RESTRICTED  
  
WT/BFA/W/644  
 
7 July 2023 
(23-4638) Page: 1/6 
Committee on Budget, Finance and Administration  Original: English  
 
RECOMMENDATION OF THE WTOPP MANAGEMENT BOARD  FOR ADDRESSING THE 
PENSION PLAN'S FUNDING GAP  
NOTE BY THE CHAIRMAN OF THE WTOPP MANAGEMENT BOARD  
This document outlines the adjusted pension reform proposal by the Management Board of the WTO 
Pension Plan (WTOPP) following feedback received on the proposal described in document 
WT/BFA/W/6 33 of 1 May 2023.  
 
The proposal of May 2023 was discussed at the CBFA meetings of 17 May 2 023 and 27 June 2023 
and further feedback was received in rounds of informal consultations with Members and in a written 
communication from the EU and its 27 member States with reference JOB/BFA/81. The WTO 
administration also provided feedback on the amou nt available from the Working Capital Fund.  
 
1  SUMMARY OF ADJUSTMENTS TO THE REFORM PROPOSAL  AND LATEST FEEDBACK  
1.1.  The Pension Plan's  latest full actuarial valuation based on 31 December 2020 data identified an 
actuarial gap of 10.5% (expressed in % of contrib ution rate).1 As a means of illustration, this gap 
would be closed by an increase of 10.5% of the actual pension contribution rate (from 23.7% to 
34.2%, which is referred to as the "required contribution rate" or RCR), or by an increase in the 
Plan's assets of CHF 380 million . 
1.2.  The Pension Plan Management Board spent  most of 2022 develop ing a draft reform proposal 
that aims at bringing the Plan back to a sustainable position. A draft reform proposal was presented 
to stakeholders in November 2022  for a first round of consultations, then a revised proposal was 
presented to the CBFA in May 2023 . Since May 2023 , Members discussed the Management Board's 
proposal in various formal and informal settings.  
1.3.  Members share the view that the reform proposal goes a long way in the right direction . Some 
Members consider that more burden should be placed on current staff and others, who support the 
Management Board's proposal in its current form, may be willing to support a modest shift in burden 
sharing as long as the package does not put the Organization in a situation where it risks losing legal 
challenges  arising from the reform. Regarding the capital infusion, a number of Members flagged 
that performing part of the capital infusion through a direct funding outside of the WTO Working 
Capital Fund would be problematic. T he use of the Working Capital Fund to perform the capital 
infusion would need to still leave sufficient monies to respect regulatory requirement and for the 
Organisation to have a financial buffer to face temporary cash -flow shortages . 
1.4.  Some Members further consider that long -term sustainabili ty may require deeper reforms and 
additional measures. To this end, they have suggested inviting the CBFA to establish a Working 
Group supported by the WTOPP Management Board and the Secretariat, with a mandate to 
thoroughly examine and, if appropriate, pr opose further structural reform. One Member expressed 
the view that a reform should focus only on deeper changes.  
1.5.  These comments , and further written exchanges between the Chair of the CBFA and the Staff 
Council , guided the WTOPP Management Board in making  the following adjustments  to the proposal 
presented in May 2023 : 
 
1 WT/BFA/W/577 presented at the 17 March 2022 CBFA meeting.  WT/BFA/W/644  
 
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  i. the proposed amount of capital infusion is reduced from CHF 68.77 million t o 
CHF 57.90 million (section  2.2.7);  and 
ii. the proposed increase of pension contribution rate is raised from 5.1% to 5.4% 
(section 2.2.1).  
1.6.  With these adjustments, t he Management Board intends to accommodate constraints regarding 
the amount available from the Working Capital Fund, and to address fee dback received from 
Members regarding the burden borne by staff while staying within limits that do not excessively 
expose the Plan to additional legal risk and remain close to the equal burden sharing principle that 
the proposal is based on.  With these ad justments, t he measures borne by WTO Members cover 
49.5% of the gap (down from 50.5%) while measures affecting staff and retirees cover 50.5% of 
the gap.  
2  THE RECOMMENDATION FOR A REFORM  
2.1  Guiding principles  
2.1.  The revised proposal continues to be  guided by the principles  identified earlier in the process : 
a. Burden sharing among stakeholders (while respecting acquired rights).  This is 
based on the principle of fairness, which is important on its own, but also important with 
respect to the reforms passing legal scru tiny at the ILOAT2. It is in everyone's interest to 
have a reform that is viable and solves the problem.  
b. Using the contribution rate as the element that contributes most to reducing the 
funding gap (while respecting the 1/3 – 2/3 allocation between partic ipants and 
WTO Members) . This is based on the principle that this ratio of structural contribution to 
the future social security of WTO staff is appropriate. As the cost of this is skewed toward 
Members, it means the other measures will have to weigh more heavily on participants to 
respect the overall reform principle of equal burden sharing between participants 
and Members . 
c. Benchmarking with other International Organization Pension Plans (where 
appropriate).  This is based on wanting to keep the WTO competitive in its ability to 
recruit talented people of the appropriate caliber to the Secretariat to support Members 
achieve their larger objectives. It does not imply strictly replicating other International 
Organizations' provisions but is intended to make sure that a proposed reform does not 
result in the conditions of the WTO Pension Plan deviating  substantially from current 
norms.  
2.2.  The specific measures described below have been carefully selected through a pr ocess where 
possible options have been analyzed and discussed in depth to ensure respect for burden sharing. 
Because of the interconnectedness of the measures, this balance is delicate , and changing 
parameters on one measure can throw off the balance in a way that is not easy to compensate while 
also maintaining the ambition to target the full 10.5% gap in the required contribution rate.  
2.2  The reform measures  
2.2.1   Increase of pension contribution rate (current and future staff and WTO Members)  
Current conditions  Proposed reform  
Pension contributions are 23.7% of staff pensionable 
remuneration:  
• 15.8% paid by the WTO  
• 7.9% paid by staff  Raise pension contributions to 29.1% of pensionable 
remuneration:  
• 19.4%  paid by the WTO  
• 9.7%  paid by staff  
 
 
2 International Labo ur Organisation Administrative Tribunal.  WT/BFA/W/644  
 
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  2.3.  This measure increases the contribution rate and impacts both staff and WTO Members through 
the WTO budget. Higher contributions mean that the Plan will have additional assets to invest, and 
those extra assets will provide additional income for paying future benefits i n a sustainable way. The 
required contribution rate (RCR) is the main steering wheel of the Plan by design and in many 
pension plans is adjusted periodically based on fluctuations in the actuarial balance of the given 
pension plan.  
2.4.  In terms of impact, the 3.6%  points contribution increase for WTO represents approximately 
an increase of CHF 4.4 million  in the annual budget.  
2.5.  For staff members, the 1.8%  points contribution increase applied to pensionable remuneration 
(PR) will represent a larger reduction of their salary, depending on their level of remuneration. As 
an illustration, for the lowest (G rade 1) level of the WTO salary scale (CHF 5 2,950 salary / CHF 
59,562 PR) an additional 1.8%  pension contribution represents 2.0%  of the net salary. For the Grade 
12's highest level of remuneration (CHF 2 34,060 salary / CHF 3 53,352 PR), this represents 2.7%  of 
the net sa lary.3 
2.2.2   Increase of retirement age  to 68  (future staff, optional for current staff)  
Current conditions  Proposed reform  
Normal retirement age: 65  
Early retirement possible from age 60  Normal retirement age: 68  
Early retirement possible from age 63  
 
2.6.  This measure will largely impact future staff by requiring them to work longer before receiving 
a benefit under the Plan. Given that the period during which a pension is paid to them will be shorter, 
the total amount of future benefits paid by the Plan is expected to be reduced, in spite of the fact 
that longer periods of contributory service also mean that the Plan will need to pay higher annuities . 
This measure is coherent with the expected increase in life expectancy that explains a large portion 
of the identified actuarial funding gap. The op tion to work longer for current staff will also contribute 
to the actuarial gain resulting from this measure.  
2.2.3    Reduction of accumulation rate for the purpose of benefit calculation (future staff)  
Current conditions  Proposed reform  
Pension accumulation in % of final average 
remuneration (FAR):  
• 2% from year 1 to year 30  
• 1% from year 31 to year 40  
• 0% afterwards (maximum total 
accumulation 70%)  Pension accumulation in % of FAR:  
• 1.5% from year 1 to 5  
• 1.75% from year 6 to 10  
• 2% from year 11 to ye ar 32  
• 1% per year after year 32, maximum total 
accumulation rate of 70%  
 
2.7.  The amount of pension benefits is calculated as a percentage of the final average remuneration 
over the last years of service (FAR), determined by the len gth of contributory service and the 
accumulation rate.  
 
 
2.8.  This measure consists of reducing the accumulation rate during  the participant 's first 10 years 
of service as described in the table above. Given that the pension benefits accumulate more slowly, 
the total amount of future benefits paid by the Plan is expected to be reduced. The proposed refor m 
is close to accumulation rates used in the UN pension system (UNJSPF).  
 
3 These refer to the 2010 salary scale, which concerns a majority of staff members.  
WT/BFA/W/644  
 
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  2.9.  As an example, the pension benefit amount of a participant who has 30 years of contributory 
service and FAR = CHF 10,000 is:  
Retirement benefit in current conditions  Retirement benef it with proposed reform  
 
CHF 10,000 * 30 years * 2%  
 
 
= CHF 6,000  
  
CHF 10,000 *   ( 5   years * 1.5%  
                      + 5   years * 1.75%  
                      + 20 years * 2%)  
= CHF 5,625  
 
2.2.4   "Vesting period" extension from 5 years to 10 years (future staff)  
Current conditions  Proposed reform  
Participants with 5 years contributory service have 
an entitlement to a lifelong retirement benefit at 
retirement age.  
Staff members who cease pension participation with 
less than 5 years contributory service receive a lump 
sum (withdrawal settlement) . No entitlement to lifelong retirement benefit until 
accruing 10 years of contributory service for future 
staff. 
Staff members to whom this measure is applied and 
who cease pension participation with less than 10 
years contributory service receive a lump sum 
(withdrawal settlement) . 
 
2.10.  This measure will impact future staff by increasing the period during which a Plan participant 
must participate to earn an entitlement to a monthly pension , thus reducing long term liabilities. A 
longer vesting period is in line with other international organizations and allows the WTO to remain 
competitive as an employer while reducing the long -term costs of the Plan and helping to ensure 
burden sharing amon g stakeholders.  
2.2.5   Extension of the FAR averaging period from 3 to 5 years  (staff who joined before 
2016)  
2.11.  This measure replaces the previously proposed measure to increase early retirement 
reduction factors for staff who joined the Plan prior to 2016 . It spread s the burden across a larger 
number of staff, reducing the potential impact on any one staff member . 
2.12.  Finally, the new measure will align with existing conditions for staff hired as of 1 January  2016, 
bringing more equity of treatment across staff cohorts,  and simplifying administration of the Plan.  
Current conditions  Proposed reform  
For participants who joined the Plan before 
1 January 2016, the Final Average Remuneration 
(FAR) used for the purpose of calculating pension 
benefit is the average annual pensionable 
remuneration during the 36  months of highest 
pensionable remuneration within the last 5 years of 
contributory service. * For participants who joined the Plan before 
1 January 2016 the FAR calculation  will be aligned to 
that of participants since 2016 (whose conditions 
remain unchanged):  
average of 60 months of highest pensionable 
remuneration within the last 7 years of contributory 
service.  
* Additional  provisions are specified for FAR calculation in case contributory service is less than 
7 years, 5 years,  and 3 years respecti vely. 
 
2.13.  Based on the current actuarial assumptions on salary progress ion, extending the FAR 
averaging period from 3 to 5 years would result in reducing new retirees' pensions by 1.3% to 1.6% 
on average (see the table  below ). The actual impact would differ between individuals, depending on 
their future salary progression, wh ich cannot  be anticipate d even for the individuals themselves. The 
measure would have little effect on participants whose salary progression was slow at the end of 
their career. Its impact would be larger for staff members who are promoted at the end of th eir 
career.  WT/BFA/W/644  
 
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  Average impact on pension of extending FAR from 3 to 5 years with current  actuarial  
assumptions  on salary progression  
Age Salary increase assumption  FAR calculation  
 annual % chg  CHF 10,000 at 5 7 3 years  5 years  % difference  
57  10,000     
58 1.6%  10,160     
59 1.5%  10,312     
60 1.4%  10,457     
61 1.3%  10,593  10,454  10,304  -1.4%  
62 1.3%  10,730  10,593  10,450  -1.3%  
63 1.3%  10,870  10,731  10,592  -1.3%  
64 1.3%  11,011  10,871  10,732  -1.3%  
65 1.3%  11,154  11,012  10,872  -1.3%  
 
2.2.6   Reduction of pensions' cost of living adjustment (COLA) (retirees)  
Current conditions  Proposed reform  
Pensions are adjusted annually according 
to consumer price index  (full indexation, 
mainly Swiss CPI)  Whenever Consumer Price Index (CPI) of the past calendar 
year is +0.3% or higher, then apply an annual pension 
indexation of CPI minus 0.3% points. This is a time -limited 
measure that is applied generally to pensions until consecutive 
partial indexations h ave resulted in a cumulated non -
indexation of 1.7%. After this point, all pensions are again 
adjusted with full CPI indexation. Future pensions starting 
after the measure has been fully implemented are not 
subjected to limited indexation.  
 
Example : application of the measure in a context of 3% CPI annual increase : 
 
Year  Pension adjustment  Cumulated non -indexation since year 0  
1 2.7% (3% - 0.3% point)  0.3%  
2 2.7% (3% - 0.3% point)  0.6%  
3 2.7% (3% - 0.3% point)  0.9%  
4 2.7% (3% - 0.3% point)  1.2%  
5 2.7% (3% - 0.3% point)  1.5%  
6 2.8% (3% - 0.2% point ) 1.7% reached, indexation -limiting measure ends  
7 3% 1.7%  
... 3% 1.7%  
 
2.14.  This measure lasts until a cumulated 1.7% of CPI4 is not compensated. By temporarily slowing 
the rate at which pensions are adjusted, this measure reduces the costs of the Plan and helps to 
maintain sustainability. The measure will impact current retirees and staff who retire in the near 
future. Although  its exact duration is unknown, the impact on pension benefits is known and is 
designed to allow retirees to contribute to addressing the actuarial funding gap.  
2.2.7   Capital infusion (WTO Members )  
Current conditions  Proposed reform  
 Capital infusion from sponsors of CHF 57.90 million  
 
2.15.  This measure  is the most direct and efficient way to address a funding gap by quickly 
increasing the assets of the plan. The larger asset base can generate more investment returns that 
can be used to pa y benefits sustainably.  
 
4 Swiss CPI or CPI of the country in which the pension is pa id for local currency pensions.  WT/BFA/W/644  
 
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  2.16.  Members are invited to consider the Working Capital Fund as a source of funding for the 
capital infusion.  
2.3  Actuarial impact of each measure  
 Actuarial impact  
1. Contribution rate increase  
(1/3 staff and 2/3 WTO Members)  5.4%  
1.8% - 3.6%  
2. Normal retirement age at 68 (for future staff and voluntary for 
current staff)  2.0%  
3. Accumulation rate  (for future staff)  1.2%  
4. Vesting period for e ligibility to retirement benefits (future staff)  
Increase minimum YoS  from 5 to 10  0.1%  
5. Calculation of Final Average Remuneration  
Increase from average based on 3 years  to 5 years  (staff who started 
before 2016)  0.3%  
6. Cost of living adjustment (retirees)  
Non-compensation of + 1.7% of price index  0.2%  
7. Capital infusion  (WTO members ) 
Consider the Working Capital Fund as a source of funding  1.6%  
Aggregation effect  (measures affecting current and future staff)  -0.3%  
Total  10.5%  
 
2.17.  With this package, measures borne by WTO Members cover 49.5% of the gap while measures 
affecting staff and retirees cover 50.5% of  the gap.  
__________