Fannie Mae 2004 Annual Report Download - page 329

Actuarial gains or losses are annual changes in the amount of either the benefit obligation or the market-
related value of plan assets resulting from experience different from that assumed or from changes in
assumptions.
The following table displays information pertaining to the projected benefit obligation, accumulated benefit
obligation and fair value of plan assets for our pension plans as of December 31, 2004 and 2003.
Qualified
Non-
Qualified Qualified
Non-
Qualified
Pension Plans Pension Plans
2004 2003
As of December 31,
(Restated)
(Dollars in millions)
Projected benefit obligation . . . . . . . . . . . . . . . . . . . . . . . . . . . $598 $146 $472 $115
Accumulated benefit obligation . . . . . . . . . . . . . . . . . . . . . . . . 434 105 348 80
Fair value of plan assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 537 — 376 —
Our current funding policy is to contribute an amount at least equal to the minimum required contribution
under ERISA as well as to maintain a 105% current liability funded status as of January 1 of every year. The
plan assets of our funded qualified pension plan were greater than our accumulated benefit obligation by
$103 million and $28 million as of December 31, 2004 and 2003, respectively.
The pension and postretirement benefit amounts recognized in the consolidated financial statements are
determined on an actuarial basis using several different assumptions that are measured at December 31, 2004,
2003 and 2002. The following table displays the actuarial assumptions for our principal plans used in
determining the net periodic benefit expense in the consolidated statements of income for the years ended
December 31, 2004, 2003 and 2002 and the net prepaid (liability) in the consolidated balance sheets as of
December 31, 2004, 2003 and 2002.
2004 2003 2002 2004 2003 2002
Pension Benefits Postretirement Benefits
As of December 31,
Weighted average assumptions used to determine net periodic
benefit costs
Discount rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.25% 6.75% 7.25% 6.25% 6.75% 7.25%
Average rate of increase in future compensation . . . . . . . . . . . . . . . . . . 5.75 6.50 6.50
Expected long-term weighted average rate of return on plan assets . . . . . 7.50 7.50 8.50
Weighted average assumptions used to determine benefit obligation
at year-end
Discount rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.75% 6.25% 6.75% 5.75% 6.25% 6.75%
Average rate of increase in future compensation . . . . . . . . . . . . . . . . . . 5.75 5.75 6.50
Health care cost trend rate assumed for next year
Pre-65 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11.00% 9.00% 11.50%
Post-65. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11.00 11.00 13.00
Rate that cost trend rate gradually declines to and remains at . . . . . . . . . 5.00 4.50 4.50
Year that rate reaches the ultimate trend rate . . . . . . . . . . . . . . . . . . . . 2011 2007 2007
As of December 31, 2004, the effect of a 1% increase in the assumed health care cost trend rate would
increase the accumulated postretirement benefit obligation by $4 million, while a 1% decrease would decrease
the accumulated postretirement benefit obligation by a comparable $4 million. There would be no change on
the net periodic postretirement benefit cost from a 1% change in either direction.
We review our pension and postretirement benefit plan assumptions on an annual basis. We calculate the net
periodic benefit expense each year based on assumptions established at the end of the previous calendar year.
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FANNIE MAE
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)