THE WORLD BANK GROUP STAFF RETIREMENT PLAN
2001 ANNUAL REPORT
CONTENTS
Highlights, 2001 2
Overview of the Plan 3
Performance 6
Management of the Plan 11
Appendix 1 Committee Memberships 12
Appendix 2 Actuarial Valuations 13
Appendix 3 Financial Statements 18
2 | Staff Retirement Plan
HIGHLIGHTS 2001
This is the 52nd Annual Report of the Staff Retirement Plan, which details the financial
condition of the Plan and presents the audited financial statements and the actuarial
valuation for 2001. The Plan remains in sound financial condition despite significant
declines in equity markets in the last two years. During 2001, the market value of
assets declined by $0.9 billion to $9.9 billion while the liabilities of the Plan increased
by $0.8 billion to $11.0 billion.
In 2001, SRP assets returned -6.5% while outperforming the target portfolio by 1.7%.
The funded status, i.e., the ratio of assets to liabilities, is at 0.90 at the end of CY01,
which represents a decrease from 1.06 at the end of CY00. Based on the annual actu-
arial valuation and recommendations from the Plan’s actuaries, the Pension Finance
Committee determined that Bank’s contributions to the Plan, which have been sus-
pended since FY98, will be resumed in FY03.
Plan management remains focused on risk management and diversification of fund
assets to generate the highest possible returns consistent with the goal of main-
taining a healthy funded ratio. In this regard, efforts have also been undertaken to
enhance risk adjusted returns, including allocations to alternative asset classes (private
equity, real estate and hedge funds). The strategic asset allocation of the SRP, which
is the biggest contributor to plan performance, was revised in April 2002 within an
asset-liability framework that is bounded by constraints on overall risk tolerance. As a
result, the Pension Finance Committee increased the asset allocation to fixed income
to 40% from 25%.
Annual Report 2001 | 3
OVERVIEW OF THE PLAN
The benefits payable under the Staff
Retirement Plan are based on formulas
contained in the Plan. The Plan has two
different sets of provisions: the “gross
plan,” which generally covers those par-
ticipants who first joined the Plan prior
to April 15, 1998; and the “net plan,”
which generally covers those partici-
pants who joined on or after April 15,
1998. The net plan was established as of
April 15, 1998, as a result of Human
Resources reform, and enabled nearly
all World Bank Group staff who had pre-
viously not been participants, including
non-regular staff and staff in country
offices, to be covered by a pension plan.
This action added about 5,000 new
participants to the Plan.
Gross plan benefits are based on
the number of years of pensionable ser-
vice and the highest three year average
gross pensionable salary. Participant
contributions are fixed at 7% of pen-
sionable gross salaries. Net plan benefits
are provided from two components: a
traditional defined benefit component
and a cash balance component. The de-
fined benefit component benefits are
based on the number of years of service
and the highest three year average net
salary. A cash balance plan is technically
a defined benefit plan, although it has
many of the characteristics of a defined
contribution or savings plan. The cash
balance component benefit is equal to
the accumulated value of the Bank’s
credits (10% of net salary), participant
contributions (5% of net salary) and
deemed earnings credited to the partici-
pant’s account. If net plan benefits are
subject to tax, a tax supplement is also
paid. The tax supplement is paid by the
Bank and is not a liability of the Plan.
Sources of Information on Your Benefits
The Retirement & Pension Information
site on the HR Kiosk (on the World Bank
Intranet) contains many useful tools for
calculating your pension benefit and
planning for your retirement’s finances:
■ Your Pension Benefit Estimate (if you
are in the “gross plan”) can be used to
estimate your pension benefits for any
future retirement date;
■ Your Cash Balance Account (if you are
in the “net plan”) provides the value of
your account through the most recent
month-end and estimates your with-
drawal benefit from the defined benefit
component;
■ Retirement Planner helps you project
your SRP benefit, estimate your
annual retirement income and high-
lights any gap between your estimated
retirement income needs and your
income sources. You can then review
strategies for closing any retirement
income gap.
Additionally, the Pension Admin-
istration web site (http://retireguide-
lines.worldbank.org) contains useful
information about the SRP such as:
■ Staff Retirement Plan legal document
■ Guidelines and fact sheets for par-
ticipants joining the plan on or before
April 14, 1998
■ Pension plan summary for participants
joining the plan on or after April 15, 1998
■ Frequently asked questions and answers
on the plan for participants joining the
Plan on or after April 15, 1998
■ Investment option fact sheets for SRP
participants joining the Plan on or
after April 15, 1998; and
■ Staff Retirement Plan annual reports
was FY98, reflecting the sound financial
condition of the Plan. In each succeeding
year through FY02, the PFC has deter-
mined that Bank contributions could
remain suspended. In April 2002, the PFC
determined that Bank’s contributions
needed to be resumed for FY03.
A good indicator of a pension plan’s
financial health is the funded ratio, the
ratio of the current market value of
plan assets to a measure of liabilities. For
funding purposes the Plan uses the total
projected liabilities for all current partici-
pants and retirees. In general, assets
tend to be more volatile than liabilities.
Therefore, when asset performance is
greater than assumed, the funded ratio
tends to increase, and vice versa. Over
4 | Staff Retirement Plan
OVERVIEW OF THE PLAN
0
4,000
10,000
14,000
2001200019991998199719961995
51%
12,000
8,000
6,000
2,000
57%
65%
43%45%
51%56%
7,077 6,897 6,669
11,114 11,622 11,039 10,903
3,604 3,938 4,3224,774
5,213 5,685 6,065
0%
20%
50%
70%
60%
40%
30%
10%
FIGURE 1 PLAN PARTICIPATION, 1995–2001
Participation and Benefit Payments
As of December 31, 2001, there were
10,903 active participants in the SRP.
With all new staff joining the net plan
and the retired staff exiting the gross
plan, the number of active participants
in the net plan now exceeds the number
of gross plan participants. An additional
380 retirees started drawing their pen-
sions in 2001.
Typically, in a mature pension plan like
the Bank’s, the number of retirees would
grow relative to the number of active par-
ticipants. Since the adoption of the net
plan, the inclusion of the non-regular
staff and the staff in country offices has
decreased the ratio of retirees to active
participants (Figure 1).
Contributions and Payments
Since 1990, pension benefit payments
have increased more than four times,
reaching $302 million in 2001. In 2001,
staff contributions amounted to $64
million.
Due to the funded status of the Plan,
Bank contributions remained suspended
for CY01 (Figure 2).
Funded Status and Actuarial Valuation
The Staff Retirement Plan is funded by
contributions from both the participants
and the Bank. Participants contribute at
a fixed rate depending on the plan in
which they are participating: for the
gross plan, the rate is 7% of pensionable
gross salaries; for the net plan, the rate is
5% of net salaries. The Bank’s contribu-
tion rate varies from year to year, as
determined by the PFC, which bases its
judgment on the results of annual actu-
arial valuations of the Plan’s assets and
liabilities. The Bank’s contribution rate
has varied considerably over time, with a
maximum of 19% of pensionable gross
salaries (equivalent to approximately
30% of net salaries). The first year in
which no Bank contribution was required
Active Participants (includes those not in contributary service)
Retired Participants and Beneficiaries
Retired as a % of active Participants
Annual Report 2001 | 5
FIGURE 2 ANNUAL CONTRIBUTIONS AND PAYMENTS, 1990–2001
MILLIONS OF US$
Bank Contributions
Staff Contributions
Benefit Payments
-350
-250
-150
-50
50
150
250
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001
69
41
89
42
110
49
117
54
118
52
113
56
101
57
47
57
58 65 66 64
-68 -74-86 -92
-110
-143-167
-185
-227-249
-306 -302
the past twelve years, the funded ratio
of the Plan has increased significantly
from a low of 0.75 in 1990 to a high of
1.23 in 1999.
Major changes in the assumptions were
made in 1998 following the completion
of the actuarial valuation for 1998. The
actuaries conducted a review of the Plan
funding method including the principal
financial assumption, the real rate of
return. On the basis of this review, the
PFC decided to lower the assumed real
rate to reflect changed perceptions of
long-term return and inflation rates. The
reduction from (arithmetic) 4.0% to
(arithmetic) 3.5% was realized through
reductions in the assumed nominal rate
of return on investments from 9.0% to
7.5%, and in the underlying inflation rate
from 5.0% to 4.0%. The impact of this
change was a reduction in the funded
ratio at that time from 1.13 to 1.04.
In 2001, as assets declined to $9.9
billion (Figure 3) due to weak markets
and liabilities grew by $0.9 billion, the
funded ratio decreased to 0.90 from
1.06 (Figure 4).
0
2
4
6
8
10
12
14
200019981996199419921990
11.510.8
9.9
1991 1993 1995 1997 1999 2001
FIGURE 3 MARKET VALUE OF ASSETS
BILLIONS OF US$
6 | Staff Retirement Plan
PERFORMANCE
Investment Policy for the Staff
Retirement Plan
Pension funds generally have a target
portfolio, which incorporates asset
classes representative of their invest-
ment objectives. The PFC establishes the
target portfolio for the Plan. The com-
position, risk tolerance and expected
returns of the Plan’s target portfolio
reflect its relatively long-term investment
horizon and cash flow needs, which may
be quite different from those of other
plans. Each year, the strategic asset allo-
cation is reviewed to consider any adjust-
ments to the target asset allocation
based on the events during the year. In
December 2000, the long term policy
was set at 80% for equities and alterna-
tive investments and 20% to fixed
income. In August 2001, the policy was
changed in response to the diminished
ability of the Plan to undertake risk, to
75% for equities and alternatives invest-
ments and 25% to fixed income. In April
2002, a further review reflecting a chang-
ing risk budget and an updated medium-
term outlook for asset returns resulted in
the allocation to fixed income to be
increased to 40%.
The Plan’s returns are determined pri-
marily by the long-term asset allocation
or overall returns in markets in which the
assets are invested. Its assets are well
diversified across types of investments
(Table 1).
TABLE 1 LONG TERM INVESTMENT POLICY ASSET MIX (as of December 2001)
ASSET CLASS %
EQUITIES 55
U.S. Equities 33
Non-U.S. Equities 22
Developed Markets 20
Emerging Markets 2
ALTERNATIVES 20
Private Equity Up to 10
Real Estate Up to 6
Hedge Funds Up to 8
FIXED INCOME 25
TOTAL 100
FIGURE 4 FUNDED RATIO, 1990–2001
0.0
0.5
1.0
1.5
200019981996199419921990
0.75
1.04*
1.23*
1.06*
0.90*
1991 1993 1995 1997 1999 2001
* 1998–2001 Funded Ratio determined at an assumed real rate of return of 3.5% compared to 4% in earlier years.
Market Environment
Global equity markets continued their
decline in 2001, with the S&P 500 Index
declining -13.0% and the MSCI EAFE
Index declining -21.4% in dollar terms
(Table 2). The severe down-turn in tech-
nology companies was mirrored in the
technology-laden NASDAQ which ended
the year down 21.1%. Although the equity
markets were down sharply before
September 11, reflecting the poor eco-
nomic outlook and lower corporate
profits, the tragic events of September 11
resulted in major declines during Sep-
tember. U.S. equity prices slowly rose
Annual Report 2001 | 7
6.9%, after a rally in the fourth quarter,
as investors searched for higher yields
and positive sentiment for an economic
recovery in 2002.
The Salomon World Government Bond
Index (WGBI) returned 6.1%, influenced
by the prospect of economic slowdown in
U.S and Europe. Emerging market bonds
performed poorly with the JPM EMBI+
down 0.8%, driven by Argentina’s finan-
cial crisis. Japanese bond markets were
also weak (-9.9%). Argentina succumbed
to its economic and debt problems by
defaulting on its obligations, and its debt
lost more than 57% of its value during the
fourth quarter. In contrast, the debt of
most other emerging market countries
registered positive returns, due to
growing investor confidence in a global
economic recovery.
during the rest of the year ending the
year with two successive years of losses,
the first since 1973–1974. International
stock markets also declined, in tandem
with the U.S., reflecting a slowdown in
world-wide demand and a poor outlook
for corporate profits. The rout in the
technology and telecommunications
companies was especially severe after
the records set in early 2000. A strong
dollar versus the Japanese yen and euro
made the returns in dollar terms even
worse. From a style perspective, value
outperformed growth for the year, with
high P/E equities performing poorly
compared to lower P/E equities. Also,
large-cap equities were weak compared
to small-cap equities with the Russell
2000 (small-cap index) gaining 2.5%
outperforming the S&P 500 Index which
declined 13.0%. International equity mar-
kets across the board plunged to their
lowest level in more than three years,
reflecting the poor environment that
shook investor confidence—terrorism,
military action and a possibility of global
recession. In the Latin American region,
all major markets1 (Brazil: -23.8%,
Argentina: -29%), with the exception
of Mexico (+19.1%) declined in dollar
terms. Similarly all European markets
performed poorly (U.K.: -16.6%, France:
-23.4%, Germany: -24.2%). In Asia, South
Korea was the best performer (+45%),
while Japan (-29%) and other Pacific-rim
countries also performed poorly.
Bond markets, in contrast, responded
positively to the Federal Reserve Board’s
attempts to revive the flagging U.S econ-
omy. In 2001, the Federal Reserve Board
lowered its short-term interest rate a
record 11 times from 6.5% to 1.75% to
encourage economic growth. The
Lehman Brothers Aggregate Bond Index
(a measure of investment grade U.S.
bonds) returned 8.4%, about 50 bps
over comparable treasuries. Reflecting
uncertainty in the financial markets and
flight to quality, high-yield bond spreads
widened to more than 8 percentage
points in September 2001. The SSB
High-Yield Cash Pay Index returned
1 World stock market performance based onDow Jones Global indices
TABLE 2 SELECT MARKET INDICES
INDEX %
S&P 500 Index -13.0
MSCI EAFE -21.4
NASDAQ -21.1
Russell 3000 -11.5
Salomon BIG 8.5
Salomon WGBI 6.1
JPM EMBI+ -0.8
8 | Staff Retirement Plan
PERFORMANCE
SRP Performance
In 2001, SRP assets posted a return of
-6.5% outperforming its target portfolio
by 1.7% (Figure 5). The outperformance
of the Plan in 2001 relative to benchmark
was due to outperformance in most
asset classes compared to their bench-
marks. These benchmarks are com-
monly used indices that represent the
market performance of the respective
asset classes (Table 2).
Hedge funds were up 2.2%, exceeding
the benchmark return of -9.6%. Private
Equity underperformed its benchmark,
but returned -10.5% due to declining pri-
vate equity valuations and reduced activ-
ity in the private equity market. Real
estate also provided positive returns
of 4.1% in a down market, although it
under performed its benchmark by 4.6%
due to declining asset valuations in core
real estate and poor REIT performance.
Non-U.S. equity produced excess returns
because of its value tilt.
Over the past ten years, the Plan has out-
performed the policy benchmark by
0.3% (Figure 6). All asset classes outper-
formed their benchmarks over ten years,
with fixed income, non-U.S. equities and
hedge funds registering the largest out-
performance (Figure 7).
-20-20 -15-15 -10-10 -5-5 0 5 1010
(6.5)(8.2)
(10.8)
(11.5)
(16.4)(19.6)
7.9
7.3
2.2(9.6)
(10.5)(12.4)
4.1
8.7
Total Plan
U.S. Equity
Non-U.S. Equity
Fixed Income
Hedge Funds
Private Equity
Real Estate
5 YearActual
5 YearPolicy
10 YearActual
10 YearPolicy
(10)
(8)
(6)
(4)
(2)
0
2
4
6
8
10
12
(6.5)(8.2)
7.9 7.4
9.9 9.6
1 YearPolicy
1 YearActual
TABLE 3 STAFF RETIREMENT PLAN BENCHMARKS
ASSET CLASS BENCHMARK
Total Plan Composite benchmark based on benchmark weights
U.S. Equities Russell 3000
Non-U.S. Equities Blend of MSCI World ex U.S. & MSCI EMF
Fixed Income Blend of U.S. & Non-U.S. Fixed income indices
Hedge Funds Plan Composite excluding Private Equity and Real Estate
Private Equity Venture Economics Index
Real Estate Russell Real Estate Index
FIGURE 5 INVESTMENT PERFORMANCE, 2001
FIGURE 6 SRP INVESTMENT PERFORMANCE, 1992–2001
Actual
Benchmark
Annual Report 2001 | 9
1 YearActual
1 YearPolicy
5 YearActual
5 YearPolicy
10 YearActual
10 YearPolicy
(15.0)
(10.0)
(5.0)
0
5.0
10.0
15.0
(10.8) (11.5)
9.2 10.112.5 12.4
1 YearActual
1 YearPolicy
5 YearActual
5 YearPolicy
10 YearActual
10 YearPolicy
(25.0)
(20.0)
(15.0)
(10.0)
(5.0)
0
5.0
10.0
(16.4)
(19.6)
3.11.1
8.06.1
1 YearActual
1 YearPolicy
5 YearActual
5 YearPolicy
10 YearActual
10 YearPolicy
0
1.0
2.0
3.0
4.0
5.0
6.0
7.0
8.0
9.0
10.0
7.97.3
8.0 8.0
9.2
8.1
1 YearActual
1 YearPolicy
5 YearActual
5 YearPolicy
10 YearActual
10 YearPolicy
-15.0
-10.0
-5.0
0.0
5.0
10.0
15.0
2.2
(9.6)
4.8 5.7
10.08.9
1 YearActual
1 YearPolicy
5 YearActual
5 YearPolicy
10 YearActual
10 YearPolicy
(15.0)
(10.0)
(5.0)
0
5.0
10.0
15.0
20.0
25.0
(10.5)(12.4)
20.1
10.1
14.3 13.6
1 YearActual
1 YearPolicy
5 YearActual
5 YearPolicy
10 YearActual
10 YearPolicy
0.0
2.0
4.0
6.0
8.0
10.0
12.0
14.0
16.0
4.1
8.7
14.4
12.7
8.68.0
FIGURE 7 SRP INVESTMENT PERFORMANCE BY ASSET CLASS, 1992–2001
U.S. EQUITY NON-U.S. EQUITY
FIXED INCOME HEDGE FUNDS
PRIVATE EQUITY REAL ESTATE
10 | Staff Retirement Plan
PERFORMANCE
Performance of the Cash Balance
Investment Options
There are four investment options in
the Cash Balance component of the
net plan. Participants may chose to
allocate their account balances among
any one or more of these options and
can reallocate quarterly. Shown below
are the 1, 5 and 10 year returns for
each of these investment options as
of December 31, 2001. The 3% real
returns are in nominal terms (adjusted
for inflation).
Historic performance is not necessarily
indicative of actual future investment per-
formance, which could differ substantially.
Detailed information on the investment
options for the cash balance component
is available on the World Bank Group’s
web site at http://retireguidelines.world-
bank.org
The investment option fact sheets are
updated quarterly.
-24
-16
-8
0
8
16
24
6.40 5.35 5.65
1 Year 5 Years 10 Years
HISTORICAL PERFORMANCE OF CASH BALANCE INVESTMENT OPTIONS
-24
-16
-8
0
8
16
24
(13.04)
9.16 10.66
1 Year 5 Years 10 Years
-24
-16
-8
0
8
16
24
(21.35)
0.894.46
1 Year 5 Years 10 Years
-24
-16
-8
0
8
16
24
9.40 8.27 8.38
1 Year 5 Years 10 Years
Real 3%(annualized return)
S&P 500(annualized return)
MSCI EAFE(annualized return)
LB Govt/Corp(annualized return)
Annual Report 2001 | 11
MANAGEMENT OF THE PLAN
Management of the Plan
The Staff Retirement Plan’s finances
are overseen by the Pension Finance
Committee, which establishes Plan
assumptions and portfolio targets,
reviews actuarial results and investment
performance, and determines Bank con-
tributions. The investment and other
staff functions are provided by the
Pension Investment Department of the
Bank’s Treasury. Likewise, the adminis-
tration of the Plan benefits is managed
by the Pension Administration Division,
under the oversight of the Pension
Benefits Administration Committee. The
members of both committees are listed
in Appendix 1. According to Plan provi-
sions established by the Board,
Committee members include Executive
Directors, Bank staff (including nominees
of the Staff Association) and a retiree
nominated by the 1818 Society.
Actuarial Valuation
The actuarial valuation results from the
consulting actuaries, Buck Consultants,
are presented in Appendix 2.
Financial Statements
Audited financial statements are pre-
sented in Appendix 3.
Financial Planning
Though the Staff Retirement Plan
remains a cornerstone in the planning
for retirement for participants, other ele-
ments of planning remain a very per-
sonal choice. In most cases, planning for
retirement should start early, and be
based on sound financial analysis of
retirement needs.
To aid in your own planning, significant
resources are available on the Bank’s
intranet. By accessing the HR Kiosk,
you will find pension benefit informa-
tion, including a retirement planner.
Pension Administration has additional
print resources. However, please keep in
mind that these are general resources
which do not address the specific cir-
cumstances of World Bank Group staff.
12 | Staff Retirement Plan
APPENDIX 1 COMMITTEE MEMBERSHIPSDuring CY2001
Pension Finance Committee
Mr. Gary L. PerlinSenior Vice President and Chief Financial Officer—Chair
Mr. Khalid M. Al-Saad (until November 2001)Executive Director
Mr. Stephen EcclesRetiree—1818 Society Representative
Mr. Lawrence E. Hinkle (until March 2001)Lead Technical Specialist—Staff Association Representative
Mr. Jeffrey A. KatzLead Economist—Staff Association Representative
Mrs. Farida KhambataVice President, Portfolio and Risk Management, IFC
Mr. Sudhir Krishnamurthi (until April 2001)Director, Corporate Finance
Mr. Kenneth G. LayDeputy Treasurer and Director, Asset-Liability Management
Ms. Afsaneh Mashayekhi Beschloss (until April 2001)Vice President and Treasurer
Mr. Franco Passacantando (from January 2001)Executive Director
Mr. Jaime Ruiz (from December 2001)Executive Director
Mr. Mark Spindel (from April 2001)Chief Investment Officer, IFC—Staff Association Representative
Ms. Katherine Sierra (from May 2001)Vice President, Human Resources
Mr. Graeme Paul Wheeler (from August 2001)Vice President and Treasurer
Mr. John GandolfoPension Finance Administrator and Secretary
Pension Benefits Administration Committee
Ms. Katherine SierraVice President, Human Resources—Chair
Mr. Girmai Abraham (from March 2001)Executive Director
Mr. T. Mark BowyerManager, Human Resources Service Center—Deputy Chair
Ms. Lana A. BaderSection Chief—Staff Association Representative
Mr. Matthias MeyerExecutive Director
Ms. Eva MeigherRetiree—1818 Society Representative
Ms. Letitia A. ObengSector Manager, Water and Urban
Mr. Ardhanari Ramaswamy (from November 2001)Financial Officer—Staff Association Representative
Ms. Barbara J. WalkerOffice Manager, Central America Country Management Unit
Mr. Krishnan Nagarajan,Pension Benefits Administrator—Secretary
Annual Report 2001 | 13
APPENDIX 2 ACTUARIAL VALUATIONS
June 14, 2002
Mr. Charles A. Harrison
Actuary
The World Bank Group
1818 H. Street, N.W.
Washington, DC 20433
Re: Final Results of the Actuarial Valuation of the Staff Retirement Plan as of January 1, 2002
Dear Mr. Harrison:
We have prepared the valuation of the Staff Retirement Plan as of January 1, 2002, and are writing to present the results. These results
are based on final asset information provided by the Bank on June 3 and census data provided by the Bank on February 14.
DATA
The following table summarizes the data included in both the current and previous valuations:
DATA AS OF 1/1/2001* DATA AS OF 1/1/2002* PERCENTAGE INCREASE
Number of active participants 10,934 10,810 (1.1%)
Annual net remuneration $713,629,429 $740,240,786 3.7%
Number of participants not in contributory service 105 93 (11.4%)
Number of retired participants,terminated participants entitled to deferred pension, and beneficiaries 5,684 6,061 6.6%
Annual pensions $227,251,890 $252,686,379 11.2%
Present assets of the Plan:At market value $10,846,021,000 $9,887,085,000 (8.8%)
At adjusted value $10,722,219,011 $10,704,559,860 (0.2%)
*Based on final values
ASSUMPTIONS AND METHODSThe valuation was based on the Plan provisions in effect on January 1, 2002. All actuarial methods and assumptions remained the
same as those used in the prior valuation as of January 1, 2001, with the following exceptions:
■ The value of termination grants which will be payable to 1,284 Local Staff for service rendered prior to April 15, 1998 has been
included for the first time.
■ The valuation model was updated to reflect increases in the statutory compensation limits and maximum benefit limits intro-
duced by the Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA). These changes do not affect the total
benefits payable, but do impact the determination of the portions payable from the SRP and SSRP.
212 | 330-1000Fax 212 | 695-4184
14 | Staff Retirement Plan
APPENDIX 2 ACTUARIAL VALUATIONS
RESULTSThe results in the form of a valuation balance sheet are presented in the attached Table I, where the assets have been allocated among
the various components of the SRP on the basis of each plan’s closed group liability.
The principal result of this valuation, together with the results produced last year, are shown below.
BANK CONTRIBUTION RATES*
DATE OF VALUATION CLOSED-GROUP BASIS OPEN-GROUP BASIS
January 1, 2001 (14.07%) 9.46%
January 1, 2002 (4.41%) 12.59%
*Contribution rates are expressed as a percentage of net salaries.
A preliminary summary of the key items which led to the changes in rates is presented below
(items which increase the rate are shown in parentheses).
KEY ITEMS OF NET GAIN/(LOSS)(net pay basis)
CURRENT PARTICIPANTS TOTAL PARTICIPANTS
Investment gain (7.57%) (2.54%)
Salary increase (0.49) (0.21)
New participants during the year (2.71) (0.09)
Contributions different than theoretical rate 1.37 (0.31)
Normal and Early retirement 0.16 0.05
Cost-of-living adjustments for current pensioners 0.60 0.20
Inclusion of Termination Grants for Certain Local Staff (0.24) (0.08)
Effect of EGTRRA (0.52) (0.17)
Other sources (0.26) 0.02
TOTAL (9.66%) (3.13%)
With regard to the “investment gain” item in the gain/loss analysis, it is important to note that this was calculated based on the
adjusted asset value (a three-year moving average asset value). Because of the averaging process, portions of the loss in market value
that occurred in 2000 and 2001 have yet to emerge into the adjusted value. As of the valuation date, the adjusted asset value was $817
million greater than the market value, indicating that if all other assumptions are met, the contribution rates will increase over the next
two years as the losses from 2000 and 2001 fully emerge into the adjusted value. The item “other sources” represents all the detailed
gains/losses attributable to the decremental assumptions used in the model and other miscellaneous items, and will be disclosed in
full in our formal report.
Annual Report 2001 | 15
Results for the SSRP are shown in the attached Table II. The SSRP liability shows a relatively small increase compared to last year’s lia-
bility, even though the higher compensation and benefit limits introduced by EGTRRA increased the benefits which can be paid from
the SRP in the future. A revision in the allocation of future staff contributions between the SRP and SSRP, together with the reduction
in future SSRP staff contributions as a result of EGTRRA, produced an overall increase in the SSRP contribution rate. Based on these
results, Buck recommends that the PFC adopt a Bank contribution rate of 1.76% of net salaries for the SSRP (approximately $13 million).
For many years, we have followed a practice of including in our annual valuation reports an analysis of the funded status of the SRP as
of each valuation date. A summary of these statistics for the past three years is attached as Table III. These funded ratios indicate that
the SRP has experienced a weakening of its funded status due to the investment losses in 2000 and 2001.
The valuation indicates a theoretical negative contribution rate. This would, absent other considerations, indicate that maintenance of
the contribution holiday for Fiscal 2003 would be warranted. However, it should be noted that (i) part of the $817 million difference
between the market and adjusted value of assets will emerge into the 1/1/2003 adjusted value and (ii) next year the three-year asset
averaging method used to determine the adjusted asset value will exclude 1999 (the last year that superior asset performance was
achieved). Taking this into consideration, and if all other assumptions are met, the Fiscal 2004 contribution rate will be positive. Our
analysis indicates that if the fund earns the assumed 7.5% return on a market value basis, the adjusted asset value can be expected to
decrease by about $350 to $400 million, or about 3.5%. This variance from the expected asset return of 7.5% would increase the theo-
retical contribution rate by over 11%. Overall, if all other assumptions are realized in 2002, we estimate that the fund would need to
earn around 25% on a market value basis for the theoretical contribution rate to remain negative next year.
Taking all of these factors into consideration, Buck recommends, notwithstanding the negative closed group contribution rate disclosed
in this valuation, that the Bank make a contribution of 5% of salary to the Plan (approximately $37 million). However, since contribu-
tions at that rate would be less than 1/2% of market assets, if the PFC were to maintain the contribution holiday, that decision would
not adversely affect the SRP’s funded status in the near term. A further analysis of the funded status will be included in our final valu-
ation report.
If you should have any questions please do not hesitate to call.
Sincerely,
John J. McGrath, F.S.A.
Principal, Consulting Actuary
Stuart M. Schulman, A.S.A.
Associate Principal, Consulting Actuary
Enclosure
cc: Mr. Jeffrey S. Zimmerman, Buck Consultants, Inc.
JJM/SMS:HF
L17097JM
16 | Staff Retirement Plan
APPENDIX 2 ACTUARIAL VALUATIONS
APPENDIX TABLE 1 THE WORLD BANK GROUP VALUATION BALANCE SHEETValuation as of January 1, 20021
(all monetary amounts in thousands of US dollars)
Reflects limits for 415 and 401(a)(17)
TOTAL CURRENT PARTICIPANTS NEW ENTRANTS PARTICIPANTS
Net DB Net CB Net DB Net CBGross plan component2 component3 Total plan component2 component3 Total plan
LIABILITIES
PV of benefits payable to or on behalf of retired and deceased participants 4,395,014 0 0 4,395,014 0 0 4,395,014
PV of benefits expected to become payable on behalf of active and inactive participants 5,399,148 553,770 641,253 6,594,171 1,775,736 2,161,719 10,531,626
TOTAL LIABILITIES 9,794,162 553,770 641,253 10,989,185 1,775,736 2,161,719 14,926,640
1% of Future Net Pay 38,005 37,807 75,812 150,601 226,413
1% of Future Net Pay (Limited) 37,673 150,601
ASSETS
Adjusted value of assets 9,540,488 539,427 624,645 10,704,560 0 0 10,704,560
Present value of prospective Staff contributions 430,531 0 188,365 618,896 0 753,003 1,371,899
Present value of prospective Bank contributions (176,858) 14,343 (171,756) (334,271) 1,775,736 1,408,716 2,850,181
TOTAL ASSETS 9,794,162 553,770 641,253 10,989,185 1,775,736 2,161,719 14,926,640
Bank Contribution Rate (% of net pay) -4.65% 0.38% -4.54% -4.41% 11.79% 9.35% 12.59%
Bank Contribution Rate (% of gross pay) -2.86% #N/A #N/A #N/A #N/A #N/A #N/A
1Assets allocated in proportion to closed group liabilities2Net DB component means the defined benefit component formula, also includes termination indemnity component3Net CB component means the cash balance component formula
Annual Report 2001 | 17
APPENDIX TABLE 3 THE WORLD BANK GROUP STAFF RETIREMENT PLANFUNDED STATUS, 2000–2002
CLOSED-GROUP OPEN-GROUPDATE FUNDED RATIO FUNDED RATIO
1/1/2000 1.20 0.85
1/1/2001 1.06 0.77
1/1/2002 0.90 0.66
APPENDIX TABLE 2 THE WORLD BANK GROUP SSRP VALUATION BALANCE SHEETValuation as of January 1, 20021
(all monetary amounts in thousands of US dollars)
TOTAL CURRENT PARTICIPANTS NEW ENTRANTS PARTICIPANTS
Net DB Net CB Net DB Net CBGross plan component2 component3 Total plan component2 component3 Total plan
LIABILITIES
PV of benefits payable to or on behalf of retired and deceased participants 12,685 0 0 12,685 0 0 12,685
PV of benefits expected to become payable on behalf of active and inactive participants 164,705 4,696 1,960 171,361 0 0 171,361
TOTAL LIABILITIES 177,390 4,696 1,960 184,046 0 0 184,046
1% of Future Net Pay 38,005 37,807 75,812 150,601 226,413
1% of Future Net Pay (Limited) 37,673 150,601
ASSETS
Marked value of assets 44,239 1,171 489 45,899 0 0 45,899
Present value of prospective Staff contributions 4,108 0 669 4,777 0 0 4,777
Present value of prospective Bank contributions 129,043 3,525 802 133,370 0 0 133,370
TOTAL ASSETS 177,390 4,696 1,960 184,046 0 0 184,046
Bank Contribution Rate (% of net pay) 3.40% 0.09% 0.02% 1.76% 0.00% 0.00% 0.59%
Bank Contribution Rate (% of gross pay) 2.08% #N/A #N/A #N/A #N/A #N/A #N/A
1Assets allocated in proportion to closed group liabilities2Net DB component means the defined benefit component formula3Net CB component means the cash balance component formula
Annual Report 2001 | 19
STATEMENTS OF NET ASSETS AVAILABLE FOR BENEFITS(in thousands)
DECEMBER 31,
2001 2000
ASSETS
Investments, at fair value(including securities transferred under securitylending agreements of $277 million as of December 31, 2001)-(Note B(2))
U.S. government securities $667,748 $489,521
U.S. corporate and convertible bonds 868,476 979,409
Non-U.S. government securities 921,196 822,880
Non-U.S. corporate and convertible bonds 122,214 158,448
Short-term investments 820,638 439,524
U.S. common and preferred stocks 3,147,172 4,013,860
Non-U.S. common and preferred stocks 2,289,137 2,782,569
Real estate 551,617 568,802
Private equity 486,348 462,466
Hedge funds 575,170 354,413
Outstanding currency hedges 35,985 (53,653)
Total investments 10,485,701 11,018,239
Receivables
Securities sold 3,535,058 3,814,387
Accrued interest and dividends 31,156 31,464
Other receivables 2,000 2,000
Total receivables 3,568,214 3,847,851
Cash 69,146 78,713
Total assets 14,123,061 14,944,803
LIABILITIES
Accounts payable
Securities bought (3,921,793) (4,073,584)
Payable under securities lending agreements (294,620) –
Other payables (11,166) (17,108)
Benefits due but unpaid (8,397) (8,090)
Total liabilities (4,235,976) (4,098,782)
Net assets available for benefits $9,887,085 $10,846,021
The accompanying notes are an integral part of these financial statements.
20 | Staff Retirement Plan
APPENDIX 3 FINANCIAL STATEMENTS
STATEMENTS OF CHANGES IN NET ASSETS AVAILABLE FOR BENEFITS(in thousands)
YEAR ENDED DECEMBER 31,
2001 2000
Investment income
Net depreciation in fair value of investments (Note E) $(893,400) $(669,671)
Interest and dividends 206,360 301,202
Less: Investment management fees (26,251) (25,017)
Net investment loss (713,291) (393,486)
Contributions (Note C)
Contributions by participants 63,957 65,179
Net receipts from pension plans of other international organizations on behalf of transferred participants – 690
Total contributions 63,957 65,869
Total reductions (649,334) (327,617)
Benefit payments
Pensions (227,864) (204,834)
Commutation payments (53,829) (82,409)
Contributions, withdrawal benefits and interest paid to former participants on withdrawal (16,652) (16,048)
Lump sum death benefits (2,759) (1,489)
Termination grants (1,100) (924)
Total benefit payments (302,204) (305,704)
Administrative expenses
Custody and consulting fees (3,158) (3,228)
Others (Note A(8)) (4,240) (1,929)
Total administrative expenses (7,398) (5,157)
Net decrease (958,936) (638,478)
Net assets available for benefits
Beginning of year 10,846,021 11,484,499
End of year $9,887,085 $10,846,021
The accompanying notes are an integral part of these financial statements.
Annual Report 2001 | 21
STATEMENTS OF ACCUMULATED PLAN BENEFITS(in thousands)
JANUARY 1,
2002 2001
Actuarial present value of accumulated plan benefits (NoteB(3))
Vested benefits
Participants currently receiving payments $4,210,296 $3,540,272
Other participants
Deferred vesteds 185,119 172,873
Actives 1,446,886 1,435,992
Subtotal 1,632,005 1,608,865
Total vested benefits 5,842,301 5,149,137
Nonvested benefits 24,288 18,029
Total actuarial present value ofaccumulated plan benefits $5,866,589 $5,167,166
STATEMENTS OF CHANGES IN ACCUMULATED PLAN BENEFITS(in thousands)
YEAR ENDED JANUARY 1,
2002 2001
Actuarial present value of accumulated plan benefits at beginning of year $5,167,166 $4,633,545
Increase during the year attributed to:
Plan amendments (Note B(3)) 10,878 –
Changes in actuarial assumptions (Note B(3)) – 119,669
Increase for interest due to decreasein the discount period 376,190 336,350
Benefits accrued and actuarial gains and losses 614,559 383,306
Benefits paid (302,204) (305,704)
Net Increase 699,423 533,621
Actuarial present value of accumulatedplan benefits at end of year $5,866,589 $5,167,166
The accompanying notes are an integral part of these financial statements.
22 | Staff Retirement Plan
APPENDIX 3 FINANCIAL STATEMENTS
Notes to Financial Statements
December 31, 2001 and 2000
A. DESCRIPTION OF PLANThe following is only a brief descriptionof the International Bank for Recon-struction and Development’s StaffRetirement Plan (the Plan). Participantsshould refer to the Plan documentswhich provide more information.
1. General: Pursuant to a resolution ofthe Executive Directors on May 5, 1948,the Plan became effective from May 31,1948. The Plan is a contributory definedbenefit pension plan covering mostemployees of the International Bank forReconstruction and Development, theInternational Finance Corporation, andthe Multilateral Investment GuaranteeAgency (collectively referred to as theWorld Bank or Bank). The PensionFinance Committee (PFC) is responsiblefor the oversight of investment and actu-arial activities of the Plan, including the Bank’s contribution to the Plan. The Pension Benefits AdministrationCommittee is responsible for adminis-tering the Plan’s benefits.
Effective November 1, 2001, the Plan’sgoverning documents were amended toformalize the implicit trust arrange-ments that existed between the Bank andthe Plan. The Plan was amended to stateexplicitly that the Bank is trustee andholds the Plan’s assets in trust for theexclusive benefit of participants, retireesand beneficiaries. This change in legalstructure will have no adverse impact onany entitlement or amount of benefits.
The Internal Revenue Service has deter-mined and informed the Bank that thePlan is designed in accordance withapplicable sections of the InternalRevenue Code (IRC). Because the Plan
was amended since receiving its initialdetermination letter, in December 2001the Bank filed a formal request with theIRS for an updated determination letterto determine that the terms of the Plansatisfy the applicable requirementsunder Section 401(a) of the IRC. Aresponse to such request has not yetbeen received.
In general, employees who entered thePlan prior to April 15, 1998, are coveredby one set of provisions governing par-ticipation, retirement and death benefits,payment of benefits, and contributions,while employees entering the Plan on orafter April 15, 1998, are covered by a dif-ferent set of such provisions.
2. Retirement Benefits:
(a) Provisions applying to employees whoentered the Plan prior to April 15, 1998
Employees who received a severancepayment and who have three or moreyears of pensionable service or havereached age 55 are entitled to a pensionbeginning at normal retirement age (62)equal to 2.2 percent of their highest aver-age gross pensionable salary (HAGS) foreach year of the first 25 years of serviceand 1.8 percent of their HAGS for each ofthe next 10 years of service thereafter.Participants in the Plan prior to May 1,1990, have a benefit based ratably ontheir service prior to May 1, 1990 (usingthe Plan provisions in effect prior to thattime), and their service after May 1,1990. An additional modification isapplied to service before May 1, 1974.The Plan permits retired employees whohave reached age 55 (and with sufficientservice, age 50) to receive a reducedearly retirement pension commencingbefore age 62. Employees who do notreceive severance payments from theBank and who have waived any right that
may exist thereto are entitled to receiveunreduced early retirement pensions asearly as age 50 if they have at least threeyears of service. A severance paymentrefers to any payment that is character-ized as such in Staff Rule 7.01 of theWorld Bank. Employees who terminatebefore becoming entitled to a pension(that is, before age 50 and with less thanthree years of service) receive a lumpsum distribution based on their HAGSand service. Employees who terminateafter becoming entitled to a pension mayelect, subject to certain conditions, toreceive the lump sum distributioninstead of a pension.
(b) Provisions applying to employees entering the Plan on or after April 15, 1998
Benefits are provided from two compo-nents: a defined benefit component anda cash balance component. Under thedefined benefit component employeesterminating with fewer than 10 years ofservice are entitled to a lump sum with-drawal benefit equal to 8 percent of theirhighest average net salary (HANS) foreach year of service; and employees ter-minating with 10 or more years of serviceare entitled to an annual pension pay-able at age 62 equal to 1 percent of their HANS for each year of service.Employees terminating with 10 or moreyears of service prior to age 62 may electto receive an early retirement pensionthat is equal to the pension payable atage 62 reduced by 5 percent for each yearthe age at commencement of payment isless than 62. Under the cash balancecomponent, the plan maintains notionalaccounts for participants, representingthe lump sum payment payable to avested participant retiring before retire-ment age or on terminating employmentwith the Bank on the option of the participant at any point in time. All
Annual Report 2001 | 23
■ Death after retirement but beforebecoming entitled to receive a pen-sion: in general, a lump sum with-drawal benefit determined as of thedate of death.
(b) Provisions applying to employees enter-ing the Plan on or after April 15, 1998
If a participant dies in active service, a lump sum benefit is paid to the desig-nated beneficiary in the amount of 8 percent of HANS for each year of serviceplus the account balance in the cash bal-ance component.
In general, effective January 1, 1999, thedeath benefit for a retired married partic-ipant receiving a pension who dies afterretirement is a pension payable to thesurviving spouse in an amount based onthe age of the participant at retirementand the age difference between the par-ticipant and the spouse. Such a partici-pant may, prior to retirement, elect toreduce his pension in order to provide agreater benefit or, with consent of thespouse, name another beneficiary orchange the form of benefit to a lump sum.
In general, effective January 1, 1999, thedeath benefit for a retired unmarried participant who dies after retirement is alump sum payable to the designatedbeneficiary in an amount ranging from430 percent of his pension at the time ofdeath for retirement at age 50 reducingby 15 percent per year to 205 percent forretirement at age 65. Such a participantmay, prior to retirement, elect to provide,in lieu of a lump sum, a survivor annuityto a designated beneficiary on the samebasis as a married participant, with theamount of survivor annuity and reduc-tion in pension, if any, based on the ageof the participant at retirement and theage difference between the participantand beneficiary.
employees upon termination are entitledto receive their account balance, whichcomprises credits of 10 percent of netsalary from the Bank, employee contri-butions of 5 percent of net salary, andany deemed earnings credited to theiraccounts.
Deemed earnings are based on thereturns of funds selected by the partici-pant. The cash balance componentoffers the following four investmentoptions: the real 3 percent option, pro-viding a return of 3 percent above U.S.inflation; the S&P 500 option, providingthe return on this stock index; the EAFEoption, providing the return correspond-ing to that of the MSCI EAFE Index; andthe Government/Corporate Bond option,providing the return corresponding tothat of the Lehman Brothers govern-ment/corporate bond index.
3. Disability Benefits: Employees whoentered the Plan prior to April 15, 1998,and who became totally and perma-nently disabled prior to July 1, 1998, wereretired on a disability pension normallyequal to the pension they would havereceived based on actual service andHAGS, but with no reduction for start ofpayments before normal retirement age62; provided such pension is at leastequal to the lesser of 50 percent ofHAGS or the normal pension that theemployees would have received had theycontinued to be employed to normalretirement age with no change in HAGS.Claims for disability benefits subsequentto July 1, 1998 are no longer adminis-tered by the Staff Retirement Plan.
4. Death Benefits:
(a) Provisions applying to employees whoentered the Plan prior to April 15, 1998
If a married participant dies in active ser-vice before normal retirement age, thespouse normally receives a pensionbased on the pension the employeewould have received in the event of dis-ability retirement. If the disability pen-sion would have been more than 60percent of HAGS, the spouse’s pensionwould be equal to 50 percent of that pen-sion; if the disability pension would havebeen between 30 percent and 60 percentof HAGS, the spouse’s pension would beequal to 30 percent of HAGS; and if thedisability pension would have been lessthan 30 percent of HAGS, the spouse’spension would be equal to the disabilitypension. If death occurs after the normalretirement date or after the employeehas retired and becomes entitled toreceive a pension, the spouse wouldnormally receive 50 percent of such pension. Upon the death of a singleemployee, active or retired, a lump sumbenefit is paid to the employee’s desig-nated beneficiary. The benefit is deter-mined as follows:
■ Death in active service: normally 200percent (100 percent if less thantwo years’ service, plus accumulatedcontributions) of the employee’s finalannual gross salary.
■ Death after retirement and becomingentitled to receive a pension: in gen-eral, the excess of accumulated contri-butions over any benefit payments,plus a percentage of the annual pen-sion (maximum 200 percent on deathat or before age 65, minimum 50 per-cent on death at or after age 73).
24 | Staff Retirement Plan
APPENDIX 3 FINANCIAL STATEMENTS
5. Children’s Benefits: These provisionsapply only to employees who entered the Plan prior to April 15, 1998. Eligiblechildren of a deceased employee or a deceased retired employee who wasreceiving or entitled to receive a pen-sion at the time of death receiveannual benefits normally at the rate of $4,360.20 per child (maximum$13,080.60 for all eligible children).Similar benefits are payable to the eligi-ble children of a retired employee who isreceiving a disability pension. Eligiblechildren are unmarried children underage 19 (22 for full-time students) orunmarried disabled children whose dis-ability started before age 22.
6. Cost-of-Living Increases in Pensions:The Plan contains provisions for cost-of-living increases in pensions and chil-dren’s benefits as of May 1 of each year.
7. Options: The Plan permits the electionof the following options:
(a) Provisions applying to employees whoentered the Plan prior to April 15, 1998
1. Converting up to 1/3 of the pensioninto a lump sum payment.
2. Reducing the pension in order to provide a survivor annuity to a desig-nated person.
3. Receiving the pension in the currencyof the country of principal residenceinstead of in U.S. dollars, or partly inthe currency of the country of princi-pal residence and the remainder inU.S. dollars.
4. Reducing the pension after paymentscommence to provide a survivor annu-ity to a spouse, married or divorced, orchildren born after retirement.
(b) Provisions applying to employees enter-ing the Plan on or after April 15, 1998
The Plan permits the election of alterna-tive currencies for payments of bothlump sums and pensions.
8. Administrative Expenses: The Plan’sassets are held by the Bank separatefrom the Bank’s other assets and areused solely to provide the benefits andpay the expenses of the Plan. The Planallows payment of certain investmentand actuarial-related fees and expensesout of Plan assets. The Plan wasamended in 2000 to authorize the reimbursement of certain permittedexpenses incurred by the Bank in admin-istering the Plan. Accordingly, the Planincurred administrative expenses of$4,240,000 during 2001 and $1,929,000for the period July 1, 2000 throughDecember 31, 2000.
B. SUMMARY OF ACCOUNTINGPOLICIESThe preparation of financial statementsin conformity with accounting principlesgenerally accepted in the United Statesof America and International AccountingStandards requires management tomake estimates and assumptions thataffect the reported amounts of assetsand liabilities and disclosure of contin-gent assets and liabilities at the date of the financial statements, and thereported amounts of revenues andexpenses during the reported period.Such estimates include, but are not lim-ited to, assumptions about accumulatedbenefit obligations and the fair value ofinvestments. Actual results could differfrom those estimates.
Certain reclassifications of the prior year’sinformation have been made to conformto the current year’s presentation.
The following are the significant acc-ounting policies followed by the Plan:
1. Basis of Accounting: The financial state-ments of the Plan have been preparedusing the accrual basis of accounting.
2. Investments: Purchases and sales ofsecurities are recorded on a trade datebasis. Gains and losses on sales of secu-rities are based on the average cost ofthe respective securities. Dividends arerecognized on the ex-dividend date.Income from other investments isrecorded as earned on an accrual basis.Equity securities are valued at quotedmarket prices. Long-term debt securitiesare generally valued at market prices furnished by an independent pricing ser-vice. Foreign investments are valued atthe prevailing market rate as quoted byan independent international pricing ser-vice for the date of the valuation. Foreigncurrencies and securities quoted in for-eign currencies are translated into U.S.dollars at the current exchange rate. Thevalues for securities that have no quotedmarket price are stated at their estimatedfair values, determined as follows:
(a)Real estate investments, representingshares in commingled real estateinvestment funds, are valued on thebasis of the fair market value (asestablished by independent apprais-ers, board of directors, or trustees) ofthe investments held by such funds.
(b)Some investments representingshares in private equity or real estatepartnerships are valued on the basisof the quoted market prices of the netassets of the partnerships if suchprices are available. If the assets inthe partnerships have no quoted mar-ket value, they are valued at either thelatest price at which stock has beenissued for the asset or, if the general
Annual Report 2001 | 25
No. 138, establishes accounting andreporting standards for derivative instru-ments, including certain derivativeinstruments embedded in other con-tracts, and for hedging activities. Itrequires organizations, including benefitplans, to recognize derivatives as eitherassets or liabilities in their balance sheetand to measure those instruments at fair value. In addition, in December 1998, the International Accounting Stand-ards Committee issued InternationalAccounting Standard 39, “FinancialInstruments: Recognition and Measure-ment.” This standard also requires thatall financial assets and liabilities, includ-ing derivatives, be included on thestatement of net assets available forbenefits and is effective for fiscal yearsbeginning on or after January 1, 2001. ThePlan adopted the provisions of suchstatements as of January 1, 2001. Sincethe Plan has always recorded derivativeinstruments at fair value, these stan-dards did not have any impact on thePlan’s net assets available for benefits or the changes in net assets available for benefits.
During the fiscal year 2001, the Planadopted prospectively SFAS No. 140,“Accounting for Transfers and Servicingof Financial Assets and Extinguishmentsof Liabilities—a replacement of SFASNo. 125.” This statement revises thestandards for accounting for securitiza-tions and other transfers of financialassets and collateral, and requires cer-tain additional disclosures. As applied tothe Plan, this statement requires thatsecurities transferred under repurchaseor security lending agreements be dis-closed separately from other tradinginvestments. The adoption of this stan-dard resulted in an increase in assetsand liabilities of $294,620,000 as ofDecember 31, 2001.
partners of the private equity partner-ship believe it is appropriate, a dis-count from this latest price.
Investment securities in general areexposed to various risks such as interestrate, credit and overall market risk. Dueto the level of risk associated with certaininvestment securities, it is reasonablypossible that changes in the values ofinvestment securities will occur in thenear term, and that such changes couldmaterially affect the amounts reported inthe Statements of Net Assets Availablefor Benefits.
3. Actuarial Present Value of AccumulatedPlan Benefits: Accumulated Plan benefitsare those future periodic payments,including lump sum distributions, thatare attributable under the Plan’s provi-sions to the service employees have rendered. Accumulated Plan benefitsinclude benefits to be paid to: (a) retiredor terminated employees or their bene-ficiaries; (b) beneficiaries of employeeswho have died; and (c) present employ-ees or their beneficiaries.
Benefits payable under all circum-stances—retirement, death, disability,and termination of employment—areincluded, to the extent they are deemedattributable to employee service ren-dered to the valuation date.
The actuarial present value of accumu-lated Plan benefits (which does not takeinto account future salary increases) isdetermined by the actuarial firm of BuckConsultants, Inc. (the Plan’s Actuary)and is that amount that results fromapplying actuarial assumptions to adjustthe accumulated Plan benefits to reflectthe time value of money (through dis-counts for interest) and the probability ofpayment (by means of decrements such
as for death, disability, withdrawal, orretirement) between the valuation dateand the expected date of payment. Thesignificant actuarial assumptions usedin the valuations as of January 1, 2002and 2001, were: (a) life expectancy ofparticipants (1993 United Nations JointStaff Pension Fund mortality tableadjusted for forecast improvements inmortality); (b) retirement age assump-tions (assumed probabilities of retire-ment at each age from 50 to 65 wereused); (c) cost-of-living increases in pensions; and (d) investment return.The valuations as of January 1, 2002 and2001 used an assumed annual rate of 4percent for cost-of-living increases inpensions and 7.5 percent for investmentreturn, which also serves as the discountrate for liabilities.
The foregoing actuarial assumptions arebased on the presumption that the Planwill continue. Were the Plan to be termi-nated, different actuarial assumptionsand other factors might be applicable indetermining the actuarial present valueof accumulated Plan benefits.
The change in Plan provisions (amend-ments) of $10,878,000 during 2001 isattributable to the following: $10,630,000for the inclusion of termination grantsfor country-office participants for serviceprior to April 15, 1998, and $248,000 for the change in statutory limits onbenefits and contributions related to the Economic Growth and Tax ReliefReconciliation Act of 2001.
4. Recent Accounting Pronouncements:In June 1998, the Financial AccountingStandards Board (FASB) issued State-ment on Financial Accounting Stand-ards (SFAS) No. 133, “Accounting forDerivatives Instruments and HedgingActivities,” which, as amended by SFAS
26 | Staff Retirement Plan
APPENDIX 3 FINANCIAL STATEMENTS
C. FUNDING POLICYAs a condition of participation, employ-ees who entered the Plan prior to April15, 1998, are required to contribute 7 percent of their pensionable grossequivalent salaries to the Plan. Presentemployees’ accumulated contributionsat December 31, 2001 and 2000 were$714,461,000 and $677,868,000, respec-tively including interest credited (at aninterest rate computed in accordancewith Section 411 of the Internal RevenueCode). Employees entering the Plan onor after April 15, 1998, are required tocontribute 5 percent of their net salariesto the Plan. The effective date for commencing such contributions wasdeferred to January 1, 1999, for non-regular staff at headquarters and toJuly 1, 1999, for staff in country offices. The Bank’s funding policy is to makecontributions to the Plan at an annualrate, expressed as a percentage ofemployees’ net salaries (0.0 percent for the fiscal years ended June 30, 2001,and June 30, 2000), which, when com-bined with employees’ contributions, isestimated to be sufficient to fully providefor all employees’ benefits by the timethey retire.
The Bank has the right under the Plan tocompletely or partially suspend its con-tributions for benefits based on futureservice, in which event all such benefitswill be reduced to such amounts as canbe actuarially provided by future contri-butions, if any. The Bank also has theright to completely or partially terminatethe Plan at any time.
On the basis of a funding method reviewconducted in 1999, the Pension FinanceCommittee adopted the closed-groupaggregate cost method (which uses thetotal projected liabilities for all current
participants and retirees) for purposes ofcomputing the Bank’s contribution ratewhile retaining the open-group aggre-gate cost method (which uses total pro-jected liabilities for all current and futureparticipants and retirees) for long-termplanning purposes. Based on lowerasset values, a reassessment of thePlan’s liabilities, and recommendationsby external Plan actuaries, the PFC rec-ommended Bank contributions of 5 per-cent of net salaries for the period July 1,2002 through June 30, 2003.
The Bank is currently considering a pro-posal to grant eligible current staff pen-sion credit for certain periods of serviceduring which they did not participate inthe Plan. This proposal is subject to final-ization by management and approval bythe Bank’s Board of Executive Directors.If approved, management currentlyexpects that accumulated plan benefitscould increase by $45 million to $50
million. But the actual increase, if any,will depend on the amendments pro-posed and accepted.
D. PLAN TERMINATIONIn the event the Plan is terminated, thenet assets of the Plan will be used for thepurpose of paying or providing for allaccumulated Plan benefits as of the dateof Plan termination and the Bank will beliable for any additional funds that maybe required for this purpose. Any Planassets remaining after paying or provid-ing for all such benefits will be returnedto the Bank.
E. NET DEPRECIATION IN FAIRVALUE OF INVESTMENTSDuring 2001 and 2000, the Plan’s invest-ments, including gains and losses oninvestments bought and sold during the year, depreciated in value by($893,400,000) and ($669,671,000)respectively, as follows:
(in thousands)
YEAR ENDED DECEMBER 31,
2001 2000
Net depreciation in fair value of investmentsas determined by quoted market price
U.S. government securities $13,519 $21,313
Non-U.S. government securities (52,483) 2,389
U.S. corporate and convertible bonds 37,750 20,032
Non-U.S. corporate and convertible bonds (2,614) 3,698
Short-term investments 943 4,528
U.S. common and preferred stocks (413,886) (398,984)
Non-U.S. common and preferred stocks (584,299) (596,841)
Hedge funds 5,408 9,106
Outstanding currency hedges 156,462 170,704
Total (839,200) (764,055)
Net (depreciation) appreciation in fair value of investments at estimated fair value
Real estate (15,168) 54,889
Private equity (39,032) 39,495
Total (54,200) 94,384
Net depreciation ($893,400) ($669,671)
Annual Report 2001 | 27
be no accounting loss in the event of counterparty default. The notionalvalue of such contracts held was$506,878,000 and $629,247,000 atDecember 31, 2001, and December 31,2000, respectively. The value of the unre-alized gains (losses) of such contractsheld was $7,307,000 and ($6,943,000)at December 31, 2001, and December 31,2000, respectively.
Use of Forward ContractsForward contracts are used to hedge thecurrency exposure of non-U.S. dollarassets. The face value of open forwardcontracts is limited to the market valueof the Plan’s non-U.S. equity and non-U.S. fixed income investments. Theoriginal contract value of open forwardcontract purchases and sales totaled$3,325,636,000 and $3,591,685,000 atDecember 31, 2001, and December 31,2000, respectively. Since forward con-tracts are accounted for on a mark-to-market basis at month-end, changes inthe value of such contracts are recog-nized in asset values. As these contractsare not collateralized, the mark-to-mar-ket value of these contracts representsthe maximum accounting loss that thePlan would be exposed to in the event ofcounterparty default. The value of theunrealized gains (losses) of such con-tracts held was $35,985,000 and($53,653,000) at December 31, 2001, andDecember 31, 2000, respectively.
F. INVESTMENT COMMITMENTSIn the private equity and real estate part-nership investments, funds are drawndown only under the terms and condi-tions of the partnership agreements. The partnership agreements are uniqueto each individual investment. However,funds are drawn down to: (a) fundinvestments in assets that have beenpurchased or are being contracted forpurchase; and (b) pay fees earned by the general partner under the terms andconditions of the partnership agree-ment. Investment commitments aredrawn down and recorded by the Planwhen the contractual terms of the partnership agreement have been met. At December 31, 2001 and 2000, undis-bursed investment commitments approx-imated $710,000,000 and $532,000,000respectively.
G. FINANCIAL INSTRUMENTSAs part of its overall portfolio manage-ment strategy, the Plan invests in:equities, including U.S. common andpreferred stocks and non-U.S. commonand preferred stocks; private equity; realestate; high yield bonds; global fixedincome; hedge funds and financialfutures and forward contracts. As part ofthe Plan’s risk management process thePlan is party to a variety of financialinstruments, certain of which involvecredit risk.
Forward, Futures and Options ContractsForward and futures contracts arecommitments to either purchase or sella financial instrument at a future date fora specified price and may be settled incash or through delivery of the underly-ing financial instrument. Forward rateagreements settle in cash at a specifiedfuture date based on the differentialbetween agreed interest rates applied toa notional amount. Most of the contracts
have terms of less than one year. Futurescontracts are traded on exchanges thatrequire daily cash settlement of the netchange in the value of open contracts.On the other hand, forwards are trans-acted over the counter with counterpar-ties and generally do not require dailycash settlement of the net change invalue. As such, the credit risk on futuresis lower than that on forwards.
Options are contracts that allow theholder the right, but not the obligation,to purchase or sell a financial instrumentat a specified price within a specifiedperiod of time from or to the seller of theoption. The purchaser of an option paysa premium at the outset to the seller ofthe option, who then bears the risk of anunfavorable change in the price of thefinancial instrument underlying theoption. The initial price of an option con-tract is equal to the premium paid by thepurchaser and is significantly less thanthe contract or notional amount. ThePlan does not write uncovered optioncontracts.
Use of Futures ContractsFutures contracts are used for hedgingand to take investment positions. Theyare used primarily for purposes of trans-actional efficiency and not for leveragingthe portfolio. Requiring managers tohold cash investments equal to the facevalue of the futures contracts ensuresthe latter. The face value of open futurescontracts is limited to 20 percent of themarket value of the Plan’s net assets.Contracts with an offsetting position in asame or similar contract are not countedin this limit. Futures transactions areaccounted for on a mark-to-market basis(that is, changes in the value of suchcontracts are recognized immediately inasset values). Because the futures posi-tions are fully collateralized, there would
28 | Staff Retirement Plan
APPENDIX 3 FINANCIAL STATEMENTS
Use of Options ContractsThe value of the unrealized gains onoptions contracts was $8,000 and$118,000 at December 31, 2001, andDecember 31, 2000, respectively. Theopen options positions as of December 31,2001 and 2000 are summarized below:
H. CREDIT RISKFor the purpose of risk management, thePlan is party to a variety of financialinstruments that involve credit risk.Credit risk exposure represents the max-imum potential credit loss due to possi-ble nonperformance by obligors andcounterparties under the terms of the contracts. Credit risk is controlledthrough the application of eligibility cri-teria and volume limits for transactionswith individual counterparties. The Planpolicy may require collateral in the formof cash or other approved liquid secu-rities from individual counterparties inorder to mitigate its credit exposure.
I. INVESTMENTS EXCEEDINGFIVE PERCENT OF NET ASSETSThe following investments represent five percent or more of net assets avail-able for benefits as of December 31, 2001and 2000: (in thousands)
YEAR ENDED DECEMBER 31,
2001 2000
Barclay’s Global Investors Russell 1000 Fund $2,254,859 $2,500,726
State Street Global Advisors Int’l Index II Fund 648,928 951,857
Smith Barney Global Capital Management Inc.,–Non-US Fixed Income Portfolio 708,602 544,166
(in thousands)
YEAR ENDED DECEMBER 31,
2001 2000
Call options written $0 $(12)
Call options purchased 16 65
Put options purchased (8) 65