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

favorable change in the currency exchange rate since 2018. The decrease in 2018 was due to the increase in the net defined benefit liability was primarily due to losses from Actuarial Assumptions. The tables below show the changes in the projected benefit obligation and plan assets during 2019 and 2018 for the Germany and UK plans (dollars in millions) . Change in Benefit Obligations: 2019 2018 Benefit obligations beginning of year $ 439 $ 374 Service Cost 6 4 Interest Cost 29 6 Other (59) 55 Benefit obligations end of year $ 415 $ 439 Change in Plan Assets: 2019 2018 Fair value of plan assets beginning of year $ 364 $ 318 Return on plan assets 24 9 Contributions less Benefits Paid 7 9 Other (19) 28 Fair value of plan assets end of year 376 364 Net Defined Benefit Liability $ 39 $ 75 The table below shows the allocation of the plan assets by category during 2019 and 2018 for the German and UK plans. 2019 2018 Insurance Policies 34% 35% Equity Securities 40% 40% Money Market and Cash 4% 2% Debt Securities 22% 23% Total 100% 100% The principal actuarial assumptions used for 2019 and 2018 for the Germany and UK plans are presented below: Actuarial Assumptions: 2019 2018 Discount Rate 2.75% – 4.60% 2.80% – 4.60% Salary Increase Rate 2.25% – 4.10% 2.25% – 5.40% Pension Increase Rate 1.75% – 3.10% 1.75% – 3.40% of the plan who engage plan administrators, investment advisors and actuaries, and plans offered by insurance companies at predetermined rates or with annual adjustments to premiums. The Department deposits funds under various fiduciary-type arrangements, purchases annuities under group insurance contracts or provides reserves to these plans. Benefits under the defined benefit plans are typically based either on years of service and/or the employee’s compensation (generally during a fixed number of years immediately before retirement). The range of assumptions that are used for the defined benefit plans reflect the different economic and regulatory environments within the various countries. As discussed in Note 1.Q, the Department accounts for these plans under guidance contained in International Accounting Standards (IAS) No. 19, Employee Benefits . In accordance with IAS No. 19, the Department reported the net defined benefit liability of $48 million and $90 million as of September 30, 2019 and 2018, respectively. There was a decrease of $42 million in 2019 and an increase of $29 million in 2018. The material FSN defined benefit plans include plans in Germany and the United Kingdom (UK) which represent 76 percent of total assets, 77 percent of total projected benefit obligations, and 81 percent of the net defined benefit liability as of September 30, 2019. The Germany Plan’s most recent evaluation report, dated August 21, 2019, is as of July 1, 2019. The UK Plan’s most recent evaluation, dated July 12, 2019, is as of April 5, 2019. For the Germany Plan the change in the net defined benefit liability was an increase of $0.2 million in 2019 and a decrease of $5 million in 2018, while for the UK plan the change was a decrease of $36 million in 2019 and an increase of $24 million in 2018. For Germany, the increase in the net defined benefit liability in 2019 was primarily due to actuarial losses on assumption changes; primarily the discount rate. The increase in 2018 was primarily due to contributions and investment returns exceeding total actuarial losses, service, and interest costs. For the UK Plan in 2019, the decrease in the net defined benefit liability was primarily due to a combination of investments outperforming expected rates of return and a 2019 A gency F inancial R eport U nited S tates D epartment of S tate | 89 NOTES TO THE PRINCIPAL FINANCIAL STATEMENTS | FINANCIAL SECTION