RESTRICTED  
  
WT/BFA/W/633  
 
1 May 2023 
(23-3039) Page: 1/6 
Committee on Budget, Finance and Administration  Original: English  
 
REFORM PROPOSAL  
FOR ADDRESSING THE PENSION PLAN'S FUNDING GAP  
NOTE BY THE CHAIRMAN OF THE WTOPP MANAGEMENT BOARD  
This note update s document WT/BFA/W/613 of 2 November 2022 following further analysis and 
stakeholder consultations. The princip al substantive difference is the  change of one specific measure  
from the previous  draft reform proposal . The new measure is described in section 2.2.5.  
 
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 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.  Since the release of a draft reform proposal in November 2022, 
the Pension Plan Management Board  has been engaging in a variety of formal and informal listening 
and consultation exercises with stakeholder s, including participants, beneficiaries, the WTO 
administration and WTO Members.  
1.3.  While the Management Board and its reform work have  consistently  targeted  the objective of 
cover ing the 10.5% gap  identified in the full valuation based on 2020 data , one should keep in mind 
that th e 10.5%  figure depends on best  estimates of economic and demographic assumptions that 
are constantly changing,  and the resul ting estimates of actuarial balance will change from one 
actuarial valuation to the next. In fact, the interim valuation based on 2021 data2 showed a slightly 
reduced funding gap (9.4%) . The latest interim valuation based on 2022  is likely to reflect a la rger 
gap. These changing estimates reflect normal variability of actuarial valuation over the short term. 
While recognizing that the trend will be for the situation to deteriorate as long as the funding gap 
persist s, the Board continues to target the 10.5%  estimate from the full valuation based on 2020 
data for practical reasons as the exact gap is a constantly moving target . 
1.4.  The next full valuation will be produced in 2024 based on 2023 data.  
2  THE REVISED  REFORM PROPOSAL  
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 
 
1 WT/BFA/W/577 presented at the 17 March 2022 CBFA meeting.  
2 WT/BFA/W/ 594 presented at the 22 September 2022 CBFA meeting . WT/BFA/W/633  
 
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  respect to the reforms passing legal scrutiny at the ILOAT3.  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 
Memb ers, 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 
appro priate).  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 Internati onal 
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 thro ugh 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 balan ce 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.  
2.3.  Since the draft reform proposal circulated in November 2022, and based on further 
consultations and analysis, the  Board is proposing to change one measure while still targeting the 
same stakeholder population in terms of burden sharing and actuarial impact. The new measure is 
to extend the averaging period for calculati ng final average remuneration (FAR) f or staff wh o joined 
the Plan before 2016 rather than  changing their early retirement reduction factors. This new measure  
will have the same actuarial impact  while spreading the burden more equitably across the target 
population.  The change is discussed further in paragraph 2.2.5 below.  
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 
remunerati on: 
• 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  
 
2.4.  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 the main steering whee l 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.  
2.5.  In terms of impact, the 3.4% points contribution increase for WTO represents approximately 
an increase of CHF 4.2 million in the annual budget.  
2.6.  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 
(Grade 1) level of the WTO salary scale (CHF 5 2,950 salary / CHF 5 9,562 PR) an additional 
 
3 International Labo ur Organisation Administrative Tribunal.  WT/BFA/W/633  
 
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  1.7%  pension contribution represents 1.9% of the net salary. For the Grade 12's highest level o f 
remuneration (CHF 2 34,060 salary / CHF 3 53,352 PR), this represents 2. 6% of the net  salary.4 
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  
 
2.7.  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 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%  
 
2.8.  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.  
 
 
2.9.  This measure consists of reducing the accumu lation 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 reform 
is close to accumulation rates used in the UN pension system (UNJSPF).  
2.10.  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 benefit wit h 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  
 
 
 
 
 
 
4 These refer to the 2010 salary scale, which concerns a majority of staff members.  
WT/BFA/W/633  
 
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  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) . 
 
2.11.  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 among stakeholders.  
2.2.5   Extension of the FAR averaging period from 3 to 5 years  (staff who joined before 
2016)  
2.12.  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 poten tial impact on any one staff member . 
2.13.  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 pens ionable 
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 201 6 (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. 
 
2.14.  Based on the current actuarial assumptions on salary progression, 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, which cannot  be anticipated 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 their 
career.  
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%  WT/BFA/W/633  
 
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  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 : appli cation 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%  
 
2.15.  This measure lasts until a cumulated 1.7% of CPI5 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 68.77 million  
 
2.16.  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 pay benefits sustainably . 
2.17.  Members are invited to consider the Working Capital Fund as a source of funding for the 
capital infusion.  
 
5 Swiss CPI or CPI of the country in which the pension is pa id for local currency pensions.  WT/BFA/W/633  
 
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  2.3  Actuarial impact of each measure  
 Actuarial impact  
1. Contribution rate increase  
(1/3 staff and 2/3 WTO Members ) 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. 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  1.9%  
Aggregation effect  (measures affecting current and future staff)  -0.3%  
Total  10.5%  
 
2.18.  With this package, measures borne by WTO Members cover 5.3% of the gap (out of 10.5%).  
 
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