RESTRICTED  
  
WT/BFA/W/ 613 
 
2 November  2022 
(22-8233) Page: 1/5 
Committee on Budget, Finance and Administration  Original: English  
 
DRAFT REFORM PROPOSAL  
FOR ADDRESSING THE PENSION PLAN'S FUNDING GAP  
NOTE BY THE CHAIRMAN OF THE WTOPP MANAGEMENT BOARD  
1  BACKGROUND: THE WTO PENSION PLAN'S FUNDING GAP  
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 contribution rate).1 As a means of illustration, this gap 
would be closed by an increase of 10.5% of the actual pension contribution ra te (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 has been working for most of 2022 to develop a draft 
reform proposal th at aims at bringing the Plan back to a sustainable position. The draft reform 
proposal is detailed in the following sections. While the proposal is designed with the objective to 
cover the 10.5% gap, o ne should keep in mind that this figure is the result o f a projection based on 
actuarial assumptions that reflect best estimates of economic and demographic developments. These 
assumptions and the resulting estimates of actuarial balance will change from one actuarial valuation 
to the next. But there should be  no doubt that if no action is taken, the actuarial position of the plan 
will continue to deteriorate (i.e., the funding gap will increase). Therefore, the Board recommends 
to take action to close the gap entirely and promptly.    
2  THE DRAFT REFORM PROPOSAL  
2.1  Guiding principles  
2.1.  The proposal is guided by the following principles:  
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 scrutiny 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 participants 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 ref orm does not result in the 
conditions of the WTO Pension Plan  deviating substantially from current norms.  
 
1 WT/BFA/W/577 presented at the 17 March 2022 CBFA meeting.  
2 International Labor  Organisation Administrative Tribunal.  WT/BFA/W/ 613 
 
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  2.2.  The specific measures described below have been carefully selected through a process 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 28.8% of pensionable 
remuneration:  
• 19.2% paid by the WTO  
•   9.6% paid by staff  
 
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 in a sustainable way. The 
required contribution rate (RCR) is th e 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 3.4% points contribution increase for WTO represents approximat ely 
CHF 4.2 million increase in the annual budget.  
2.5.  For staff members, the 1.7% points contribution increase applied to pensionable remuneration 
(PR) will represent a larger reduction of their salary, depending on their level of remuneration: 
between 2.1% and 2.5% of the net salary for most staff members. As an illustration, for the lowest 
(G1) level of the WTO salary scale (CHF 50,436 salary / CHF 56,390 PR) an additional 1.7% pension 
contribution represents 1.9% of the net salary. For the Grade 12's highe st level of remuneration 
(CHF 222,943 salary / CHF 333,448 PR), this represents 2.5% of the net salary.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 services also mean that the Plan will need to pay higher annuities 
(see descr iption of reform 2 below). This measure is coherent with the expected increase in life 
expectancy of participants that explains a large portion of the identified actuarial funding gap. The 
option 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 year 32  
• 1% per year after year 32, maximum 
total accumulation rate of 70% 
 
3 These refer to the 2010 salary scale, which concerns a majority of staff members.  WT/BFA/W/ 613 
 
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  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 participants 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 propos ed reform 
is close to accumulation rates used in the UN pension system (UNJSPF).  
2.9.  As an example, the pension benefit amount of a participant who has 30 years contributory 
service and FAR = CHF 10,000 is:  
Retirement benefit in current conditions  Retirement benefit 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 ret irement 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 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 reduc ing the long -term costs of the Plan and helping to ensure 
burden sharing among stakeholders.  
2.2.5   Modification of early retirement reduction factors (staff who joined before 2016)  
Current conditions  Proposed reform  
Pension benefits are reduced as follows in case 
of early retirement for participants who started 
before 2016:  
• 3% reduction per year before normal 
retirement age if they have less than 30 
years of service  
• 1% reduction per year before normal 
retirement age if 30 years of service or 
more.  
Corresponding reduction factors for participants 
since 2016 are 6% and 3% respectively.  For participants who started before 2016, 
reduction factors in case of early retirement 
raised to:  
• 4.5% reduction per year before normal  
retirement age if less than 30 years of 
service  
• 2% reduction per year before normal 
retirement age if 30 years of service or 
more.  
Conditions unchanged for participants since 
2016.  
 
2.11.   This measure  impacts current staff who joined the Plan before 2016.  Ear ly retirement is a 
choice and while a modest actuarial advantage is maintained for these staff the difference between 
WT/BFA/W/ 613 
 
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  the existing condition and the actuarially neutral measure adopted in 2016 is reduced. This is a 
measure that supports the principle of bu rden sharing on the staff side.   
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 have 
result ed 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%  
 
2.12.   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 exact 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 68.77 million  
 
2.13.   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 p ay benefits sustainably.  
 
 
4 Swiss CPI or CPI of the country in which the pension is pa id for local currency pensions.  WT/BFA/W/ 613 
 
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  2.3  Actuarial impact of each measure  
 Actuarial 
impact  
1. Contribution rate increase                               
(1/3 staff and 2/3 organization)  5.1%       
1.7%  - 3.4% 
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. Eligibility to retirement benefits (future staff)  
Increase minimum YoS from 5 to 10  0.1%  
5. Early retirement reduction factors                   
Increase from 3% to 4.5% (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  1.9%  
Aggregation effect  (measures affecting current 
and future staff)  -0.3%  
Total  10.5%  
 
2.14.   With this package, measures borne by WTO Members cover 5.3% of the gap (out of 10.5%).   
 
 
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