TVA Retirement System – New Employee Overview

Where Do You Want To Go?

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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