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

Retirement and Voluntary Severance Lump Sum Payments In 74 countries, FSN employees are provided a lump-sum separation payment when they resign, retire, or otherwise separate through no fault of their own. The amount of the payment is generally based on length of service, rate of pay at the time of separation, and the type of separation. As of September 30, 2019, approximately 24,000 FSNs participate in such plans. The cost method used for the valuation of the liabilities associated with these plans is the Projected Unit Credit actuarial cost method. The participant’s benefit is first determined using both their projected service and salary at the retirement date. The projected benefit is then multiplied by the ratio of current service to projected service at retirement in order to determine an allocated benefit. The Projected Benefit Obligation (PBO) for the entire plan is calculated as the sum of the individual PBO amounts for each active member. Further, this calculation requires certain actuarial assumptions be made, such as voluntary withdraws, assumed retirement age, death and disability, as well as economic assumptions. For economic assumptions, available market data was scarce for many of the countries where eligible posts are located. Due to the lack of creditable global market data, an approach consistent with that used for the September 30, 2019, FSRDF valuations under SFFAS No. 33 was adopted. Using this approach, the economic assumptions  10  I nternational O rganizations L iability The Department’s Bureau of International Organization Affairs (IO) is responsible for the administration, development, and implementation of the United States’ policies in the United Nations (UN), international organizations, and UN peacekeeping operations. The United States contributes either to voluntary funds or an assessed share of the budgets and expenses of these organizations and activities. These missions are supported through Congressional appropriation to the Department’s Contributions to International Organizations (CIO), Contributions for International Peacekeeping Activities (CIPA), and International Organizations and Programs (IO&P) accounts. A liability is established for assessments received and unpaid and for pledges made and accepted by an international organization. Congress has mandated withholding the payments of dues because of policy restrictions or caps on the percentage of the organization’s operating costs financed used for the Retirement and Voluntary Severance Lump Sum Payment liability as of September 30, 2019 and 2018, are: 2019 2018 Discount Rate 2.78% 2.82% Rate of inflation 1.73% 1.42% Salary Increase 4.45% 4.76% Based upon the projection, the total liability reported for the Retirement and Voluntary Severance Lump Sum Payment is $463 million and $397 million as of September 30, 2019 and 2018, respectively, as shown below (dollars in millions) : At September 30, 2019 2018 Retirement $ 154 $ 126 Voluntary Severance 309 271 Total $ 463 $ 397 The table below shows the changes in the projected benefit obligation during 2019 and 2018 (dollars in millions) : Changes in Benefit Obligations: 2019 2018 Benefit obligations beginning of year $ 397 $ 348 Normal Cost 30 26 Benefit Payments (28) (62) Interest Cost 12 11 Actuarial (gain) loss on assumptions 40 26 Actuarial (gain) loss due to experience 10 49 Other 2 (1) Benefit obligations end of year $ 463 $ 397 90 | U nited S tates D epartment of S tate 2019 A gency F inancial R eport FINANCIAL SECTION | NOTES TO THE PRINCIPAL FINANCIAL STATEMENTS