U.S. Department of State Fiscal Year 2020 Agency Financial Report

determining the actuarial present value of accumulated plan benefits. The assumption changes arise in connection with the annual valuation and follow the guidelines of SFFAS No. 33. The following table presents the calculation of the combined FSRDS and FSPS Pension Actuarial Liability and the assumptions used in computing it for the years ended September 30, 2020 and 2019 (dollars in millions) . For the Year Ended September 30, 2020 2019 Pension Actuarial Liability, Beginning of Year $ 23,401 $ 21,927 Pension Expense: Normal Cost 574 519 Interest on Pension Liability 772 742 Actuarial (Gains) or Losses: From Experience 316 520 From Assumption Changes Interest Rate 803 292 Experience Study — — Other 156 387 Prior Year Service Costs — — Other — — Total Pension Expense 2,621 2,460 Less Payments to Beneficiaries 1,008 986 Pension Actuarial Liability, End of Year 25,014 23,401 Less: Net Assets Available for Benefits 20,037 19,651 Actuarial Pension Liability – Unfunded $ 4,977 $ 3,750 Actuarial Assumptions: 2020 2019 Rate of Return on Investments 3.10% 3.33% Rate of Inflation 1.55% 1.50% Salary Increase 1.80% 1.75% Net Assets Available for Benefits at September 30, 2020 and 2019, consist of the following (dollars in millions). At September 30, 2020 2019 Fund Balance with Treasury $ — $ — Accounts and Interest Receivable 141 416 Investments in U.S. Government Securities 19,981 19,318 Total Assets 20,122 19,734 Less: Liabilities Other Than Actuarial 85 83 Net Assets Available for Benefits $ 20,037 $ 19,651 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 50,000, known as Foreign Service Nationals (FSNs). 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 FSN 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 2020 A gency F inanci al R eport U ni ted S tates D epartment of S tate | 87 NOTES TO THE PRINCIPAL FINANCIAL STATEMENTS | FINANCIAL SECTION