United Nations: Key Compensation Elements Should Be Reviewed to Address Costs and Sustainability
Published: 2014-06-26T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: The UN General Assembly has expressed concerns about the relatively large and growing portion of the UN budget spent on total compensation. The United States contributes 22 percent of the UN's regular budget.
UN total compensation consists of salary, benefits, and allowances. Since its inception in 1945, the UN has based salaries for its professional employees on salaries for the U.S. civil service. In 2013, GAO reported that the UN sets its salaries between 110 to 120 percent of U.S. civil service salaries, and that UN salaries were 116.9 percent of U.S. civil service salaries in 2012. UN salaries increased to 119.6 percent in 2013. GAO also recommended that the UN clarify its process for comparing salaries for UN professional staff with U.S. civil service salaries.
GAO was asked to review the structure of UN total compensation and how it compares with that of U.S. federal employees. This report (1) examines similarities between UN and U.S. government benefits and allowances and compares their monetary values, and (2) examines UN efforts to address concerns about the sustainability of total compensation costs. GAO reviewed UN and U.S. government documents and data, and interviewed UN and U.S. officials.
section_title: What GAO Found
paragraphs: Benefits and allowances offered by the United Nations (UN) and the U.S. government are generally similar, and GAO found that each provided certain benefits or allowances with greater monetary value than the other. Similar UN and U.S. benefits include retirement plans and health insurance, while similar allowances include hardship and danger pay. Where comparable data were available, GAO found that each organization provided some benefits or allowances of greater monetary value than the other. For example, under a scenario where UN and U.S. staff retire at 62 with 20 years of service, the U.S. Federal Employees Retirement System replaces a higher percentage of pre-retirement salary than the UN Joint Staff Pension Fund. However, when these staff retire with 30 years of service, similar percentages of pre-retirement salary are replaced. In contrast, the UN allowance for staff serving in dangerous duty stations with families at separate locations had a higher average monetary value per recipient in 2012 than the comparable U.S. allowance.
The UN has begun to address concerns about the sustainability of its rising total compensation costs, including initiating a review of total compensation, but that review does not include key elements. GAO analysis of UN data shows that staff-related expenditures rose steadily from $1.95 billion in 2002-2003 to $2.98 billion in 2010-2011, at an average rate of about 7 percent per 2-year budget, when adjusted for inflation. To help address costs, the UN raised its retirement age from 62 to 65 for new hires and froze rates paid for allowances for at least 1 year. In addition, the UN's International Civil Service Commission (ICSC) began a review of UN compensation, to be completed in 2015. The UN General Assembly requested that the ICSC review consider all elements of UN total compensation holistically, including both monetary and non-monetary elements. However, according to ICSC officials and documents, the review focuses only on elements within the ICSC's area of administrative responsibility, such as salary and allowances. Other key elements with significant costs, such as pensions and retiree health insurance, fall outside the ICSC's authority and therefore the study's focus. For example, the unfunded liability of the UN's retiree health insurance plan was estimated in 2012 at almost $4 billion. Without including all elements of total compensation in its review, member states will not have a complete set of information with which to make fully informed decisions about changes to the compensation system.
section_title: What GAO Recommends
paragraphs: The State Department (State) should work with other UN member states to ensure that the costs of key elements of UN total compensation are reviewed to address rising staff costs and sustainability. State concurred with this recommendation.

section_title: Letter
paragraphs: United Nations (UN) total compensation consists of salary, benefits, and  allowances. Since its inception in 1945, the UN has based salaries for its  professional employees on salaries for the U.S. national civil service. In  May 2013, we reported that the UN sets its salaries between 110 and 120  percent of U.S. civil service salaries, and that UN salaries were 116.9  percent of U.S. civil service salaries in 2012. We recommended that the  UN clarify its process for comparing salaries for professional staff in the  UN with U.S. civil service salaries.
In addition, several UN organizations and member states, including the  United States, have expressed concern regarding the large and growing  portion of the UN budget spent on the total compensation of its staff. The  UN Board of Auditors reported that staff costs for the 2010-2011 biennium  were the UN’s single largest item of expenditure, with costs rising  because of higher salaries and related staff benefits. The UN Secretary- General and the General Assembly have also raised concerns about the  long-term sustainability of compensation costs. The United States  contributes 22 percent of the UN’s regular budget.
You asked us to review the structure of UN total compensation, including  benefits and allowances, and how it compares with that of U.S.  government employees. In this report, we (1) examine similarities  between UN and U.S. government benefits and allowances and compare  their monetary values, and (2) examine UN efforts to address concerns  about the sustainability of total compensation costs.
To compare UN and U.S. government benefits and allowances, we  reviewed relevant UN and U.S. documents and interviewed UN and U.S.  officials. We examined the similarity of these compensation elements by  comparing the purpose, structure, and eligibility requirements in the UN  and U.S. systems. To compare the monetary value of UN and U.S.  government benefits and allowances, we collected available salary,  benefits, and allowance data for UN Secretariat professional staff for  calendar year 2012 from the UN’s Payroll Operations Unit. We also  collected data for U.S. employees from the Office of Personnel  Management (OPM), the Department of State (State), and the  Department of Defense (DOD). Using these data, we calculated average  benefit and allowance amounts provided to UN staff and U.S. employees.  For data on allowances, we collected data from State for State Foreign  Service employees and civil service employees serving overseas and  data from DOD for civil service employees serving overseas, because  these employees are comparable to UN Secretariat professional staff.  Data from State and DOD were for calendar year 2012. We also  calculated examples of retirement benefits paid by UN and U.S.  retirement programs, as well as the average cost of health care benefits  for both UN staff and U.S. government employees. Because of variations  in the structure, administration of payments, and data availability for  individual compensation elements, we calculated monetary value for  individual compensation elements using different approaches. As a result,  individual calculations cannot be summed into a single total for all  benefits, allowances, or compensation.
To assess the reliability of these data, we (1) interviewed officials from the  UN, and officials from OPM, State, and DOD; (2) reviewed available  technical documentation; and (3) performed basic reasonableness checks  for obvious inconsistency errors and completeness. When we found  discrepancies, we brought them to the attention of relevant agency  officials and worked with them to correct the discrepancies before  conducting our analyses. We determined that these data were sufficiently  reliable for the purposes of determining the monetary value of included  payroll transactions, retirement contributions, staff costs, and the number  of UN, U.S. civil service, State, and DOD staff receiving benefits and  allowances. However, these data do not include information on certain  allowances that are not captured by the UN’s, State’s, and DOD’s central  payroll systems.
To examine UN efforts to address concerns about the long-term  sustainability of total compensation costs, we reviewed UN documents  and interviewed UN officials regarding the long-term costs of UN benefits  and allowances and actions taken to address them. In addition, we  analyzed UN General Assembly resolutions that direct UN organizations  to perform further actions to address these concerns. Appendix I provides  more information on our scope and methodology.
We conducted this performance audit from June 2013 to June 2014 in  accordance with generally accepted government auditing standards.  Those standards require that we plan and perform the audit to obtain  sufficient, appropriate evidence to provide a reasonable basis for our  findings and conclusions based on our audit objectives. We believe that  the evidence obtained provides a reasonable basis for our findings and  conclusions based on our audit objectives.
subsections: section_title: Background
subsections: section_title: Role of the UN Secretariat and Its Professional Staff
paragraphs: The UN Secretariat administers the programs and policies established by  the other principal entities of the UN, including the General Assembly and  the Security Council. The duties of the Secretariat include administering  peacekeeping operations, mediating international disputes, surveying  economic and social trends and problems, and preparing studies on  human rights and sustainable development. The Secretariat is  headquartered in New York City and has employees at other locations  throughout the world. According to the UN, as of June 30, 2013, the  Secretariat employed 41,273 people, of which about 30 percent (12,220)  were professional staff.
section_title: Elements of the UN Total Compensation Package
paragraphs: The total compensation package for UN employees consists of salary,  benefits, and allowances. UN salaries consist of a base salary and post  adjustment added to account for the cost of living at individual posts. The  UN administers a staff assessment, which is used to contribute to a tax  equalization fund, and which does not affect take-home pay. This fund is  used to compensate UN employees from countries that require them to  pay taxes on their UN income. UN benefits consist of items including  retirement, health insurance, and retiree health insurance. In addition,  about 20 allowances are available to UN professional Secretariat staff,  including danger pay, hardship pay, mobility allowance, education grants,  and others. Receipt of these allowances is based on whether a UN staff  member meets the eligibility criteria established by the UN for each  allowance. Our 2013 report on UN compensation provides more detailed  information on benefits and allowances available to UN professional  staff.
section_title: Administration of UN Compensation Elements
paragraphs: Separate bodies within the UN administer the different elements of total  compensation or provide information to the General Assembly about staff  demographics and trends in compensation.
International Civil Service Commission (ICSC). The General  Assembly established the ICSC in 1974 as an independent expert  body with a mandate to regulate and coordinate the conditions of  service of staff in the UN common system. As a part of its mandate,  the ICSC makes recommendations or determinations for certain  compensation elements for employees within the UN common  system, such as salary and allowances. On some matters, the ICSC  can act independently, while on others its decisions are subject to  General Assembly approval. For example, the ICSC can determine  changes to the post adjustment, or cost-of-living adjustment portion of  UN salaries, without prior approval from the General Assembly. In  addition, the ICSC can set some allowances, such as the hardship  allowance for employees serving at posts where living conditions are  considered difficult, without General Assembly approval. However,  proposed ICSC changes to UN base salary must be approved by the  General Assembly. The ICSC is also responsible for annually  reviewing the percentage difference between UN professional salaries  and those of U.S. civil service employees in a process called the  margin calculation. The UN’s process uses net salary, rather than  total compensation, to compare UN and U.S. staff salaries because  the General Assembly has directed the ICSC to conduct the margin  calculation only using salaries.
Joint Staff Pension Fund Board. The UN Joint Staff Pension Fund  provides retirement and related benefits to UN staff and is  administered by the Joint Staff Pension Fund Board in accordance  with regulations adopted by the General Assembly. The Joint Staff  Pension Fund is a defined benefit fund that provides benefits to more  than 67,000 retirees and beneficiaries. As of 2013, approximately  121,000 active participants from 23 organizations in the UN system  are accumulating pension benefits under the Joint Staff Pension  Fund.
Health and Life Insurance Section. This office is part of the UN Office  of Program Planning, Budget, and Accounts, and administers health  plans, after-service health insurance, and life insurance for UN  Secretariat staff.
United Nations System Chief Executives Board for Coordination  (CEB). The CEB provides coordination and strategic guidance, and  prepares reports on staff demographics and other compensation  issues for use by UN organizations. The Human Resources Network  of the CEB brings together directors of human resources departments  from more than 30 UN and related organizations at biannual  meetings.
section_title: While the UN and the U.S. Government Offer Generally Similar Benefits and Allowances, Each Provides Certain Benefits and Allowances with Higher Monetary Values than the Other
paragraphs: Benefits and allowances offered by the UN and the U.S. government are  generally similar, and each provides certain benefits or allowances with  greater monetary value than the other. Similar UN and U.S. benefits  include retirement plans and health insurance for staff and retirees, while  similar allowances include hardship pay and education grants. Where  comparable data were available, our comparisons of UN and U.S.  government benefits and allowances show that each entity provided  some benefits or allowances of greater monetary value than those  provided by the other. We did not compare some benefits and  allowances, such as danger pay and retiree health benefits, because of  the limited availability of comparable data.
subsections: section_title: Benefits and Allowances Offered to UN Staff Are Generally Similar to Those Offered to U.S. Employees, with Some Differences in Structure
paragraphs: The UN and the U.S. government offer generally similar benefits, with  some minor differences. For example, both the UN and the U.S.  government offer health, dental, and retiree health insurance to their staff.  Table 1 compares the benefits available to eligible UN professional staff  and U.S. civil service employees.
While similar in purpose, some of the benefits offered by the UN and the  U.S. government differ in design and structure. For instance, while both  the UN and the U.S. government offer retirement benefits, the UN offers  its professional staff a pension plan that provides retirees a defined  benefit, based on factors including an employee’s age, years of  participation in the plan, and salary history. The UN pension plan provides  benefits similar to the Civil Service Retirement System (CSRS), a  retirement plan providing U.S. federal civilian retirees with a defined  benefit. CSRS was created in 1920 and was the only retirement plan for  most federal civilian employees until 1984. However, most current U.S.  civil service employees, including all those hired after 1984, are covered   FERS is a three- by the Federal Employees Retirement System (FERS).part retirement plan consisting of (1) a basic defined benefit pension, (2)  Social Security benefits, and (3) the Thrift Saving Plan (TSP)—a  retirement savings and investment plan in which employee contributions  are matched by the employer up to a certain percentage of salary.
Compared with participants in the UN Pension Fund or CSRS, U.S. civil  service employees participating in the FERS plan receive a smaller  defined benefit pension, but receive Social Security and earnings from  accumulated TSP investments upon retirement. Further information on  eligibility requirements and key plan provisions of the UN Pension Fund  and FERS can be found in appendix II.
Many allowances offered by the UN to its professional staff are similar to  those offered by the U.S. government, but both entities also offer  allowances unique to their own employees. Figure 1 compares similar  allowances provided by both the UN and the U.S. government to eligible  staff, as well as allowances offered by one but not the other.
As shown in figure 1, both the UN and the U.S. government, for example,  provide allowances to compensate staff for serving in a dangerous or  hardship duty station and to account for the cost of living at particular duty  stations. However, the UN and the U.S. government each offer some  allowances to staff that are not offered by the other. For example, eligible  UN professional staff may receive a dependents allowance, to  compensate for having a child or other qualifying dependent; or a mobility  allowance, to provide incentive for staff to change duty stations. Similar  allowances are not part of the compensation package for U.S. Foreign  Service employees and civil service employees serving overseas. In  addition, U.S. government employees can be eligible for student loan  repayments, at the discretion of each agency, if the employee signs a  service agreement to remain with the agency for at least 3 years.  Appendix III provides more detailed information on UN and U.S.  allowances.
section_title: The UN and the U.S. Government Each Provided Certain Benefits and Allowances of Greater Monetary Value than Those Provided by the Other
paragraphs: Using available data, we compared specific benefits and allowances  provided by the UN and the U.S. government, and found that each entity  provided certain benefits and allowances of greater monetary value than  those provided by the other. However, the lack of available or comparable  data prevented us from making a monetary comparison of all UN and  U.S. benefits and allowances.
subsections: section_title: UN and U.S. Benefits and Allowances That Were Comparable
paragraphs: We were able to compare certain UN and U.S. compensation elements,  including retirement benefits, health insurance, and allowances such as  hardship pay. Table 2 summarizes the benefits and allowances that we  compared and the results of our analysis.
To compare the UN and U.S. civil service retirement systems, we  estimated income replacement rates for UN employees and U.S. civil  service employees covered by FERS under different scenarios, including  differing work histories, and retirement contribution rates. Income  replacement rates provide a method of comparing retirement programs  that describe how much of a worker’s preretirement salary is replaced in  the first year of retirement by a retirement plan. For example, an  employee with a preretirement salary of $100,000 who received $60,000  in the first year of retirement from his or her retirement plan has an  income replacement rate of 60 percent. Our scenarios had varying  results. One scenario showed that income replacement rates under FERS  were higher than for the UN Pension Fund, given the economic conditions  of the time periods we analyzed. In another scenario, the income  replacement rates for the two systems were similar. Both scenarios are  summarized in table 3. One of our scenarios compares UN staff and  U.S. civil service employees covered by FERS who retire at age 62,  contribute an equivalent percentage of salary to their retirement, and  have 30 years of service. Our estimates show that the FERS retirement  package replaces between 63 and 69 percent of salary, while the UN  Pension Fund replaces between 63 and 68 percent of salary. We also  compared UN staff and U.S. employees with 20 years of service who  retire at age 62 and contribute an equivalent percentage of salary to their  retirement. Our estimates show that FERS replaces between 48 and 55  percent of salary, and the UN Pension Fund replaces between 40 and 44  percent of salary.
While our analysis of income replacement rates showed varying results,  several factors affected our estimates. First, to achieve higher income  replacement rates than UN staff, U.S. employees have to make voluntary  contributions to their retirement plan and accept a higher degree of risk in  their retirement income because of their TSP investments. TSP  investment risks include both individual ability and willingness to defer  income and to make appropriate asset allocation choices, as well as  market risk on returns. Because the amount that U.S. civil service  employees contribute to their TSPs affects the income replacement rate,  we also analyzed scenarios for U.S. employees who make different  contributions to their TSPs. For example, we analyzed a scenario where  U.S. civil service employees who have 30 years of government service,  retire at age 62, and contribute the average contribution rate among  FERS employees who made elective contributions to the TSP in 2012,  and found that FERS replaced between 77 to 82 percent of their  salaries. In contrast, if employees make no elective contribution to the  TSP throughout their careers, our estimates show income replacement  rates from 57 to 64 percent. Second, UN staff generally earn higher  salaries than U.S. civil service employees in comparable jobs. Therefore,  UN pensions may not replace as great a percentage of preretirement  salary as the FERS retirement plan, but in some cases may have the  same or greater estimated monetary value. Last, the income replacement  rates we obtained for FERS employees reflect the economic conditions  over the 30-year period from 1983 to 2012, with relatively high wage  growth and asset fund returns in the early years of this period. Scenarios  using different economic conditions would have obtained different income  replacement rates.
We compared the costs of health care plans for UN staff based in New  York City, New York, and U.S. civil service employees, and found that the  average organizational cost per employee in 2012 was 5 percent higher  for U.S. employees than for UN staff. The average health care subsidy for  UN professional staff in New York who participated in a plan in 2012 was  $6,228, according to UN payroll data. Approximately 98 percent of UN  professional staff in New York received a health care subsidy, and when  we included both participants and nonparticipants, we found that the  overall average cost per UN staff member in New York was  approximately $6,100. According to OPM, the average agency cost of  providing health care plans to U.S. employees who participated in federal  employee health benefit plans in 2012 was $8,022, excluding employees  of the U.S. Postal Service. When we accounted for the 80 percent  participation rate in federal employee health benefit plans, we found that  the average agency cost per employee, excluding U.S. Postal Service  employees, was approximately $6,417, including both participants and  nonparticipants.
Comparing allowances, we found that the UN and the U.S. government  both provide certain allowances with higher monetary value than those  provided by the other. Using available data, we were able to compare  three allowances with similar purposes. Table 4 provides a summary of  our analysis of these allowances.
As shown in table 4, UN staff received higher average dollar amounts for  additional hardship allowance for nonfamily duty stations than State and  DOD staff received for the separate maintenance allowance. UN staff  also received a higher average dollar amount for the nonremoval  allowance than DOD staff did for the foreign transfer allowance. Finally,  State staff received higher average dollar amounts for hardship  differentials than UN staff did for hardship pay, but UN dollar amounts  were higher than those paid to DOD staff.
We also compared other allowances that are unique to either the UN or  the U.S. government. Table 5 shows the allowances, total number of  recipients, total spent by the UN or U.S. government on each allowance  in 2012, and average monetary value per recipient.
As shown in table 5, the UN provides allowances to its staff that are not  provided by the U.S. government to Foreign Service employees and civil  service employees serving overseas. For example, the UN provides a  mobility allowance as an incentive for its staff to move among duty   UN staff who  stations, including moving to more difficult duty stations.received this allowance received an average amount of $8,036 in 2012.  As shown in table 5, the U.S. government also provides some eligible  Foreign Service employees and civil service employees serving overseas,  in addition to employees serving domestically, with a student loan  repayment incentive, but the UN does not provide a similar allowance to  its professional staff. According to State officials, the agency spent  approximately $12 million in 2012 on 1,337 employees serving both  domestically and abroad for student loan repayments. According to  DOD, the agency spent approximately $20.9 million in 2012 on 3,306  employees for student loan repayments.
section_title: Other Benefits and Allowances That Could Not Be Compared
paragraphs: The lack of available and, in some cases, comparable data prevented us  from comparing certain other UN and U.S. benefits and allowances,  including the costs to fund retirement benefits and retiree health  insurance, certain allowances, and leave benefits.
Costs to fund retirement benefits and retiree health insurance. While  we compared income replacement rates for the UN Pension Fund and  FERS, we were unable to estimate future costs to the UN and the  U.S. government of providing retirement benefits or retiree health  insurance because of the lack of comparable data. For instance, while  both the UN and OPM conduct regular studies to estimate the future  costs of their respective retirement systems, these studies use  differing methods and assumptions to determine future costs,  including different assumptions on key factors such as investment  growth rates and rates of inflation as well as different actuarial  methods of assigning retirement costs across years of employee  service. Because of these differences, the UN’s and OPM’s current  estimates cannot be used to produce a valid comparison of future  costs.
Allowances, including danger pay and education grants. Comparable  data were not available for certain allowances, including danger pay  and education grants. Payroll data on these allowances are  maintained at individual duty stations and are not linked to the State,  UN, and DOD central payroll systems. Therefore, these allowances  were not reflected in the payroll data that we collected.
Leave benefits. While we previously reported that UN Secretariat staff  are eligible for more generous leave benefits than those received by  U.S. civil service employees, we were unable to compare the  monetary value of leave used by UN staff and U.S. employees  because the UN and U.S. agencies were unable to provide  comparable data on leave amounts used by their employees. See  appendix IV for more information on UN and U.S. civil service leave  benefits.
section_title: The UN Has Begun to Address Concerns about the Long-Term Sustainability of Rising Compensation Costs, but Its Review of Total Compensation Does Not Incorporate Key Elements
paragraphs: The UN has begun to take action to address concerns about the long- term sustainability of its rising total compensation costs, but its ongoing  effort to review total compensation does not incorporate the costs of key  elements, such as pensions and health insurance. Staff-related  expenditures rose steadily from $1.95 billion in 2002-2003 to $2.98 billion  in 2010-2011, the most recent period for which data were available, at an  average rate of about 7 percent per 2-year budget, when adjusted for  inflation. Concerns about the level of total compensation costs and long- term sustainability have been raised by the Secretary-General, General  Assembly, member states, and other UN organizations. In response, the  General Assembly, the ICSC, the UN Joint Staff Pension Fund, and  others have taken actions aimed to address these concerns, such as  freezing current allowance amounts. Efforts to study and revise the total  compensation package include the ICSC’s review of total compensation  and the CEB’s baseline study of compensation costs. The General  Assembly has called upon the ICSC to include all elements of total  compensation in its review. However, we found that the ICSC review  does not incorporate key elements of total compensation, such as retiree  health insurance.
subsections: section_title: The UN Has Begun to Take Action to Address the Long-Term Sustainability of Its Rising Total Compensation Costs
paragraphs: The UN has recently begun taking action in response to concerns about  its total compensation costs raised by the General Assembly, member  nations including the United States, and various UN organizations. These  concerns have focused on the long-term sustainability of UN total  compensation, as well as the present and historical costs of specific  elements of UN compensation. According to budget data provided by the  UN Secretariat, staff-related expenditures rose steadily from $1.95 billion  in 2002-2003 to $2.98 billion in 2010-2011, at an average rate of about 7  percent per 2-year budget, when adjusted for inflation. Figure 2 shows  that staff-related expenditures accounted for over half of the regular  budget during this period. Between 2004-2005 and 2010-2011, growth in  staff-related expenditure was accompanied by faster growth in the  Secretariat’s regular budget, causing a decline in the share of staff- related expenditures in the regular budget over this time period.
Concerns have also been raised in regard to specific elements of the UN  total compensation package. For instance, the General Assembly has  brought attention to the growing margin, or percentage difference,  between average UN salaries and average U.S. civil service salaries. The  General Assembly has stipulated that the UN salaries should be between  110 and 120 percent of U.S. civil servant salaries, with a desirable  midpoint of 115 percent over 5 years. We previously reported that the  margin between UN and U.S. civil service salaries increased from 109.3  percent in 2002 to 116.9 percent in 2012.again to 119.6 percent, also raising the 5-year average above 115  percent to 115.7 percent.
In 2013, the margin rose  Additionally, the General Assembly has raised questions regarding the  long-term sustainability of other elements of UN compensation, such as  retiree health insurance. In 2013, the Secretary-General reported the  unfunded liability for its after-service health insurance program to be  almost $4 billion. The General Assembly expressed “deep concern” over  these costs, and the Secretary-General noted that the UN lacks the  assets to settle this liability. The Secretary-General further reported that a  long-term funding strategy is needed. In 2012, a General Assembly  resolution noted that the UN Joint Staff Pension Fund ran a deficit for a  second consecutive biennium, and emphasized the need to ensure the  long-term sustainability of the fund.
The General Assembly, the ICSC, and others have taken actions to  address these concerns. For instance, to address the rising costs of  salaries and allowances, the General Assembly and the ICSC have taken  steps such as freezing allowance amounts for at least 1 year, freezing the  post adjustment for New York in 2014, raising the retirement age for new  hires from 62 to 65, and conducting a review of the UN total  compensation package for professional staff. UN actions taken in  response to specific concerns are summarized in table 6.
In addition, the UN has initiated a review of its total compensation  package. Specifically, in 2012, the ICSC began a review of UN total  compensation, and the General Assembly endorsed this action. The  ICSC added the total compensation review to its 2013-2014 work plan  and has begun collecting data related to many elements of the UN  compensation package. The CEB has assisted the ICSC with this data  collection effort. As a result of its review, the ICSC plans to issue  several recommendations to the General Assembly on changes to the  overall compensation structure. The study is scheduled for completion in  2015.
section_title: The ICSC’s Total Compensation Review Does Not Incorporate Key Elements of Total Compensation
paragraphs: While the UN is undertaking efforts to examine its compensation  package, we found that the ICSC’s review does not incorporate all key  elements of total compensation. The General Assembly’s 2013 resolution  commenting on the ICSC’s total compensation review noted that the  ICSC should review all elements of total compensation holistically,  including both monetary and nonmonetary elements. Further, the ICSC  has reported that a holistic review of all elements of compensation is  important to prevent fragmentation of the UN compensation system.  However, according to ICSC officials and documents, the ICSC’s review  of total compensation will not incorporate all key elements of total  compensation. Instead, the ICSC review will focus on certain  compensation elements, such as salary and allowances. Other key  elements of compensation with significant costs, including benefits such  as pensions, health insurance, and after-service health insurance, will not  be incorporated into the ICSC review.
According to the ICSC, the compensation review will result in the  development of a compensation calculator and a series of  recommendations to the General Assembly about possible changes to  the UN compensation structure. The calculator will be based on a series  of estimates about the current and future costs of individual elements of  compensation. For example, an estimate of danger pay might multiply the  total number of staff serving at duty stations eligible for that allowance by  the danger pay rate of $1,600 per month as of 2013. However, according  to ICSC officials, the calculator will not generate estimates for key  elements of compensation, including pensions, health insurance, and  retiree health insurance.
ICSC officials noted that because the various elements of compensation  affect one another, their study may have effects on elements of  compensation not directly included in their review. For example, any  changes proposed to the salary structure could affect other items that are  linked to salary, such as pensions. However, ICSC officials stated that, as  part of their review, they will not make specific recommendations related  to compensation elements outside of their area of administrative  responsibility. Within the UN system, several different entities have  administrative responsibility for the various elements of total  compensation. The ICSC is responsible for matters pertaining to salary  and allowances, the Joint Staff Pension Fund Board administers the  pension fund, and the Health and Life Insurance Section administers  health and retiree health insurance plans. ICSC officials told us that their  review will focus only on the elements of compensation—salary and  allowances—that are within their area of responsibility. In addition, ICSC  officials told us that issues related to elements outside their responsibility  will be flagged for separate review by the UN entities with responsibility  for their administration, such as the UN Joint Staff Pension Fund and the  UN Health and Life Insurance Section.
Until all aspects of UN total compensation have been reviewed by the  ICSC and other relevant entities, the General Assembly and member  states will not have a comprehensive set of information with which to  make fully informed decisions about proposed changes to address  concerns about the compensation system. The cost to the UN of some of  the elements not fully incorporated in either study is significant. For  example, the unfunded liability of the UN’s retiree health insurance plan  was estimated in 2012 to be almost $4 billion. In addition, according to  the UN Secretariat, contributions to the Joint Staff Pension Fund and  health insurance plans totaled $419 million in 2010-2011, which was 8  percent of the 2-year regular budget.
section_title: Conclusions
paragraphs: We found that the UN and the U.S. government offer generally similar  benefits and allowances to their employees, with some differences. Our  comparisons of the monetary value of certain UN and U.S. benefits and  allowances show that each offered compensation elements of higher  value than the other. However, the lack of available or comparable data  prevented a comparison of other UN and U.S. benefits and allowances.
The Secretary-General; General Assembly; member states, including the  United States; and other UN organizations have expressed concerns  about the rising costs and long-term sustainability of the UN’s total  compensation package. Many of these concerns relate to the  organization’s retiree health insurance system and its pension fund. The  retiree health insurance system, for example, has a large unfunded  liability that may place the long-term viability of the program at risk. The  UN has recognized these issues and begun taking actions to address the  costs of its compensation package. The ICSC’s ongoing review of total  compensation and the CEB’s baseline compensation cost study are  important steps in understanding the current costs of the compensation  package, with the ICSC study making recommendations about possible  changes to the structure of the system and developing a cost calculator  that could be used to estimate the impact of these possible changes.  However, because various entities within the UN system have  administrative responsibility over different elements of the compensation  package, the ICSC review will not include key elements of compensation,  particularly pensions, health insurance, and retiree health insurance.
Without a holistic evaluation of its compensation package that  incorporates all key elements of compensation, the General Assembly  and member states will not be able to make fully informed decisions  about proposed changes to the compensation system.
section_title: Recommendation for Executive Action
paragraphs: To assist member states in their oversight of the budgetary implications  and financial sustainability of UN total compensation, the Secretary of  State should work with other member states to ensure that the costs of  key elements of total compensation are reviewed to address rising staff  costs and sustainability.
section_title: Agency Comments and Our Evaluation
paragraphs: We provided a draft of this report for comment to the Secretary of State,  the Secretary of Defense, the Director of OPM, the Executive Director of  the Federal Retirement Thrift Investment Board (FRTIB), and the UN.  State, OPM, and the UN provided us with technical comments, which we  incorporated into the report as appropriate. State also provided written  comments, which we reprinted in appendix V.
State agreed with our recommendation and stated that it generally  accepts and endorses our findings. State noted that our report reveals  that several elements of compensation, including pension benefits and  after-service health benefits, are not included in the ICSC’s compensation  review. State further commented that the ICSC review faces inherent  challenges, including complexities associated with the Noblemaire  Principle, which requires that compensation for UN professional staff be  set in comparison to the highest compensated national service, which the  UN has considered to be the U.S. federal civil service. State commented  on ambiguities with the Noblemaire Principle, including ambiguities over  the comparison group and which elements of compensation should be  included in the comparison. We agree that there are ambiguities  associated with the Noblemaire Principle and therefore we did not use it  as the basis for our comparison of UN and U.S. government benefits and  allowances. As we discuss in the report, the UN General Assembly has  directed that only salaries be used as part of the margin calculation,  rather than total compensation, which would include benefits and  allowances in addition to salaries. It was beyond the scope of our review  to comment on how the Noblemaire Principle should be applied, and our  comparisons of UN and U.S. government benefits and allowances should  not be interpreted as a statement or opinion on how Noblemaire  comparisons should be conducted.
We are sending copies of this report to the appropriate congressional  members, the Secretary of State, the Secretary of Defense, the Director  of OPM, the Executive Director of the FRTIB, the UN, and other  interested parties. In addition, the report is available at no charge on the  GAO website at http://www.gao.gov.
If you or your staff have any questions about this report, please contact  me at (202) 512-9601 or melitot@gao.gov. Contact points for our Offices  of Congressional Relations and Public Affairs may be found on the last  page of this report. GAO staff who made key contributions to this report  are listed in appendix VI.
section_title: Appendix I: Objectives, Scope, and Methodology
paragraphs: We were asked to review the structure of United Nations (UN) total  compensation, including benefits and allowances, and how it compares  with that of U.S. government employees. In this report, we (1) examine  similarities between the UN and U.S. government benefits and  allowances and compare their monetary values, and (2) examine UN  efforts to address concerns about the sustainability of total compensation  costs.
To compare UN and U.S. government benefits and allowances, we  reviewed relevant UN data and interviewed UN officials to determine the  elements of the UN total compensation package available to UN  Secretariat professional staff in 2012. Similarly, we reviewed relevant  U.S. data and interviewed U.S. officials to determine similar elements of  total compensation offered in 2012 to U.S. civil service employees, and  for U.S. civil service employees serving overseas for the Departments of  State (State) and Defense (DOD), and State Foreign Service employees.  We examined the similarity of these compensation elements by  comparing the purpose, structure, and eligibility requirements in the UN  and U.S. systems.
To compare the monetary value of elements of the UN total  compensation package with similar elements of the U.S. government total  compensation package, we collected available salary, benefit, and  allowance data for UN Secretariat professional staff from the UN’s Payroll  Operations Unit for calendar year 2012. We also collected available data  for U.S. government employees, including civil service employees serving  overseas and Foreign Service employees, from the Office of Personnel  Management (OPM), State, and DOD. For data on health insurance, life  insurance, and retiree health care benefits, we collected data from OPM  on U.S. civil service employees, because OPM does not disaggregate  these data by salary scale, occupation, or location. For data on retirement  benefits, we collected data on the cost of the Federal Employees  Retirement System (FERS) pension plan from OPM on U.S. civil service  employees hired under FERS, because OPM does not disaggregate  these data by salary scale or occupation; and we collected data on Thrift  Saving Plan (TSP) participation rates and deferral rates from the Federal  Retirement Thrift Investment Board (FRTIB) for U.S. civil service  employees who are enrolled in the FERS retirement plan, because the  FRTIB does not disaggregate these data by salary scale or occupation.  For data on allowances, we collected data from State and DOD for  Foreign Service employees and civilians serving overseas, because  these employees are comparable to UN Secretariat professional staff.  Data from State and DOD were for calendar year 2012. Because of  variations in the structure, administration of payments, and data  availability for individual compensation elements, we calculated monetary  value for individual elements using different approaches. As a result,  individual calculations cannot be summed into a single total for all  benefits, allowances, or compensation.
To assess the reliability of UN data, we interviewed UN officials, reviewed  available technical documentation, and performed basic reasonableness  checks of the data for obvious inconsistency errors and completeness.  When we found discrepancies, we brought them to the attention of  relevant agency officials and worked with these officials to correct the  discrepancies before conducting our analyses. We determined that these  data were sufficiently reliable for our analyses, including  determining the  monetary value of available UN payroll transactions, and the number of  employees receiving these benefits and allowances in calendar year  2012; determining the monetary value of retirement contributions for UN  staff for income replacement rate scenarios that we conducted and for  determining the UN pension benefit formula; and for discussing UN staff- related costs and the level of these costs as a percentage of the regular  budget.  However, these data do not include complete information on  certain allowances that are not captured in the UN’s central payroll  system, such as danger pay allowances.
To assess the reliability of U.S. data, we interviewed officials from OPM,  State, DOD, and the FRTIB; reviewed available technical documentation;  and performed basic reasonableness checks for obvious inconsistency  errors and completeness. When we found discrepancies, we brought  them to the attention of relevant agency officials and worked with officials  to correct the discrepancies before conducting our analyses. We  determined that these data were sufficiently reliable for our analyses.  However, these data do not include information on certain allowances  that are not captured by State’s and DOD’s central payroll systems, such  as danger pay.
Using these data, we calculated benefit and allowance amounts provided  to UN staff and U.S. government employees.
We also estimated benefit amounts UN and U.S. retirement programs  would pay to employees—which we expressed in the form of income  replacement rates—under different scenarios, including differing years of  service and contributions toward retirement. We note, however, that these  are illustrative examples, which do not represent actual or average  benefits received by UN staff or U.S. government employees. We  calculated these income replacement rates for UN staff and for U.S. civil  service employees covered by FERS. The income replacement rates we  calculated divided a workers’ gross retirement income in the first year of  retirement by the worker’s net salary in his or her final year of work. We  use this measure for the purpose of comparing FERS and the UN Joint  Staff Pension Fund; it is not meant to assess the absolute generosity or   For more information on our  appropriateness of either retirement plan.assumptions and methodology in estimating income replacement rates,  see appendix II.
To identify health care costs for the UN, we used data on health care  subsidies from the UN payroll system. UN payroll data contain the  amount of health care subsidy that each employee receives from the  organization. We examined the mean and median values of the health  care subsidy for professional staff located in New York, first for the entire  staff population, and then for staff members who participate in a health  care plan. Because approximately 98 percent of UN staff members  receive a health care subsidy, there is little difference between average  plan costs for the entire staff population, and average plan costs per  participant. We also examined the mean and median values of the health  care subsidy for participants with and without dependents.
To identify health care costs for U.S. civil service employees, we used  data provided by OPM about the average cost to the agency of providing  health insurance. OPM provided the average cost per participant, overall,  and broken down into participants in self-only plans and participants in  self-and-family plans. We multiplied this average cost by the participation  rate in 2012, approximately 80 percent, to obtain the average cost to  federal agencies of providing health insurance to U.S. civil service  employees. A limitation of using OPM health care cost data to compare  U.S. civil service employees with UN staff is that OPM’s data are not  restricted to professional employees. To the extent that professional civil  service employees choose different plans or have different patterns of  health care usage than nonprofessional employees, federal agency costs  to provide health insurance to professional employees may differ from the  overall average.
To show growth in UN staff costs over time, we collected data on staff- related expenses from the UN Secretariat. We adjusted these figures for  inflation using the annual U.S. gross domestic product deflator from the  U.S. Bureau of Economic Analysis, which we normalized to use 2011 as  the base year.
To examine UN efforts to address concerns about the long-term  sustainability of total compensation costs, we reviewed UN documents  and interviewed UN officials regarding the long-term costs of UN benefits  and allowances and actions taken to address them, including the  International Civil Service Commission’s total compensation review and  the UN Chief Executive Board’s baseline compensation cost study. In  addition, we analyzed UN General Assembly resolutions that direct other  UN organizations to perform further actions to address these concerns.
We conducted this performance audit from June 2013 to June 2014 in  accordance with generally accepted government auditing standards.  Those standards require that we plan and perform the audit to obtain  sufficient, appropriate evidence to provide a reasonable basis for our  findings and conclusions based on our audit objectives. We believe that  the evidence obtained provides a reasonable basis for our findings and  conclusions based on our audit objectives.
section_title: Appendix II: Additional Information on GAO’s Estimates of Income Replacement Rates for United Nations Staff and U.S. Federal Civilian Employees
paragraphs: To compare the UN and U.S. government retirement systems, we  estimated income replacement rates for UN staff and U.S. federal civilian  employees at various salary levels and under different scenarios,  including varying years of UN or U.S. government employment and  retirement contribution rates for U.S. federal civilian employees. Income  replacement rates are a method of comparing retirement programs that  describe how much of a worker’s preretirement salary is replaced in the  first year of retirement by a retirement plan. We focused our analysis on  U.S. federal civilian employees hired under FERS, which covers  approximately 89 percent of current federal civilian employees and all  federal civilian employees hired since 1984.
subsections: section_title: Eligibility Requirements and Plan Provisions for the UN Pension Fund and FERS
paragraphs: Retirees from the UN receive a pension, while the vast majority of active  U.S. federal civilian employees receive retirement benefits under FERS.  The UN Joint Staff Pension Fund and FERS have some structural  differences. The UN Joint Staff Pension Fund provides retirees a defined  benefit, based on factors including an employee’s age, length of  participation in the plan, and salary history. The UN pension is similar to  the Civil Service Retirement System (CSRS), which also provides U.S.   FERS is a three-part  federal civilian retirees with a defined benefit.retirement plan consisting of (1) a basic defined benefit pension, (2)  Social Security, and (3) the TSP—a tax-advantaged retirement savings  and investment plan in which employee contributions are matched by the  employer up to a certain percentage of salary. Compared with  participants in the UN Pension Fund or CSRS, U.S. federal civilian  employees participating in the FERS plan receive a smaller defined  benefit pension, but receive Social Security and earnings from  accumulated TSP investments upon retirement.
Table 7 provides additional information on the eligibility requirements and  other plan provisions of the UN Pension Fund and FERS, including  retirement age, contribution rates, and benefits formulas.
section_title: Key Assumptions for Estimates of Income Replacement Rates
paragraphs: When analyzing income replacement rates for UN staff and U.S. federal  civilian employees under FERS, we made several simplifying  assumptions. We assumed that staff (1) retired at the end of December  2012 at age 62, and (2) started collecting retirement income in January  2013. Additionally, we assumed wages grew at the same rate for both  UN staff and U.S. federal civilian employees. In certain scenarios, we  assumed that staff worked for 30 years at their respective UN or U.S.  government employers, and in others we assumed that staff had 20-year  work histories. Both UN and U.S. staff are assumed to be married at  retirement, and U.S. employees are assumed to select a FERS pension  with a 50 percent benefit for their surviving spouse.Social Security benefits, we assumed that all employees had a 35-year  Social Security work history, as Social Security benefits are based on a  person’s highest 35 years of earnings. Thus, we assumed that employees  receiving Social Security have a work history prior to their years of service  with the federal government or the UN.
We made the following additional assumptions for estimating retirement  income from TSP portfolios for U.S. federal civilian employees:  1.  We assumed that employees participated in the TSP for each year of  their 20- or 30-year work histories.  2.  We assumed that TSP investments were fully invested in the TSP’s G  fund, and we allowed the TSP rate of return to vary each year,  reflecting the annual rate of return of the G fund for the years 1988- 2012.contributions to calculate his or her final TSP balance.
We applied these rates of return to an individual’s TSP  3.  We assumed that FERS retirees purchased an annuity using their   We used an annuity interest  entire TSP balance at the end of 2012. rate of 1.95 percent, which was the annual average rate in 2012. We  also assumed that the retiree’s spouse was the same age as the  retiree and that the retiree selected an annuity with a 50 percent  survivor benefit with increasing payments to adjust for the cost of  living.
section_title: Methodology for Estimating Income Replacement Rates
paragraphs: A TSP life annuity is an insurance product that provides guaranteed monthly payments  for as long as the retiree, or his or her designated survivor, is alive. from the UN’s published salary scales, and is equal to the base salary for  an employee’s assigned grade and step, an allowance for staff members  with dependents, and a post adjustment reflecting the cost of living for the  location where the staff member is posted. In our scenarios, we define  “salary” for UN staff as the net remuneration for a staff member of the  assigned grade and step, living in New York City, New York, receiving  salary at the dependent rate. For U.S. federal civilian employees, take- home pay is calculated by applying federal and New York state tax rates  to the General Schedule gross salary scale for New York.
subsections: section_title: Estimating Equivalent Contribution Rates
paragraphs: First, we estimated the income replacement rates for UN staff and U.S.  federal civilian employees who contribute an equivalent percentage of  salary to their retirement. Obtaining this equivalent contribution rate  involves identifying the percentage of net remuneration that UN staff  contribute to their retirement, and identifying the comparable contribution  rate from take-home pay made by U.S. employees. To identify the  percentage of net remuneration that UN staff contribute to their  retirement, we first calculated the dollar value of the pension contribution  that UN staff at each grade and step must make, and then divided that  dollar value by the appropriate level of net remuneration. UN staff are  required to contribute 7.9 percent of their pensionable remuneration to  their pension plan. plan at each grade and step, we multiplied the appropriate level of  pensionable remuneration by 7.9 percent. We then divided this dollar  value by the appropriate level of net remuneration, resulting in the  percentage of net remuneration contributed to pensions by UN workers  who live in New York City and are paid at the dependent rate, at various  grade and step levels. UN workers who are posted in New York City and  paid at the dependent rate contribute between 8.9 percent and 9.8  percent of net remuneration to their pension plans. The mean and median  contribution rate, across all grade and step levels (not weighted by  population), is 9.4 percent.
Because UN pensions are subject to taxation in the country where the staff member  receives the pension benefit, they are established in gross terms to account for the  amount of taxes UN retirees will have to pay on their pension benefits. “Pensionable  remuneration” is a term used by the UN to describe the “grossed-up” salary scale on  which pension contributions and subsequent gross pensions are based. Thus pensionable  remuneration is higher than net remuneration for UN staff.
To obtain an equivalent contribution rate for U.S. civil service employees,  we estimated income replacement scenarios for U.S. civil service  employees who contribute 9.4 percent of their net salary to retirement.  We defined net salary for U.S. employees as gross salary, net of U.S.  federal and New York state taxes. We used net salary as a measure for  U.S. employees, as it was more comparable to UN net remuneration, or  take-home pay. After we converted gross salary to net salary, we  obtained the corresponding dollar value U.S. employees contributed to  retirement. When applying the U.S. federal tax code and the New York  tax code, we assumed that our U.S. civil service employees were  married, filing jointly, with no children. Once we obtained the dollar value  of the worker’s contribution to retirement, we converted this into a  percentage of gross income that each worker contributes to retirement.
section_title: TSP Contributions
paragraphs: Once we obtained the percentage of gross salary that each U.S. civil  service worker in our scenarios contributes to retirement, we were able to  determine the worker’s contribution rate to the TSP in each year. In our  scenarios in which UN staff and U.S. federal civilian employees have  equivalent contribution rates, we determined the TSP contribution rate as  a residual result of the other calculations. As a result, the TSP  contribution rate equals the total contribution rate to retirement, minus the  mandatory Social Security contribution rate each year, minus the  mandatory 0.8 percent contribution rate to the FERS pension plan.example, in the scenarios in which we set equivalent retirement  contributions between UN staff and U.S. federal civilian employees, an  employee is assumed to contribute 0.8 percent of gross pay to a FERS   For  pension, 4.2 percent of gross pay to Social Security, and between 2.7 to  3.5 percent of gross pay to the TSP depending on salary.
In addition to this indirect approach, where TSP contributions are  identified as a residual, we also present scenarios where we directly set  the level of TSP contribution. In the direct approach shown in tables 12  and 13, we entered a TSP contribution as a constant percentage of gross  salary and multiplied this contribution rate by each year’s salary, to obtain  an annual contribution to the TSP for each employee.
Once we calculated each employee’s annual contribution rate to the TSP,  through either the indirect or the direct method, we then calculated the  employing agency’s matching contribution rate to the TSP. We then  summed the employee and employer contribution to the TSP, to obtain  the total dollar value of contributions to the TSP for each employee in  each year. Once we determined each employee’s annual contributions to  the TSP fund, including both the employee and employer contributions,  we calculated the employee’s final TSP balance. As stated earlier, we  assumed that employees invest their entire TSP balance in the G fund.  Once the final TSP balance was obtained, we calculated a lifetime TSP  annuity for each worker using the TSP Annuity Calculator Worksheet,  published by the FRTIB, along with accompanying tables from the FRTIB,  including monthly annuity factors and interest adjustment factors.
In directly setting the level of TSP contribution, we presented income  replacement rates for U.S. federal civilian employees with two different  TSP contribution levels: 8.5 percent of gross salary, and 0 percent of  gross salary. We selected 8.5 percent of gross salary because, according  to an FRTIB report, the contribution deferral rate to the TSP among FERS  participants in 2012 was 8.5 percent of salary. We selected 0 percent in  order to present the lower bound on income replacement rates for U.S.  FERS employees.
Our scenarios examine workers retiring at the end of December 2012.  However, changes have been made to the FERS retirement system for  U.S. federal civilian employees hired on January 1, 2013, or later.  Employees enrolled in FERS and first hired in 2013 contribute 3.1 percent  of gross salary toward their pension plans, while employees first hired in  2014 or later contribute 4.4 percent. unchanged; thus, employees are funding a larger portion of their  retirement income. In addition, although employees may choose not to  contribute to the TSP, the default contribution rate was set at 3 percent  for employees hired after August 2010. FERS employees who contribute  4.4 percent of gross salary toward their pension plan contribute more  toward their retirement plans than UN employees, even when they  contribute nothing to their TSP accounts. Under our scenario 4 below, we  estimated income replacement rates for U.S. federal civilian employees  who did not defer any of their salary to the TSP in any years of service.
section_title: Social Security Benefits
paragraphs: OPM estimates the cost of the FERS basic annuity at an amount equal to 12.7 percent  of pay. For FERS employees first hired before 2013, the federal government contributes  11.9 percent of pay and employees contribute 0.8 percent of pay. For FERS employees  hired in 2013 or later, the federal government pays 9.6 percent of pay. Employees first  hired in 2013 pay the remaining 3.1 percent and employees hired after pay 4.4 percent.
2012, and then determining salaries for earlier years. To set wage growth  rates, we used the annual salary growth rate assumptions for various  years that are listed in OPM’s assumptions for the Civil Service  Retirement and Disability Fund. Wage growth rates varied over the 35- year period, ranging from 5.5 percent in 1979 to 3.25 percent in 2012. We  applied the same salary growth rates to both the UN staff and U.S. civil  service employees.
To estimate Social Security contributions, we calculated the dollar value  of employee contributions to Social Security each year by multiplying  each year’s Old-Age, Survivors, and Disability Insurance (OASDI) tax  rate by the lesser of the employee’s salary in that year or the Social  Security maximum taxable earnings. We show income replacement rates  for U.S. federal civilian employees who retire at age 62. Employees who  retire at age 62 in 2013 have not reached Social Security’s full retirement  age for 2013, and therefore receive a reduced Social Security benefit that  is 25 percent lower than the benefit received by employees retiring at the  full retirement age (66 in 2013) with equivalent earnings histories.
section_title: Calculating Income Replacement Rates
paragraphs: Our income replacement rate estimates are defined as gross retirement  income divided by take-home pay in the final year of work. Specifically,  we estimated the income replacement rate as follows:
The income replacement rate for U.S. employees equals gross  retirement income in the first year of retirement divided by net salary  in the final year of work.
The income replacement rate for UN staff equals gross retirement  income in the first year of retirement divided by net remuneration in  the final year of work.
In order to compare the employee and employer contributions to  retirement plans, we also calculated the amount of retirement income  attributable to employee contributions, and the amount of retirement  income attributable to employer contributions. In conducting these  calculations,
For the UN pension, we attributed one-third of the pension benefit to  the employee contributions and two-thirds of the pension benefit to  employer contributions, based on the UN contribution rates.
For the FERS pension, we attributed 6 percent of pension income to  employee contributions and 94 percent to employer contributions,  based on the percentage of salary that employees contribute (0.8  percent) and the percentage of salary that agencies contribute (11.9  percent).
For Social Security, we attributed half of the Social Security income to  employee contributions and one-half to employer contributions,  because in most years of the program, employees and employers  contribute equally to Social Security.
For the TSP annuity, we attributed a percentage of the annuity to  employee contributions that equaled the sum of all TSP contributions  made by the employees over their working lives divided by the sum of  all TSP contributions made by the employer and the employee  combined over the employee’s working life. We attributed a  percentage of the annuity to employer contributions that equaled the  sum of all TSP contributions made by the employer over the  employee’s working life divided by the sum of all TSP contributions  made by the employer and the employee combined over the  employee’s working life.
Using these calculations, we constructed the income replacement rates  for the employee and employer, where  the income replacement rate (employee) equals retirement income  attributable to the employee’s contributions divided by final year  salary, and  the income replacement rate (employer) equals retirement income  attributable to the employer’s contributions divided by final year  salary.
Below we present income replacement rates for UN staff or U.S. federal  civilian employees under five scenarios.
section_title: Scenario 1—UN Staff and U.S. Federal Civilian Employees with 30-Year Work Histories Making Equivalent Contributions
paragraphs: In our first scenario, UN staff and U.S. federal civilian employees have  worked for 30 years at their respective UN organization or U.S.  government agency and contribute an equivalent percentage of their  salaries to their retirement. Because UN staff contribute, on average, 9.4  percent of net remuneration to their pensions, in this scenario we assume  that U.S. federal civilian employees also contribute 9.4 percent of take- home pay to their retirement. This corresponds to 7.3 to 8.3 percent of  gross salary, allocated across contributions to the FERS pension, Social  Security, and the TSP. U.S. federal civilian employees’ TSP contributions  in this scenario therefore range from 2.7 to 3.5 percent of 2012 gross pay.  Table 8 shows our estimates of income replacement rates for UN staff  who retire at age 62, while table 9 shows our estimates of income  replacement rates for U.S. FERS employees who retire at age 62.
In each table, we also show the percentage of salary replaced by the  employee’s and employer’s contributions to the retirement package. As  can be seen in table 8, the total income replacement rates for UN staff  range from 63 percent to 68 percent, and the portion of income replaced  by the UN ranges from 42 percent to 45 percent. As shown in table 9, the  total income replacement rates for U.S. federal civilian employees who  retire at age 62 range from 63 to 69 percent, and the portion of income  replaced by the U.S. government ranges from 48 to 49 percent.
section_title: Scenario 2—UN Staff and U.S. Federal Civilian Employees with 20-Year Work Histories Who Make Equivalent Retirement Contributions
paragraphs: Tables 10 and 11 reflect the assumptions made under our second  scenario, where UN staff and U.S. federal civilian employees have  worked for 20 years at their respective employers and contribute an  equivalent percentage of their salaries to their retirement. Table 10  provides our estimates of income replacement rates for UN staff who  retire at age 62, and table 11 shows our estimates of income replacement  rates for U.S. FERS employees who retire at age 62. In each table, we  also show the percentage of salary replaced by the employee’s and  employer’s contributions to the retirement package. As can be seen in  table 10, the total income replacement rates for UN staff range from 40  percent to 44 percent, and the portion of income replaced by the UN  range from 27 to 29 percent. As shown in table 11, the total income  replacement rates for U.S. federal civilian employees who retire at age 62  range from 48 percent to 55 percent, and the portion of income replaced  by the U.S. government ranges from 35 percent to 38 percent.
section_title: Scenario 3—U.S. Federal Civilian Employees with 30 Years of Service Who Contribute the Average Amount of Gross Salary to the TSP
paragraphs: In scenario 3, we estimate income replacement rates for U.S. federal  civilian employees who contribute the 2012 U.S. average contribution to  the TSP in each year of service, which was 8.5 percent of gross salary for  those FERS employees who made any elective contributions. We  estimated this scenario for U.S. employees who retire at age 62. As  shown in table 12, income replacement rates for employees who retire at  age 62 range from 77 to 82 percent, with the portion of income replaced  by the U.S. government ranging from 52 to 53 percent.
section_title: Scenario 4—U.S. Federal Civilian Employees with 30 Years of Service Who Contribute 0 Percent of Gross Salary to the TSP
paragraphs: Under scenario 4, we estimate income replacement rates for U.S. federal  civilian employees who did not defer any of their salary to the TSP in any  years of service. TSP portfolios for these employees consist entirely of  their agencies’ automatic 1 percent contribution to the TSP each year. As  shown in table 13, the income replacement rates for employees who  retire at age 62 range from 57 to 64 percent, with the portion of income  replaced by the employer ranging from 46 to 47 percent.
section_title: Scenario 5—UN Staff Who Are U.S. Citizens Employed in the United States with a 20-Year UN Work History
paragraphs: In our final scenario, we provide estimates of income replacement rates  for UN staff members who are U.S. citizens employed in the United  States. Like other UN staff members, U.S. citizens participate in the UN  pension plan. In addition, they must also contribute to Social Security,  and therefore are eligible for Social Security benefits.
For the purposes of taxation, the U.S. Internal Revenue Service (IRS)  treats UN staff who are U.S. citizens working in the United States as “self- employed” workers. According to IRS rules governing the taxation of such  workers, UN staff who are U.S. citizens working in the United States must  pay both the employer portion and the employee portion of Social  Security taxes. However, the UN normally reimburses its U.S. citizen staff  for one half of the Social Security tax. Therefore, UN staff who are U.S.  citizens effectively pay the same rate of Social Security taxes as other  salaried employees in the United States.
Our estimates show that UN staff who are U.S. citizens have higher  income replacement rates than other UN staff who retire with 20 years of  service because they contribute to and receive Social Security benefits.  As seen in table 14, the income replacement rate for UN employees who  are U.S. citizens and retire at age 62 ranges from 56 to 68 percent, and  the portion of income replaced by the employer ranges from 38 to 45  percent. However, U.S. citizen employees of the UN who work in the  United States have to contribute both to the UN pension plan and to  Social Security. A UN official commented that UN staff who are U.S.  citizens and who are working in the United States make up only a small  percentage of total UN staff, and very few of these staff spend their entire  career with the UN working in the United States.
section_title: Appendix III: Comparison of Allowances for United Nations Secretariat Staff and U.S. Civil Service Staff Overseas and Foreign Service employees
subsections: section_title: United Nations (UN)
paragraphs: Allowances offered to eligible UN staff and U.S. Foreign Service employees and U.S. civil service employees   Serving in a dangerous  duty station  Danger pay is a special allowance that has been  established for internationally and locally recruited  staff members who are required to work in a duty  station where very dangerous conditions prevail,  including those where staff face high risk of  becoming collateral damage in a war or active  armed conflict or where medical staff risk their lives  when deployed to deal with a public health  emergency. The Chairman of the International Civil  Service Commission is responsible for authorizing  the application of danger pay to a duty station based  on the recommendations of the UN Department of  Safety and Security or the World Health  Organization. Danger pay is granted for up to 3  months at a time, subject to ongoing review. As of  the publication of this report, the UN offered danger  pay to staff in 15 duty stations.  For internationally recruited staff, the allowance is  $1,600 per month. For locally recruited staff, the  allowance is based on the local salary scale.
The U.S. government provides danger pay to all  civilian employees serving in places where conditions  of civil insurrection, civil war, terrorism, or wartime  conditions that threaten physical harm or imminent  danger to the health or well-being of an employee  exist. Danger pay is additional compensation of up to  35 percent over basic compensation to staff, for  service at places in foreign areas where dangerous  conditions that could threaten the health or well being  of an employee exist. As of the publication of this  report, the U.S. government offered danger pay to  employees in 29 locations.
The UN pays a post adjustment to staff to ensure  equity in purchasing power of staff members across  duty stations. The post adjustment is a part of the  staff’s salary and is not considered an allowance.  The post adjustment is higher for staff with  dependents.
The U.S. government grants a post allowance to staff  officially stationed at a post in a foreign area where  the cost of living is substantially higher than in  Washington, DC. The post allowance is designed to  permit staff to spend the same portion of their salaries  for their standard living expenses as they would if  they were residing in Washington, D.C. The amount  paid is a flat rate that varies by basic salary, size of  family, and post.
United Nations (UN)  The UN pays travel expenses for staff when they are  initially appointed; when they change their duty  station; when they separate from service; when they  travel on official business; when they travel for home  leave; when they travel to visit family members, and  for rest and recuperation. In special circumstances  requiring evacuation of staff members and their  families for medical or security reasons, the UN also  covers certain travel and travel-related costs. The  UN pays travel expenses for staff dependents on the  initial appointment; on separation from service, and  on education grant travel and home leave. Staff also  receive a daily allowance while on travel for official  business.  UN staff are also entitled to travel expenses for their  child for one return journey from the educational  institution to their duty station, if the educational  institution is outside the country of the duty station.  At some duty stations, the UN allows an additional  round-trip journey in a non-home leave year.
U.S. Civil Service Staff Serving Overseas and  Foreign Service Employees  The U.S. government pays travel and related  expenses for members of the Foreign Service and  their families under a number of circumstances,  including when they are proceeding to and returning  from assigned posts of duty; for authorized or  required home leave; for family members to  accompany, precede, or follow a foreign service  member to a place of temporary duty; for  representation travel; medical travel; rest and  recuperation travel; evacuation travel; or other travel  as authorized.  In addition, the U.S. government pays the expenses  for a child to travel to and from a secondary school or  post-secondary school, once each way annually. The  age limitation for secondary education travel is 20  (before the 21st birthday) and for post-secondary  education the age limitation is 22 (before the 23rd  birthday.)  The U.S. may also grant Foreign Service staff and  their eligible family members rest and recuperation  travel to the United States, its territories, or other  locations abroad.
The UN provides an Additional Hardship Allowance  for staff serving in certain duty stations where they  are involuntary separated from their families. The  Additional Hardship Allowance is paid in addition to  the normal hardship allowance. The amount of the  allowance varies according to grade and  dependency status, and ranged from $6,540 to  $23,250 as of 2013.  In addition, for a UN staff member located in a duty  station that lacks appropriate schools and medical  facilities to meet family members’ needs, and who is  obliged to pay rent in another city for their family, the  staff member’s rent at the duty station and the rent  for the family in the capital city can be considered  one combined rent for the purposes of determining  the rental subsidy.
The U.S. government offers a separate maintenance  allowance to assist staff who are required to maintain  family members at locations other than their overseas  post of assignment either due to (a) dangerous,  notably unhealthful, or excessively adverse living  conditions at the post, (b) because of special needs  or hardship involving the employee or family member,  c) if the family needs to stay temporarily in  commercial quarters, such as a hotel.
United Nations (UN)  The UN provides an annual hardship allowance to  staff on assignment in duty stations where living and  working conditions are difficult. In determining the  hardship allowance, the UN considers a duty  station’s conditions of safety and security, health  care, housing, climate, isolation, and conveniences  of life. The hardship allowance varies depending on  the duty station, salary level, and whether the staff  member has dependents. Duty stations are  categorized on a scale of difficulty from A to E,  based on security conditions and quality of life at the  duty station. Staff serving in more difficult duty  stations receive higher allowance amounts. As of  May 2013, the hardship allowance ranged from  $4,360 to $23,250.
U.S. Civil Service Staff Serving Overseas and  Foreign Service Employees  The U.S. government provides a post hardship  differential, which is additional compensation of 25,  30 or 35 percent of salary to staff for service at places  in foreign areas where conditions of environment  differ substantially from conditions of environment in  the continental United States and warrant additional  compensation as a recruitment and retention  incentive. A hardship differential is established for  locations where the living conditions are  extraordinarily difficult, involve excessive physical  hardship, or are notably unhealthy. A U.S.  government agency may also grant a difficult-to-staff  incentive differential to staff assigned to a hardship  post upon a determination that additional pay is  warranted to recruit and retain staff at that post. The  allowance is an additional 15 percent of salary.
The U.S. government grants a foreign transfer  allowance to staff for extraordinary, necessary and  reasonable expenses, incurred by staff transferring to  any post of assignment in a foreign area, prior to  departure. This allowance includes a miscellaneous  expense portion, a wardrobe expense portion, a pre- departure subsistence expense portion, and a lease  penalty expense portion.  The U.S. government offers a home service transfer  allowance for extraordinary, necessary and  reasonable expenses, for staff prior to transferring  back to a post in the United States. This allowance  includes a miscellaneous expense portion, a  wardrobe expense portion, a subsistence expense  portion, and a lease penalty expense portion.
UN staff are eligible for an assignment grant that is  intended to provide staff with a reasonable cash  amount at the beginning of the assignment for the  costs incurred as a result of appointment or  reassignment. The amount of the grant varies by  duty station and whether the staff has dependents.  For example, a staff member with two dependents  assigned to headquarters for a period of two years  might earn an assignment grant of $7200, to  compensate for 30 days at the beginning of the  assignment.  The UN also pays removal and shipment costs for  staff. Staff may ship personal effects only, or  household goods and personal effects in some  cases. The UN has established weight limits for this  allowance, which depend on the staff’s number of  dependents.  Some UN staff receive a small representation  allowance, which permits them to extend official  hospitality to individuals outside of the UN. For the  purpose of official hospitality, heads of departments  or offices may also authorize the reimbursement of  reasonable expenditures incurred by staff who do  not receive a representation allowance.
The U.S. government provides representation  allowances intended to cover allowable items of  expenditure by staff whose official positions entail  responsibility for establishing and maintaining  relationships of value to the United States in foreign  countries. Staff may submit vouchers to be  reimbursed for allowable expenses or payments may  be made on their behalf.
United Nations (UN)  The UN may pay a termination indemnity to a staff  member whose appointment is terminated by the  employing organization for any of the following  reasons: abolition of post or reduction of staff,  health, unsatisfactory service or agreed termination.  In cases of unsatisfactory performance, the  termination indemnity is at the discretion of the  Secretary-General and up to half of what is  otherwise payable.
U.S. Civil Service Staff Serving Overseas and  Foreign Service Employees  The U.S. government authorizes severance pay for  full-time and part-time staff who are involuntarily  separated from Federal service and who meet other  conditions of eligibility. To be eligible for severance  pay, staff must be serving under a qualifying  appointment, have a regularly scheduled tour of duty,  have completed at least 12 months of continuous  service, and be removed from Federal service by  involuntary separation for reasons other than  inefficiency (i.e., unacceptable performance or  conduct).
UN staff serving outside their home country are  eligible for an education grant to cover part of the  cost of educating children in full-time attendance at  an educational institution. The amount of the grant is  equivalent to 75 percent of allowable costs, subject  to a maximum that varies from country to country.  Staff are eligible for the grant up to the fourth year of  their child’s postsecondary education, or age 25. For  U.N. staff in the U.S., the maximum education grant  in May 2013 was $43,589.  The UN also covers up to 100 percent of boarding  costs, up to a maximum amount, for children at the  primary or secondary level if educational facilities  are inadequate in the staff’s duty station.
The U.S. government provides an allowance to assist  staff in meeting the extraordinary and necessary  expenses in providing adequate elementary and  secondary education for dependent children at an  overseas post of assignment. The amount of the  grant depends on whether the child is in a school at  post, a school away from the post, or in home study  or at a private institution.
UN staff are eligible for a rental subsidy intended to  provide equity in accommodation expenses among  UN staff in duty stations where rents vary  considerably; and to alleviate hardships staff may  face if their rent is higher than average for  reasonable standard accommodations.  For duty stations in Europe and North America, the  UN determines a reasonable maximum rent level (or  threshold) that is used to determine how much an  staff should pay, taking into account their rent, their  income, and whether they have dependents. Newly  hired staff are eligible to receive a subsidy for the  portion of their rent that exceeds the threshold up to  a maximum of 40 percent of rent. They can receive  the subsidy for up to seven years, and it declines  over time. In years 1-4, the subsidy is 80 percent, in  year 5 the subsidy is 60 percent, in year 6 it is 40  percent, and in year 7 it is 20 percent.  For duty stations outside Europe and North America,  the standard rental subsidy is 80 percent of the rent  exceeding the threshold, up to a maximum of forty  percent of rent.
U.S. civilian staff are eligible for housing subsidies,  called quarters allowances, that are designed to  reimburse staff for substantially all costs of residing in  either temporary or permanent living quarters. A  quarters allowance is not granted when Government  housing is provided.  A temporary quarters subsistence allowance is  granted to staff for the reasonable cost of temporary  quarters, meals and laundry expenses incurred by  staff and/or family member at the foreign post upon  initial arrival or preceding final departure.  A living quarters allowance is granted to staff for the  annual cost of suitable, adequate, living quarters for  the staff and his or her family.  An extraordinary quarters allowance is granted to  staff who must vacate permanent quarters due to  renovations, or unhealthy or dangerous conditions.
section_title: United Nations (UN)
paragraphs: UN Allowances Not Offered to U.S. Employees  Support of dependents  The UN provides eligible staff members an annual  children’s allowance of $2,929 per child under age  18 (or under 21 if a full-time student), and this  amount is doubled for staff with disabled children.  The UN also pays employees with dependents at a  higher salary rate than those without dependents.  According to the UN, this is similar to the practice of  member states that provide a tax advantage for  having dependents. Many UN employees are not  eligible for these tax advantages, as they might be if  they were employed in their national civil service,  because most UN employees are not required to  pay income taxes on their UN earnings in their home  countries. To qualify for the dependents salary rate,  UN staff must have a primary dependent (i.e., one  dependent spouse or a first dependent child, if there  is no dependent spouse). For staff with no primary  dependent, the UN also provides a secondary  dependent’s allowance for eligible staff members  caring for a dependent parent or sibling.
No comparable allowance.
To encourage movement from one duty station to  another, the UN provides an annual mobility  allowance to staff on an assignment of one year or  more who have had 5 consecutive years of service  in the UN system. The amount of this allowance  varies by the staff’s number of assignments, duty  station, and whether the staff has dependents. As of  August 2012, this allowance ranged from $2,020 to  $16,900.
No comparable allowance, though the U.S.  government offers a difficult-to-staff incentive. See  “Serving in a hardship duty station” above.
UN provides, upon separation, a repatriation grant to  staff members whom the organization is obligated to  repatriate and who at the time of separation are  residing, by virtue of their service with the United  Nations, outside their home country. The UN  determines the amount based on salary scale and  varies according to family status and length of  service outside the home country.
No comparable allowance.
section_title: United Nations (UN)
paragraphs: No comparable allowance.
Some U.S. government agencies have a program to  repay certain types of Federally made, insured, or  guaranteed student loans as an incentive to recruit or  retain highly qualified personnel. Agencies may make  payments to a loan holder of up to $10,000 in a  calendar year, up to an aggregate maximum of  $60,000 for any one staff. In return, staff must sign an  agreement to remain in the service of the paying  agency for at least 3 years. If the staff separates  voluntarily or is separated involuntarily for  misconduct, unacceptable performance, or a negative  suitability determination under 5 CFR part 731 before  fulfilling the service agreement, he or she must  reimburse the paying agency for all student loan  repayment benefits received.
section_title: Appendix IV: Leave Benefits
paragraphs: As we previously reported, UN staff are eligible for more generous leave  benefits than U.S. civil service employees. For example, UN staff on  fixed-term contracts earn more annual leave than U.S. civil service  employees. UN staff earn 30 days of annual leave per year, while U.S.  civil service employees earn 26 days a year once they have 15 or more  years of service. U.S. civil service employees with less than 3 years of  service earn 13 days per year, and those with 3 but less than 15 years of  service earn 20 days per year. In addition, UN staff can be eligible for  more sick leave than U.S. civil service employees, depending on the  length of service. UN Secretariat staff do not earn sick leave the way they  earn annual leave. Those with a sick leave need, who have worked for  the UN for less than 3 years, are entitled to sick leave of up to 3 months  on full salary and 3 months of half salary. UN staff who have completed 3  or more years of service are entitled to up to 9 months of sick leave. In  contrast, U.S. civil service employees earn 4 hours of sick leave per pay  period, or 1 day per month and may carry over unlimited amounts of sick  leave into subsequent years. In addition, UN staff are entitled to paid  maternity and paternity leave, as well as eligible for paid leave if they  adopt a child, which is not offered to U.S. civil service employees. U.S.  civil service employees are entitled to take certain amounts of time away  from work for these purposes, but must use either their paid leave or  unpaid leave under the Family and Medical Leave Act to account for their  absences. Both UN staff and U.S. civil service employees have 10  holidays per year, though the dates may vary for UN staff depending on  their duty station. Table 15 compares leave benefits for UN staff and U.S.  civil service employees.
section_title: Appendix V: Comments from the Department of State
subsections: section_title: GAO Comment
paragraphs: State commented that the ICSC review faces inherent challenges,  including complexities associated with the Noblemaire Principle, which  requires that compensation for UN professional staff be set in comparison  to the highest compensated national service, which the UN has  considered to be the U.S. federal civil service. State further commented  on ambiguities with the Noblemaire Principle, including ambiguities over  the comparison group and which elements of compensation should be  included in the comparison. We agree that there are ambiguities  associated with the Noblemaire Principle and therefore we did not use it  as the basis for our comparison of UN and U.S. government benefits and  allowances. As we discuss in the report, the UN General Assembly has  directed that only salaries be used as part of the its margin calculation,  rather than total compensation, which would include benefits and  allowances in addition to salaries. It was beyond the scope of our review  to comment on how the Noblemaire Principle should be applied, and our  comparisons of UN and U.S. government benefits and allowances should  not be interpreted as a statement or opinion on how Noblemaire  comparisons should be conducted.
section_title: Appendix VI: GAO Contact and Staff Acknowledgments
subsections: section_title: GAO Contact
section_title: Staff Acknowledgments
paragraphs: In addition to the staff named above, Elizabeth Repko (Assistant  Director), Debbie Chung, Leah DeWolf, Mark Dowling, Jeremy Latimer,  Valérie Nowak, John O’Trakoun, Rhiannon Patterson, Steven Putansu,  Jerry Sandau, David Schneider, Frank Todisco, and Ozzy Trevino made  significant contributions to this report.