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TVARS Update December 2019

Below is information of interest for employees and retirees from the latest TVARS board meeting held December 5, 2019, in Knoxville. 

Cost-of-living adjustment (COLA) for 2020

For 2020, the COLA for eligible retirees and beneficiaries will be 1.54%.
The TVARS Rules and Regulations provide that eligible retirement benefits (pension and supplemental benefits) will receive a COLA based on an inflation measure, which is the Consumer Price Index – All Urban Consumers (CPI-U) – an index maintained by the U.S. Labor Department that measures the price changes in a broad group of various goods and services purchased by consumers. Under the TVARS Rules, the COLA is calculated as the percentage change in the average CPI-U for the period of November 2017 – October 2018 to the period November 2018 – October 2019 (1.79%) minus 0.25%. Eligible retirees and beneficiaries will see the increase in checks beginning January 31, 2020.

Interest Crediting Rates for 2020

Cash balance (pension) accounts receive interest credits on a monthly basis and Fixed Fund (annuity) accounts receive interest credits on a daily basis and these interest crediting rates are set for each calendar year according to the TVARS Rules. 

For employees with cash balance accounts who were hired prior to January 1, 1996, the interest rate for 2020 will be 6% - the calculation is equal to the change in the CPI-U (1.79%) plus 3% but not less than 6%. 
For employees with cash balance accounts who were hired on or after January 1, 1996, the interest rate for 2020 will be 4.75% - the calculation is equal to the change in the CPI-U (1.79%) plus 2% but not less than the TVARS assumed rate of investment return (6.75%) minus 2%.

For Fixed Fund accounts, the interest rate for 2020 will be 4.75% - the calculation is equal to the change in the CPI-U (1.79%) plus 2% but not less than the TVARS assumed rate of investment return (6.75%) minus 2%.

IRS contribution limits for 2020

During 2020, employees will be able to contribute up to $19,500 to the 401(k) plan on a pre-tax or Roth basis, which is a $500 increase from 2019. Employees who are age 50 or older at any time during 2020 may make additional “catch-up” contributions to the 401(k) plan of up to $6,500 over the $19,500 limit on a pre-tax or Roth basis, which is a $500 increase from 2019.

The overall contribution limit to the 401(k) plan and the TVARS fixed and variable (annuity) funds for 2020 will be $57,000, which is a $1,000 increase from 2019. This overall limit includes the following contributions: (i) employee pre-tax, Roth, and after-tax contributions to the 401(k) plan; (ii) TVA’s matching and non-elective (automatic) contributions to the 401(k) plan; and (iii) employee after-tax contributions to the TVARS fixed and variable (annuity) funds (subject to a separate $10,000 limit) for employees hired before January 1, 1996, who are eligible to contribute to those funds. Any “catch-up” contributions made by employees age 50 or older to the 401(k) plan do not count toward the overall contribution limit of $57,000.

Financial Update

TVARS ended fiscal year 2019 with positive investment returns and continuing contributions from TVA, which resulted in assets of $8 billion—maintaining the funded status from the previous fiscal year. 
For the fiscal year, TVARS earned 5.5% on its investments (or approximately $425 million) while maintaining a well-diversified and risk-focused portfolio. For the calendar year through November 30, 2019, TVARS has earned 14.5%. Longer term, the System’s annualized returns over the past three, five, and 10-year periods have been 7.4%, 5.7%, and 7.9%, respectively. 

In addition to the investment performance, contributions from TVA helped to maintain the System’s funded status even as TVARS made retirement benefit payments to retirees and beneficiaries during the fiscal year of $715 million. During fiscal year 2019, TVA contributed $300 million to TVARS, and the TVA board has also approved a $300 million contribution to TVARS for fiscal year 2020.

 

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