U.S. Department of State Fiscal Year 2019 Agency Financial Report

by the Department. The Foreign Service Retirement Plans Actuarial Experience Study 2012 – 2017 describes extensive assumption changes, both economic and demographic. The economic assumption change related to merit salary growth experience. The merit salary increase is the portion of the overall annual pay increase that is over and above the annual general salary and locality pay increases, i.e. the salary increase derived from career longevity and promotions. Demographic assumptions include the set of rates that predict certain events occurring to a group of employees or annuitants. Events of significance to a retirement system are those that result in a commencement or termination of a benefit payment. The events affecting active employees include reasons for leaving the service such as retirement, becoming disabled, terminating service, or death. The events affecting annuitants include, first and foremost, mortality. The demographic assumption changes included significant revisions to mortality rate assumptions for non-disabled, child, and other survivor annuitants based in the adoption of more modern mortality tables and improvement scales. There were also changes to assumptions related to the future separation of active employees including their probability of withdrawal, retirement, or becoming disabled. The actuarial loss of $1,677 million, recognized in 2018, resulting from these demographic assumption changes can be seen in the following table. The assumption changes for interest rate, inflation, and other items, are not from the experience study. These changes arise in connection with each annual valuation and follow the guidelines of SFFAS No. 33. The changes from assumptions for 2019 and 2018 can be seen in the following table. Actuarial assumptions are based on the presumption that the Plan will continue. If the Plan terminates, different actuarial assumptions and other factors might be applicable for determining the actuarial present value of accumulated plan benefits. The following table presents the calculation of the combined FSRDS and FSPS Pension Actuarial Liability and the assumptions used in computing it for the year ended September 30, 2019 and 2018 (dollars in millions) . For the Year Ended September 30, 2019 2018 Pension Actuarial Liability, Beginning of Year $ 21,927 $ 19,994 Pension Expense: Normal Cost 519 489 Interest on Pension Liability 742 709 Actuarial (Gains) or Losses: From Experience 520 177 From Assumption Changes Interest Rate 292 354 Experience Study — 1,677 Other 387 (510) Prior Year Service Costs — — Other — (1) Total Pension Expense 2,460 2,895 Less Payments to Beneficiaries 986 962 Pension Actuarial Liability, End of Year 23,401 21,927 Less: Net Assets Available for Benefits 19,651 19,255 Actuarial Pension Liability – Unfunded $ 3,750 $ 2,672 Actuarial Assumptions: 2019 2018 Rate of Return on Investments 3.33% 3.42% Rate of Inflation 1.50% 1.35% Salary Increase 1.75% 1.60% Net Assets Available for Benefits at September 30, 2019 and 2018, consist of the following (dollars in millions). At September 30, 2019 2018 Fund Balance with Treasury $ — $ — Accounts and Interest Receivable 416 152 Investments in U.S. Government Securities 19,318 19,184 Total Assets 19,734 19,336 Less: Liabilities Other Than Actuarial 83 81 Net Assets Available for Benefits $ 19,651 $ 19,255 Foreign Service Nationals’ After-Employment Benefit Liabilities The Department of State operates overseas in over 180 countries and employs a significant number of local nationals, currently over 55,000, known as Foreign Service Nationals (FSNs). 2019 A gency F inancial R eport U nited S tates D epartment of S tate | 87 NOTES TO THE PRINCIPAL FINANCIAL STATEMENTS | FINANCIAL SECTION