Retirement System Background
•• Established 1939Established 1939•• Serving +/Serving +/-- 35,000 members35,000 members
Governed by 7 member boardGoverned by 7 member board•• Governed by 7 member boardGoverned by 7 member board
Elected by Elected by Membership (3)Membership (3)
James James HoviousHovious Tony TroyaniTony Troyani Leonard D. MuzynLeonard D. Muzyn
Appointed by Appointed by TVA (3)TVA (3)
Tammy WilsonTammy Wilson John M HoskinsJohn M Hoskins Brian ChildBrian Child
Selected by TVARS Selected by TVARS Board of Directors (1)Board of Directors (1)
Tammy WilsonTammy Wilson John M. HoskinsJohn M. Hoskins Brian ChildBrian Child
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( )( )Allen StokesAllen Stokes
An Overview
1.1. Cash Balance Benefit Structure (pension)Cash Balance Benefit Structure (pension)•• CalculationCalculation
G thG th•• GrowthGrowth•• Monthly BenefitMonthly Benefit
22 S l t l B fitS l t l B fit2.2. Supplemental BenefitSupplemental Benefit
3.3. 401(k) Savings & Deferral Plan401(k) Savings & Deferral PlanPl F tPl F t•• Plan FeaturesPlan Features
•• ContributionsContributions•• Investment optionsInvestment options
4.4. Fixed and Variable FundsFixed and Variable Funds
55 S i l S it b fitS i l S it b fit
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5.5. Social Security benefitsSocial Security benefits
Where Are the Sources of Retirement Income?
Saving and planning now can make a big Saving and planning now can make a big difference in your lifestyle after retirement. Here difference in your lifestyle after retirement. Here are the potential sources of retirement incomeare the potential sources of retirement income11::are the potential sources of retirement incomeare the potential sources of retirement income ::
20%
What you haveWhat you have 60%
20%Pensions
What you have What you have the most the most
control overcontrol overSavings& Other
20%Social
Securityy
5
1 1 Social Security Administration 2004, “Income of the Population 65 or Older using highest quintile $40,982 per year and higher - 2002
Pension: Cash Balance Plan
Pay Credits(6% of Base Pay)
PlusInterest Credits(Currently 6%)
Equals
Plus
Cash Balance AccountEquals
Salary increaseSalary increaseCash BalanceCash Balance Salary increaseSalary increase
Time (Interest)Time (Interest)
Cash Balance Cash Balance Account Account GrowsGrows
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Pension: Vesting & Types of Benefits
Must stay atMust stay at
When am I eligible for a benefit?When am I eligible for a benefit?
Must stay at Must stay at least least 5 years5 yearsto be eligible to be eligible
(vested)(vested)( )( )
What type of benefit could I receive?What type of benefit could I receive?
Immediate retirement benefitImmediate retirement benefit
thth ility
ility
What type of benefit could I receive?What type of benefit could I receive?
Deferred retirement benefitDeferred retirement benefit
CashCash--out/Rollover to IRA *out/Rollover to IRA *
Dea
tD
eat
Dis
abi
Dis
abi
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* Cash-out/Rollover subject to limitations.
Pension: Growth Example AssumptionsAssumptions-- Employee age 25Employee age 25 -- Pay Credits $92.31Pay Credits $92.31-- Annual Salary $40,000 Annual Salary $40,000 -- Salary Growth of 3% annuallySalary Growth of 3% annually-- Biweekly Pay $1 538 46Biweekly Pay $1 538 46 -- Interest Rate 6%Interest Rate 6%
$401,800
$273 200
-- Biweekly Pay $1,538.46 Biweekly Pay $1,538.46 -- Interest Rate 6%Interest Rate 6%
$180,800
$115 100
$273,200
$115,100
$68,900$36 700$36,700
$14,700
5 10 15 20 25 30 35Y
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5 10 15 20 25 30 35Years
Contributions & interestContributions & interest
Pension: Monthly Benefit Example
Retirement Age 55 Years of Service 30Retirement Age 55 Years of Service 30f
$ 273,200 = $ 1,560 /month
f
$ 273,200 = $ 1,560 /month, ,175
, ,175
Retirement Age 60 Years of Service 35Retirement Age 60 Years of Service 35
$ 401,800 = $ 2,670 /month$ 401,800 = $ 2,670 /month
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150150
Supplemental Benefit
Employed at least untilEmployed at least until
Supplemental benefitSupplemental benefit
Employed at least until Employed at least until actual age 55actual age 55
PlusPlus
At least 10 years of At least 10 years of serviceservice
PlusPlus
serviceservice
Eligible for Supplemental Eligible for Supplemental BenefitBenefit
Calculated as:Calculated as:Years of service X $11.5757Years of service X $11.5757
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Plus $94.20 additional monthly benefitPlus $94.20 additional monthly benefit
Your Personal Savings
20%
60%
20%Pensions
20%Savings& Other
20%Social
Security
401(k) Savings and 401(k) Savings and Deferral PlanDeferral Plan
Fixed & Variable Fixed & Variable FundsFunds
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Deferral PlanDeferral Plan FundsFunds
401(k): Plan Features
Key Features ofKey Features ofKey Features of Key Features of TVA’s 401(k) PlanTVA’s 401(k) Plan
Payroll DeductionPayroll Deduction TVA MatchTVA Match
Money Grows Tax DeferredMoney Grows Tax Deferred Plan is PortablePlan is Portable
May Lower Federal IncomeMay Lower Federal IncomeTaxesTaxes
Money Grows Tax DeferredMoney Grows Tax Deferred
You Control Your Own You Control Your Own accountaccount
Plan is PortablePlan is Portable
Roth Investment OptionRoth Investment Option Loan ProvisionsLoan Provisions
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401(k): Plan Features
Automatic EnrollmentAutomatic Enrollment
Automatically enrolled at 6%Automatically enrolled at 6%
Takes effect in 30 daysTakes effect in 30 days
Enrolled in Fidelity Freedom Fund based on ageEnrolled in Fidelity Freedom Fund based on age
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401(k): Plan Features
Before Tax After Tax Roth
Income tax now on contributions No Yes Yes
TaxesTaxes
Income tax now on contributions No Yes Yes
Tax at withdrawal1 on contributions Yes No No
Tax at withdrawal1 on earnings Yes Yes Nog Yes Yes No1 1 Subject to IRS guidelines.Subject to IRS guidelines.
Before-Tax After-Tax RothLimitsLimits Before Tax After Tax Roth
Standard $17,500 $51,000* $17,500
Catch-up (age 50 or over) $5 500 N/A $5 500
LimitsLimits
Catch up (age 50 or over) $5,500 N/A $5,500
Overall before-tax and/or Roth limit $17,500 or $23,000 (w/ catch-up)
*Overall limit for contributions and $51 000 overall
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match $51,000 overall
401(k): Contribution Methods
Before-Tax
After-Tax RothTax Tax
Payroll deduction Yes Yes Yes
L N Y NLump sum No Yes NoMatching Yes Yes YesRollover of another
Change Change contributionscontributions Rollover of another
Before and/or After-Tax plan
Yes Yes Nocontributionscontributions
anytime anytime
Rollover of another Roth plan No No Yes
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401(k) Matching Funds
For every For every $1.00$1.00 that you contribute that you contribute to the 401(k) Plan, TVA will match to the 401(k) Plan, TVA will match th t d ll ithth t d ll ith 75¢ 25¢75¢ 25¢ 11that dollar with that dollar with 75¢ or 25¢75¢ or 25¢ 11
Your contribution Your contribution (6% of $40 000)(6% of $40 000) $ 2,400$ 2,400(6% of $40,000)(6% of $40,000) $ ,$ ,
TVA matchTVA match(75% of $2 400)(75% of $2 400) $ 1,800$ 1,800
Vested Vested after 3 after 3
earsears(75% of $2,400)(75% of $2,400)
Total ContributionTotal Contribution $ 4,200$ 4,200
yearsyears
1 1 Up to 4.5% of fiscal yearUp to 4.5% of fiscal year--toto--date base salary. Cash Balance members receive 75¢ per $1.00 contributed, while date base salary. Cash Balance members receive 75¢ per $1.00 contributed, while Original Benefit Structure members receive 25¢ per $1.00 contributed.Original Benefit Structure members receive 25¢ per $1.00 contributed.
22 With contributions to the 401(k) Plan, subject to TVARS Rules & Regulations.With contributions to the 401(k) Plan, subject to TVARS Rules & Regulations.
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401(k): Growth ExampleAssumptionsAssumptions-- Salary $40,000Salary $40,000 -- 6% pre6% pre--tax contributionstax contributions-- Salary growth of 3% annuallySalary growth of 3% annually -- 6% investment return6% investment return
4 5% match (75¢ per $1)4 5% match (75¢ per $1)
$326,200
-- 4.5% match (75¢ per $1)4.5% match (75¢ per $1)
$207,900
$124,400
$66,300
$26,600
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5 10 15 20 25Years
401(k): Investment Options
You choose how to investYou choose how to invest
Ready MixReady Mix
13 Fidelity Freedom Funds13 Fidelity Freedom Funds
62 Core Funds62 Core Funds
ShortShort--term, bond, stock fundsterm, bond, stock funds
Fidelity BrokerageLinkFidelity BrokerageLink
Wide variety of mutual funds and individualWide variety of mutual funds and individualWide variety of mutual funds and individual Wide variety of mutual funds and individual securitiessecurities
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401(k): Fidelity Freedom Funds
8%
42%
5% Domestic EquityInternational EquityFreedom
2015 42%34%
yInvest Grade BondHigh Yield BondShort-Term
2015Retiring in
5 Years
11%
2% 7%
Freedom 2020
Retiring in
7%
26%Freedom
2035Retiring in 17%
10% 7%
Retiring in 10 Years 52%
13%
Retiring in 25 Years 66%
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Fixed & Variable Funds
Key Features of Key Features of TVA’s Fixed & Variable TVA’s Fixed & Variable
FundsFunds
Fixed: Annual rate of 6%Fixed: Annual rate of 6% Variable: Based on S&P 500Variable: Based on S&P 500Fixed: Annual rate of 6%Fixed: Annual rate of 6%
N t ti ll tN t ti ll t
Variable: Based on S&P 500 Variable: Based on S&P 500 IndexIndex
$10 000 l li it$10 000 l li it
Payroll or lump sumPayroll or lump sum
No automatic enrollmentNo automatic enrollment
No matchingNo matching
$10,000 annual limit$10,000 annual limit
Payroll or lump sum Payroll or lump sum contributionscontributions
No matchingNo matching
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Fixed & Variable Funds
After-Tax
Income tax now on
TaxesTaxes
Income tax now on contributions Yes
Tax at withdrawal1 Noon contributions No
Tax at withdrawal1i Yes
11 Subject to IRS guidelines.Subject to IRS guidelines.
on earnings Yes
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Fixed & Variable Funds: Growth Example
AssumptionsAssumptions 55
-- Salary $40,000Salary $40,000 -- 6% payroll contributions6% payroll contributions-- Salary growth of 3% annuallySalary growth of 3% annually -- 6% investment return6% investment return
$202,900
$130,500
$79,300
$37,900,
$15,200
5 10 15 20 25Years
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Social Security
How are you eligible?How are you eligible?
Work for 40 quarters orWork for 40 quarters or
How are you eligible?How are you eligible?
Work for 40 quarters orWork for 40 quarters orWork for 40 quarters or Work for 40 quarters or 10 years10 yearsWork for 40 quarters or Work for 40 quarters or 10 years10 years
When are you eligible?When are you eligible?When are you eligible?When are you eligible?When are you eligible?When are you eligible?
Eligible for a reduced Eligible for a reduced benefit as early as age 62benefit as early as age 62
When are you eligible?When are you eligible?
Eligible for a reduced Eligible for a reduced benefit as early as age 62benefit as early as age 62
What can affect Social Security?What can affect Social Security?What can affect Social Security?What can affect Social Security?
benefit as early as age 62benefit as early as age 62benefit as early as age 62benefit as early as age 62
Increase in salary, which would increase Increase in salary, which would increase amount going into Social Securityamount going into Social SecurityIncrease in salary, which would increase Increase in salary, which would increase amount going into Social Securityamount going into Social Security
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Review: Your TVA Benefits
11 22
Vested in 5 years
Actual age 55y
Cash 100%
g
Supplemental10 years
BalancePension
funded by TVA
Immediate
Supplemental Benefitof service
100%ImmediateDeferred Cashout
100% funded by
TVARS
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Review: Your TVA Benefits
33 44
Immediate eligibility
Fixed Fund: 6%
TVA match
V t d f
Fixed & Variable Funds
Variable Fund:
S&P 500401(k)Vested for
match in 3 years
FundsS&P 500After-Tax
yBefore-TaxAfter-Tax
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Roth
Review: More Information
www.tvars.comwww.tvars.com•• General informationGeneral information
Retirement websiteRetirement website
General informationGeneral information•• FAQsFAQs•• Financial calculatorsFinancial calculators•• Beneficiary formsBeneficiary forms•• Planning toolsPlanning tools
fid lit / t kfid lit / t kFidelity websiteFidelity website
www pension hewitt com/tvarswww pension hewitt com/tvarsAon Hewitt websiteAon Hewitt website
www.fidelity.com/atworkwww.fidelity.com/atwork•• Account balancesAccount balances•• Fund exchangesFund exchanges
F d fF d f
www.pension.hewitt.com/tvarswww.pension.hewitt.com/tvars•• Account balancesAccount balances•• Pay CreditsPay Credits
I t t C ditI t t C dit•• Fund performanceFund performance•• Educational infoEducational info•• Planning toolsPlanning tools
•• Interest CreditsInterest Credits
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TVARS by phone: (865) 632TVARS by phone: (865) 632--2672 or (800) 8242672 or (800) 824--38703870