Freddie Mac 2009 Annual Report Download - page 290

The expected long-term rate of return on plan assets was estimated using a portfolio return calculator model. The model
considered the historical returns and the future expectations of returns for each asset class in our defined benefit plans in
conjunction with our target investment allocation to arrive at the expected rate of return. The resulting expected long-term
rate of return is selected based on the median projected return generated net of expenses using a weighted average of the
major categories of assets as described in Table 16.8.
The assumed health care cost trend rates used in measuring the accumulated postretirement benefit obligation as of
December 31, 2009 are 9.00% for pre 65 employees and 9.30% for post 65 employees in 2010, gradually declining to an
ultimate rate of 4.5% in 2029 and remaining at that level thereafter.
Table 16.7 sets forth the effect on the accumulated postretirement benefit obligation for health care benefits as of
December 31, 2009, and the effect on the service cost and interest cost components of the net periodic postretirement health
benefit cost that would result from a 1% increase or decrease in the assumed health care cost trend rate.
Table 16.7 — Selected Data Regarding our Retiree Medical Plan
1% Increase 1% Decrease
(in millions)
Effect on the accumulated postretirement benefit obligation for health care benefits ........................ $31 $(24)
Effect on the service and interest cost components of the net periodic postretirement health benefit cost .......... 4 (3)
Plan Assets
The Pension Plan’s retirement investment committee has fiduciary responsibility for establishing and overseeing the
investment policies and objectives of our Pension Plan and they review the appropriateness of our Pension Plan’s investment
strategy on an ongoing basis. In 2009 and 2008, our Pension Plan investment committee employed a total return investment
approach whereby a diversified blend of equities and fixed income investments was used to maximize the long-term return
of plan assets for a prudent level of risk. Risk tolerance is established through careful consideration of plan characteristics,
such as benefit commitments, demographics and actuarial funding policies. In 2009, the investment committee changed the
Pension Plan asset allocation strategy to a liability-driven investment philosophy with target allocations of 40% equity
securities, 40% fixed income securities, and 20% asset allocation funds. Our Pension Plan assets are invested in various
combinations of equity, fixed income, and other types of investments. Investment risk is measured and monitored on an
ongoing basis through quarterly investment portfolio reviews, annual liability measurements and periodic asset and liability
studies. Due to the level of risk associated with certain investment securities, it is at least reasonably possible that changes in
their values will occur in the near term and that such changes could materially affect the amounts reported in the statements
of net assets available for benefits. However, the Pension Plan asset allocation is designed to be well diversified, in order to
limit exposure to significant concentrations of risk.
Our Pension Plan assets did not include any direct ownership of our securities at December 31, 2009 and 2008.
Plan Assets Subject to Fair Value Hierarchy
We categorized our pension plan assets that are measured at fair value within the fair value hierarchy of the accounting
standards for fair value measurements and disclosures based on the valuation techniques used to derive the fair value. Certain
other assets in our pension plan assets, such as cash and cash equivalents, are recorded at their carrying amounts which
approximate fair value. These are presented as a reconciling item below.
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