Company: TVC
Filing Date: 2025-11-13
Form Type: 10-K
Source: 0001376986-25-000056
Chunk: 49

Company: Tennessee Valley Authority
Filing Date: 2025-11-13
Form: 10-K
Item: Item 6
Chunk 49
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 compared to the assumption of 6.50 percent.  The difference between the expected and actual return on plan assets resulted in an actuarial loss of $93 million that is recognized as an increase in the related regulatory asset and an increase in the pension benefit obligation at September 30, 2025.   

Discount Rate.  TVA's discount rates are derived by identifying a theoretical settlement portfolio of high quality corporate bonds of Aa quality or higher sufficient to provide for the projected benefit payments.  The model matches the present value of the projected benefit payments to the market value of the theoretical settlement bond portfolio with any resulting excess funds presumed to be reinvested and used to meet successive year benefit payments.  A single equivalent discount rate is determined to align the present value of the required cash flow with the value of the bond portfolio.  The resulting discount rates are reflective of both the current interest rate and the distinct liability of the pension and post-retirement benefit plans.  

    The discount rate is somewhat volatile because it is determined based upon the prevailing rate of long-term corporate bonds as of the measurement date.  A higher discount rate decreases the plan obligations and correspondingly decreases the net periodic pension and net post-retirement benefit costs for those plans where actuarial losses are being amortized.  Alternatively, a lower discount rate increases net periodic pension and net periodic post-retirement benefit costs.  The discount rates used to determine the pension and post-retirement benefit obligations were 5.47 percent and 5.62 percent, respectively, at September 30, 2025.  

    Health Care Cost Trends.  In establishing health care cost trend rates for the post-retirement obligation, TVA reviews actual recent cost trends and projected future trends considering health care inflation, changes in health care utilization, and changes in plan benefits and premium experience.  The pre-Medicare eligible per capita claims costs and per capita contributions trend rates are both reset to the initial rate of 7.75 percent, declining 0.50 percent in 2026 and 0.25 percent per year thereafter until they reach the ultimate trend rate of 5.00 percent in 2036.  The post-Medicare current health care cost trend rate is zero percent for years 2025 through 2028, reaching the ultimate rate of 4.00 percent in 2029.   TVA recognized a $28 million gain from the change in post-Medicare health care cost trend rate due to the Medicare supplement insurance