Note 11. Foreign Service Retirement Actuarial Liability

FY 2007 Financial Report
Bureau of Resource Management
November 2007
Report

The Foreign Service Retirement and Disability Fund finances the operations of the FSRDS and the FSPS. The FSRDS and the FSPS are defined-benefit single-employer plans. FSRDS was originally established in 1924; FSPS in 1986.The FSRDS is a single-benefit retirement plan. Retirees receive a monthly annuity from FSRDS for the rest of their lives. FSPS provides benefits from three sources: a basic benefit (annuity) from FSPS, Social Security, and the Thrift Savings Plan.

The Department's financial statements present the Pension Actuarial Liability of the Foreign Service Retirement and Disability Program (the "Plan") as the actuarial present value of projected plan benefits, as required by the SFFAS No. 5, Accounting for Liabilities of the Federal Government. The Pension Actuarial Liability represents the future periodic payments provided for current employee and retired Plan participants, less the future employee and employing Federal agency contributions, stated in current dollars.

Future periodic payments include benefits expected to be paid to (1) retired or terminated employees or their beneficiaries; (2) beneficiaries of employees who have died; and (3) present employees or their beneficiaries, including refunds of employee contributions as specified by Plan provisions. Total projected service is used to determine eligibility for retirement benefits. The value of voluntary, involuntary, and deferred retirement benefits is based on projected service and assumed salary increases. The value of benefits for disabled employees or survivors of employees is determined by multiplying the benefit the employee or survivor would receive on the date of disability or death, by a ratio of service at the valuation date to projected service at the time of disability or death.

The Pension Actuarial Liability is calculated by applying actuarial assumptions to adjust the projected plan benefits to reflect the discounted time value of money and the probability of payment (by means of decrements such as death, disability, withdrawal or retirement) between the valuation date and the expected date of payment. The economic assumptions used for the valuation (other than the assumed merit salary increases) match the economic assumptions approved by the Board of Actuaries of the Civil Service Retirement and Disability Fund for use in performing the dynamic actuarial valuations of CSRS and FERS. All the other assumptions used for the valuation are based upon the actual past experience of the covered lives under the two retirement systems. . The Plan uses the aggregate entry age normal actuarial cost method, whereby the present value of projected benefits for each employee is allocated on a level basis (such as a constant percentage of salary) over the employee's service between entry age and assumed exit age. The portion of the present value allocated to each year is referred to as the normal cost.

The Board of Actuaries economic assumptions since the last valuation did not change. The general salary increase remained at 4.25% and the inflation rate stayed at 3.50%. Based on the economic assumptions, the plan actuary kept the normal cost percentages the same. The table below presents the normal costs for FY 2007 and FY 2006.

Normal Costs for FY 2007 and FY 2006
Normal Cost: FY 2007 FY 2006
FSRDS 30.35% 30.35%
FSPS 25.38% 25.38%

Actuarial assumptions are based on the presumption that the Plan will continue. If the Plan terminates, different actuarial assumptions and other factors might be applicable for determining the actuarial present value of accumulated plan benefits. 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, 2007 and 2006 (Dollars in Thousands).

Combined FSRDS and FSPS Pension Actuarial Liability
For the Years Ended September 30, 2007 and 2006
(Dollars in Thousands)
  2007 2006
Pension Actuarial Liability, Beginning of Year $ 14,215,300 $ 13,429,300 
Add Pension Expense:    
Normal Cost      298,900     274,800
Interest on Pension Liability      874,400     826,000
Prior Service Costs            —             — 
Actuarial Losses/(Gains)       93,300
single underline
    386,100
single underline
Total Pension Expense    1,266,600    1,486,900 
Less Payments to Beneficiaries (annuities and refunds)      (753,200)
single underline
    (700,900)
single underline
Pension Actuarial Liability, End of Year   14,728,700  14,215,300
Less: Net Assets Available for Benefits   (14,519,718)
single underline
 (14,021,870)
single underline
Actuarial Unfunded Pension Liability for Projected Plan Benefits $    208,982
double underline
 $   193,430 
double underline
Actuarial Assumptions:    
Rate of Return on Investments 6.25% 6.25%
Rate of Inflation 3.50% 3.50%
Salary Increase 4.25% 4.25%

Net Assets Available for Benefits at September 30, 2007 and 2006, consist of the following (Dollars in Thousands):

Net Assets Available for Benefits
At September 30, 2007 and 2006
(Dollars in Thousands)
  2007 2006
Fund Balances with Treasury $        467  $      2,070 
Receivables        9,683         9,552 
Interest Receivable      194,371       191,762 
Investments in USG Securities   14,377,713 
single underline
  13,875,717 
single underline
Total Assets   14,582,234    14,079,101 
Less: FSRDF Liabilities      (62,516)
single underline
     (57,231)
single underline
Net Assets Available for Benefits $ 14,519,718 
double underline
$ 14,021,870 
double underline

 


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