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

The principal actuarial assumptions used for 2020 and 2019 for the Germany and UK plans are presented below: Actuarial Assumptions: 2020 2019 Discount Rate 2.75% – 4.60% 2.75% – 4.60% Salary Increase Rate 2.25% – 4.10% 2.25% – 4.10% Pension Increase Rate 1.75% – 3.10% 1.75% – 3.10% 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, 2020, 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, 2020, FSRDF valuations under SFFAS No. 33 was adopted. Using this approach, the economic assumptions used for the Retirement and Voluntary Severance Lump Sum Payment liability as of September 30, 2020 and 2019, are: 2020 2019 Discount Rate 2.74% 2.78% Rate of inflation 1.69% 1.73% Salary Increase 4.86% 4.45% For Germany, the increase in the net defined benefit liability in 2020 was primarily due to actuarial losses on experience. The increase in 2019 was primarily due to actuarial losses on assumption changes; primarily the discount rate. For the UK Plan in 2020, the decrease in the net defined benefit liability was primarily due to a lump-sum contribution to fund the deficit. The decrease in 2019 was primarily due to a combination of investments outperforming expected rates of return and a favorable change in the currency exchange rate since 2018. The tables below show the changes in the projected benefit obligation and plan assets during 2020 and 2019 for the Germany and UK plans (dollars in millions) . Change in Benefit Obligations: 2020 2019 Benefit obligations beginning of year $ 415 $ 439 Service Cost 7 6 Interest Cost 31 29 Other 9 (59) Benefit obligations end of year $ 462 $ 415 Change in Plan Assets: 2020 2019 Fair value of plan assets beginning of year $ 376 $ 364 Return on plan assets 25 24 Contributions less Benefits Paid 23 7 Other 21 (19) Fair value of plan assets end of year 445 376 Net Defined Benefit Liability $ 17 $ 39 The table below shows the allocation of the plan assets by category during 2020 and 2019 for the German and UK plans. 2020 2019 Insurance Policies 32% 34% Equity Securities 41% 40% Money Market and Cash 4% 4% Debt Securities 23% 22% Total 100% 100% 2020 A gency F inanci al R eport U ni ted S tates D epartment of S tate | 89 NOTES TO THE PRINCIPAL FINANCIAL STATEMENTS | FINANCIAL SECTION