Freddie Mac 2010 Annual Report Download - page 247

Table 15.4 presents the components of the net periodic benefit cost with respect to pension and postretirement health
care benefits for the years ended December 31, 2010, 2009, and 2008. Net periodic benefit cost is included in salaries and
employee benefits on our consolidated statements of operations.
Table 15.4 — Net Periodic Benefit Cost Detail
2010 2009 2008 2010 2009 2008
Year Ended December 31, Year Ended December 31,
Pension Benefits
Postretirement
Health Benefits
(in millions)
Net periodic benefit cost detail:
Service cost.................................................. $32 $32 $35 $ 7 $ 7 $ 9
Interest cost on benefit obligation . . . . ............................... 37 34 33 9 8 8
Expected return on plan assets . . . . . . ............................... (40) (33) (41) — — —
Recognized net loss . . . . . . . . . . . . . ............................... 10 14 2 — — —
Recognized prior service credit . . . . . ............................... — — — (1) (1) (1)
Net periodic benefit cost . . . . . . . . ............................... $39 $47 $29 $15 $14 $16
Table 15.5 presents the changes in AOCI related to our defined benefit plans recorded to AOCI throughout the year,
after the effects of our federal statutory tax rate of 35%. As of December 31, 2010 and 2009, a portion of the valuation
allowance established against the net deferred tax asset related to our defined benefit plans was recorded to AOCI in the
amounts of $24 million and $28 million, respectively. See “NOTE 14: INCOME TAXES” for further information on our
deferred tax assets valuation allowance. The estimated net actuarial loss and prior service credit for our defined benefit plans
that will be amortized from AOCI into net periodic benefit cost in 2011 is $(5) million and $1 million, respectively. These
amounts reflect the impact of the valuation allowance against our net deferred tax assets.
Table 15.5 — AOCI Related to Defined Benefit Plans
2010 2009
Year Ended
December 31,
(in millions)
Beginning balance ............................................................................ $(127) $(169)
Amounts recognized in AOCI:
(1)
Recognized net gain . . ..................................................................... — 29
Recognized prior service credit. ............................................................... 4 —
Net reclassification adjustments:
(1)(2)
Recognized net loss . . ..................................................................... 10 14
Recognized prior service credit. ............................................................... (1) (1)
Ending balance
(1)
............................................................................ $(114) $(127)
(1) Includes the effect of the establishment of a valuation allowance against our net deferred tax assets.
(2) Represent amounts subsequently recognized as adjustments to other comprehensive income as those amounts are recognized as components of net
periodic benefit cost.
Table 15.6 includes the assumptions used in the measurement of our net periodic benefit cost.
Table 15.6 — Weighted Average Assumptions Used to Determine Net Periodic Benefit Cost
2010 2009 2008 2010 2009 2008
Year Ended December 31, Year Ended December 31,
Pension Benefits
Postretirement
Health Benefits
Discount rate ................................. 6.00% 6.00% 6.25% 6.00% 6.00% 6.25%
Rate of future compensation increase ................ 5.10% to 6.50% 5.10% to 6.50% 5.10% to 6.50% — — —
Expected long-term rate of return on plan assets ......... 7.25% 7.50% 7.50% — — —
For the 2010 and 2009 benefit obligations, we determined the discount rate using a yield curve consisting of spot
interest rates at half-year increments for each of the next 30 years, developed with pricing and yield information from high-
quality bonds. The future benefit plan cash flows were then matched to the appropriate spot rates and discounted back to the
measurement date. Finally, a single equivalent discount rate was calculated that, when applied to the same cash flows, results
in the same present value of the cash flows as of the measurement date.
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 15.8.
244 Freddie Mac