Pension Domino” (Business Day, March 4):
It is deeply troubling that the Tennessee Valley Authority’s chief executive, William D. Johnson, is declaring war on his employees’ retirement savings while he takes home the highest compensation of any federal employee in the country ($6.4 million, according to your article).
Rep. Cohen questions fairness of TVA’s pension plan proposal
By Michael Collins, Knoxville News Sentinel – March 8, 2016
WASHINGTON — U.S. Rep. Steve Cohen raised concerns Tuesday about what he called the "apparent inequity" in proposed changes to the Tennessee Valley Authority's pension plan for employees and executives.
In a letter to TVA President and CEO Bill Johnson, Cohen took issue with TVA's proposal to reduce pension benefits for many employees and then shift them from a plan that guarantees a fixed level of benefits into a 401(k) plan for future benefit payments.Read more...
Congressman questions why TVA cut employee pensions but not executive compensation
By Dave Flessner, Chattanooga Times Free Press – March 8, 2016
U.S. Rep. Steve Cohen, R-Tenn., today urged TVA President Bill Johnson to cut executive pensions along with reductions in some pension benefit increases planned for TVA's rank and file employees and retirees.
In a letter to TVA, Cohen criticized what he said was "an apparent inequity" in the way the federal utility plans to change pension benefits for employees and the lack of changes in TVA's supplemental executive retirement plans. Read more...
Tennessee Valley Authority Retirees Coalition
FOR IMMEDIATE RELEASE
For Information Contact:
Bowling Green, KY
TVA Retirees Join Forces with National Network
Tennessee Valley Authority Retirees Coalition Cites
$6 billion shortfall in TVA Pension Plan for Retirees and Employees
BOWLING GREEN, KY. (Feb. 9, 2016) – In response to TVA’s under-funding of its employee pension for over a decade, a group of TVA retirees have formed the Tennessee Valley Authority Retirees Coalition (TVARC). TVARC has now joined forces with the National Retiree Legislative Network (NRLN) to seek Congressional assistance in bringing the employee pension back to a safely funded level. At the end of FY 2015, TVA’s employee pension was only 53 percent funded with liabilities of $12.8 billion and assets of $6.8 billion, leaving the pension underfunded by $6 billion. TVA’s employee pension covers 35,000 retirees and employees, most of whom reside in the states of Tennessee, Kentucky, Alabama, And Mississippi. Read more...
For Immediate Release
Contact: Mike Moseley, President
Tennessee Valley Authority Retirees Coalition
Email: firstname.lastname@example.org Phone: 931-216-3091
Tennessee Valley Authority Retirees Coalition Urges
Members of Congress to Protect TVA Pension Plan Participants
Retirees Concerned that Pension Plan Is $6 Billion Underfunded
BOWLING GREEN, KY (March 2, 2016) The Tennessee Valley Authority Retirees Coalition (TVARC) has urged members of Congress to take action to protect the Tennessee Valley Authori-ty (TVA) pension plan participants from potential economic disaster due the $6 billion underfund-ing of the TVA pension plan. Read more...
6 billion reasons why TVA's leadership should be criticized
Editorial - Florence Alabama Daily Times – Feb. 15, 2016
For all the talk about runaway profits of 21st century CEOs and the gaudy riches of the 1 percent club, our perception usually is of Beltway backroom negotiations and Wall Street wolves.
But reports this week the Tennessee Valley Authority lost $762 million in pension fund investments in fiscal 2015, leaving the federal agency with an unprecedented $6 billion shortfall, is all the more breathtaking when we understand TVA’s CEO is the highest paid federal employee in America.
Bill Johnson has a compensation package that paid him $6.4 million this year, yet TVA’s 10,000 active employees and 24,000 retirees clearly have legitimate reason to worry whether they will receive their promised benefits.
TVA fund needs ERISA help
Editorial – Pensions & Investments – Jan 11, 2016
The Tennessee Valley Authority's executive management and board of directors have not been up to the task of overseeing the company's defined benefit plan and its pension promises.
The plan's funding has deteriorated to levels that force the TVA to propose drastic changes to the plan. Those changes include benefit reductions and freezing its cash balance plan. But the proposal falls short of a disciplined program for shoring up funding. Read more...
TVA retirees 'reject' proposal to cut $700 million from underfunded pension plan
By Dave Flessner, Chattanooga Times Free Press - Feb 12, 2016
TVA directors said Thursday that changes must be made to the utility's underfunded pension plan, but TVA retirees appealed to the board to modify their proposal to cut $700 million of retirement benefits for the nearly 35,000 employees and retirees covered by the TVA retirement system. Read more...
TVA retirees organize to press Congress, utility on pension shortfall
By Ed Marcum, Knoxville News Sentinel – Feb 10, 2016
TVA retirees are organizing to get Congressional leaders to put pressure on the federal utility to address a pension plan the retirees say is woefully underfunded.
A group of retirees has formed the Tennessee Valley Authority Retirees Coalition as a chapter of the National Retiree Legislative Network, so they can gain some clout in Washington, D.C., Mike Moseley, executive committee member with the coalition, said Wednesday. Read More...