April 2009

Retirement System Update

How better to start a discussion of current economic conditions than with the thought Berkshire Hathaway Inc. Chairman Warren Buffett recently shared with his shareholders?

tammy wilsonOn Feb. 28, in his 2008 annual letter to shareholders, Buffett said that financially it had been the worst year in his 44-year history. Berkshire shares plunged 44 percent in the 12 months through Feb. 27. He said the past 18-month period had been devastating for equities, corporate and municipal bonds, commodities and real estate. However, the world-renown Buffett did include a slight bit of optimism in his letter: “Though the path has not been smooth, our economic system has worked extraordinarily well over time. It has unleashed human potential as no other system has, and it will continue to do so. America’s best days lie ahead.”

The Retirement System Board shares in Buffett’s bit of optimism regarding “America’s best days” and how it relates to the market’s recovery. The Retirement System does face its own challenges as the need for economic recovery grows greater, and as it monitors the market value of its assets. And certainly we can all agree that it’s preferable that “America’s best days” come sooner rather than later, and that the recovery is strong.

The liquidity of the Retirement System continues to be a top priority. Liquidity is important to a System that pays about $550 million in benefits to TVA retirees each year. Frank Alford, chair for the TVA Retirement System Board, understands as well as any of us how important it is for the system to have sufficient funds to make these monthly payments.

“In these unprecedented markets, the system is well-positioned to provide the liquidity needed to meet the system’s about $45 million in monthly benefit payments,” says Alford.

TVA continues to show its support for the system and stands behind the vested benefits of the system. At its Aug. 20, 2008, meeting, the TVA Board approved the 2009 contribution in the amount of $85 million, as recommended by the System Board. That amount has since been added to the system’s assets. As the plan sponsor, TVA faces risk from the pension plan due to uncertainties in swings of interest rates and investment performance. The volatility of these variables can have an impact on TVA’s financial statements and the amount TVA contributes to the plan every year. Therefore, the risks of the system are coordinated with TVA’s Enterprise Risk Management Committee. The unpredicted dismal market performance reflected in the system’s assets in 2008 had a very low probability of occurring. Or another way to say this is “the unthinkable” happened in reference to poor market performance, and every pension plan in America is now feeling the pain.

While the system continues to remain well-diversified, the TVARS Board has asked Wilshire, the system’s investment consultant, to look at the system’s asset allocation policy and provide a recommendation on the asset mix going forward. The TVARS Board also has asked Mercer, the system’s actuary, to provide additional guidance on the asset-to-liability mix in order to allow the system to provide TVA with the best information as TVA begins its 2010 budget process. Assessing risk profiles and performing due-diligence practices — coupled with deciding when and how to rebalance portfolios — are among the tasks at hand for this Retirement System Board in the wake of the financial crisis of 2008 as we complete the first calendar-year quarter of 2009.

“I have had many calls and questions from concerned members about continuing to put money into these volatile and distressed markets,” says Leonard Muzyn, chair of the system’s Investment Committee. “I wish we had a crystal ball to give each of you the best answer.” Where individuals should invest their money, as well as the timing of those investments, depends on an investor’s individual time horizon and tolerance for risk.

The TVARS Board has and will continue to monitor the impact of the uncertainty in the financial markets and provide periodic updates regarding the TVA Retirement System. The system recently completed its 2008 financial statements. The statements are prepared in accordance with Generally Accepted Accounting Principles and include an unqualified opinion from Crowe Horwath LLP, the system’s external auditors. As part of the TVARS Board’s continuing desire to communicate the system’s status, the 2008 annual report has been distributed to all employees and retirees. The 2008 report also is available on the TVARS Web site at www.tvars.com.












New retirees

45 years

Joseph A. Benedict Jr., Fossil Power Group, Clinton

41 years

Jerry B. Moore, Central Support & Repair, Chattanooga

35 years

Rickey D. Sparks, Nuclear Generation, Development & Construction, Spring City

34 years

Thomas H. Alford, TVA Police, Knoxville

Joe A. Duck, FPG, Chattanooga

Herbert A. Eaves, Nuclear Power Group, Soddy-Daisy

Philip R. Grooms, NucGD&C, Spring City

Kenneth R. Long, FPG, Rogersville

33 years

Caroline P. Mahan, River Operations, Knoxville

Steven W. Stinson, Human Resources, Chattanooga

32 years

Virgil A. Boshears, PSO, Chattanooga

Gary R. MacDonald, FPG, Chattanooga Sharon W. Powell, NPG, Soddy-Daisy

Susan P. Shirk, NPG, Soddy-Daisy

Michael W. Strunk, CSR, Clinton

Mary R. Shipe, NPG, Spring City

31 years

Mendell E. Snodgrass Jr., FPG, Clinton