Freddie Mac 2010 Annual Report Download - page 245

Tax Status of REITs
On September 19, 2008, FHFA, as Conservator, advised us of FHFA’s determination that no further common or
preferred stock dividends should be paid by our REIT subsidiaries. FHFA specifically directed us, as the controlling
stockholder of both REIT subsidiaries and the boards of directors of both companies, not to declare or pay any dividends on
the preferred stock of the REITs until FHFA directed otherwise. However, at our request and with Treasury’s consent, FHFA
directed us and the boards of directors of our REIT subsidiaries to: (a) declare and pay dividends for one quarter on the
preferred shares of our REIT subsidiaries during each of the fourth quarter of 2009 and the first quarter of 2010; and (b) take
all steps necessary to effect the elimination of the REITs by merger in a timely and expeditious manner. The business
decision to eliminate the REITs was made to achieve increased flexibility in the management of the assets of our REIT
subsidiaries and to simplify our business operations.
During the second quarter of 2010, each of our two REIT subsidiaries was eliminated via a merger transaction, which
resulted in no gain or loss recognized on our consolidated statement of operations. This resulted in the elimination of the
noncontrolling interest from our consolidated balance sheets as of June 30, 2010.
For a discussion of our significant accounting policies related to income taxes, please see “NOTE 1: SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES — Income Taxes.”
NOTE 15: EMPLOYEE BENEFITS
Defined Benefit Plans
We maintain a tax-qualified, funded defined benefit pension plan, or Pension Plan, covering substantially all of our
employees. Pension Plan benefits are based on an employee’s years of service and highest average compensation, up to legal
plan limits, over any consecutive 36 months of employment. Our Pension Plan assets are invested in various combinations of
equity, fixed income, and other types of investments. In addition to our Pension Plan, we maintain a nonqualified, unfunded
defined benefit pension plan for our officers, as part of our Supplemental Executive Retirement Plan, or SERP. The related
retirement benefits for our SERP are paid from our general assets. Our qualified and nonqualified defined benefit pension
plans are collectively referred to as defined benefit pension plans.
We maintain a defined benefit postretirement health care plan, or Retiree Health Plan, that generally provides
postretirement health care benefits on a contributory basis to retired employees age 55 or older who rendered at least
10 years of service (five years of service if the employee was eligible to retire prior to March 1, 2007) and who, upon
separation or termination, immediately elected to commence benefits under the Pension Plan in the form of an annuity. Our
Retiree Health Plan is currently unfunded and the benefits are paid from our general assets. This plan and our defined benefit
pension plans are collectively referred to as the defined benefit plans.
We accrue the estimated cost of retiree benefits as employees render the services necessary to earn their pension and
postretirement health benefits. Our pension and postretirement health care costs related to these defined benefit plans for
2010, 2009, and 2008 presented in the following tables were calculated using assumptions as of December 31, 2009, 2008,
and 2007, respectively. The funded status of our defined benefit plans for 2010 and 2009 presented in the following tables
was calculated using assumptions as of December 31, 2010 and 2009, respectively.
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