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

FSNs hired after January 1, 1984 do not qualify for any Federal civilian benefits (and therefore cannot participate) in any of the Federal civilian pension systems (e.g., Civil Service Retirement System (CSRS), FSRDS, Thrift Savings Plan (TSP), etc.). By statute, the Department is required to establish compensation plans for FSNs in its employ in foreign countries. The plans are based upon prevailing wage and compensation practices in the locality of employment, unless the Department makes a public interest determination to do otherwise. In general, the Department follows host country (i.e., local) practices and conventions in compensating FSNs. The end result is that compensation for FSNs is often not in accord with what would otherwise be offered or required by statute and regulations for Federal civilian employees. In each country, FSN after-employment benefits are included in the Post’s Local Compensation Plan. Depending on the local practice, the Department offers defined benefit plans, defined contribution plans, and retirement and voluntary severance lump sum payment plans. These plans are typically in addition to or in lieu of participating in the host country’s LSSS. These benefits form an important part of the Department’s total compensation and benefits program that is designed to attract and retain highly skilled and talented FSN employees. FSN Defined Contributions Fund (FSN DCF) The Department’s FSN DCF finances two after-employment plans, the FSN Defined Contribution Plan (DCP) and the Variable Contribution Plan (VCP). The Department’s FSN DCP and VCP provide after- employment benefits for FSN employees in countries where the Department has made a public interest determination to discontinue participation in the LSSS or deviate from other prevailing local practices. Title 22, Foreign Relations and Intercourse, Section 3968, Local Compensation Plans, provides the authority to the Department to establish such benefits and identifies as part of a total compensation plan for these employees. The Department contributes 12 percent of each participant’s base salary to the FSN DCP. Participants are not allowed to make contributions to the Plan. The amount of after-employment benefit received by the employee is determined by the amount of the contributions made by the Department along with investment returns and administrative fees. The Department’s obligation is determined by the contributions for the period, and no actuarial assumptions are required to measure the obligation or the expense. The FSN DCP is administered by a third party who invests contributions in U.S. Treasury securities on behalf of the Department. Payroll contributions are sent to the third party administrator, while separation benefits are processed by the Department upon receipt of funds from the third party. As of September 30, 2019, approximately 13,000 FSNs in 31 countries participate in the FSN DCP. The Department records expense for contributions to the FSN DCP when the employee renders service to the Department, coinciding with the cash contributions to the FSN DCP. Total contributions by the Department in 2019 and 2018 were $28.9 million and $28.2 million, respectively. Total liability reported for the FSN DCP is $223 million and $204 million as of September 30, 2019 and 2018, respectively. The VCP reported employee and employer contributions of $8.1 million and $7.4 million as of September 30, 2019 and 2018, respectively. The total liability reported for the Variable Contribution Plan is $24 million and $17 million as of September 30, 2019 and 2018, respectively. Local Defined Contribution Plans In 50 countries, the Department has implemented various local arrangements, primarily with third party providers, for defined contribution plans for the benefit of FSNs. Total contributions to these plans by the Department in 2019 and 2018 were $25 million and $26.6 million, respectively. Defined Benefit Plans In 12 countries, involving over 3,900 FSNs, the Department has implemented various arrangements for defined benefit pension plans for the benefit of FSNs. Some of these plans supplement the host country’s equivalent to U.S. social security, others do not. While none of these supplemental plans are mandated by the host country, some are substitutes for optional tiers of a host country’s social security system. Such arrangements include (but are not limited to) conventional defined benefit plans with assets held in the name of trustees 88 | U nited S tates D epartment of S tate 2019 A gency F inancial R eport FINANCIAL SECTION | NOTES TO THE PRINCIPAL FINANCIAL STATEMENTS