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

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, 2020, 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 2020 and 2019 were $30.0 million and $28.9 million, respectively. Total liability reported for the FSN DCP is $240 million and $223 million as of September 30, 2020 and 2019, respectively. The FSN VCP reported employee and employer contributions of $10.2 million and $8.1 million as of September 30, 2020 and 2019, respectively. The total liability reported for the FSN VCP is $33 million and $24 million as of September 30, 2020 and 2019, 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 2020 and 2019 were $28 million and $25 million, respectively. Defined Benefit Plans In 12 countries, involving over 3,600 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 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 $19 million and $48 million as of September 30, 2020 and 2019, respectively. There was a decrease of $29 million in 2020 and a decrease of $42 million in 2019. The material FSN defined benefit plans include plans in Germany and the United Kingdom (UK) which represent 78 percent of total assets, 78 percent of total projected benefit obligations, and 86 percent of the net defined benefit liability as of September 30, 2020. The Germany Plan’s most recent evaluation report, dated August 6, 2020, is as of July 1, 2020. The UK Plan’s most recent evaluation, dated August 20, 2020, is as of April 5, 2019. For the Germany Plan the change in the net defined benefit liability was an increase of $0.4 million in 2020 and a increase of $0.2 million in 2019, while for the UK plan the change was a decrease of $23 million in 2020 and a decrease of $36 million in 2019. 88 | U ni ted S tates D epartment of S tate 2020 A gency F inanci al R eport FINANCIAL SECTION | NOTES TO THE PRINCIPAL FINANCIAL STATEMENTS