Freddie Mac 2010 Annual Report Download - page 248

The assumed health care cost trend rates used in measuring the accumulated postretirement benefit obligation as of
December 31, 2010 are 8.70% for pre-age 65 employees and 8.90% for post-age 65 employees in 2011, gradually declining
to an ultimate rate of 4.5% in 2029 and remaining at that level thereafter.
Table 15.7 sets forth the effect on the accumulated postretirement benefit obligation for health care benefits as of
December 31, 2010, 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 15.7 — Selected Data Regarding our Retiree Medical Plan
1% Increase 1% Decrease
(in millions)
Effect on the accumulated postretirement benefit obligation for health care benefits . . ...................... $35 $(28)
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. Prior to 2009, 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. In 2009, the investment committee changed the Pension Plan asset allocation strategy
to a liability-driven investment philosophy designed to better match assets with estimated liabilities. The target allocations
were 40% equity securities, 40% fixed income securities, and 20% asset allocation funds in 2010 and 2009. Investment risk
is measured and monitored on an ongoing basis through quarterly investment portfolio and liability reviews 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 to limit exposure to significant concentrations of risk. Notably, the asset allocation includes a liability-driven
fixed income strategy, which decreases the net risk exposure to interest rates from combined assets and liabilities. For
example, if long-term interest rates increase, both plan assets and liabilities would be expected to decrease. While diversified,
our Pension Plan is also exposed to equity market risk, credit risk, and currency risk, but expects to be compensated for
taking these risks over the long term.
Our Pension Plan assets did not include any direct ownership of our securities at December 31, 2010 and 2009.
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.
Table 15.8 sets forth our Pension Plan assets at December 31, 2010 by asset category. See “NOTE 20: FAIR VALUE
DISCLOSURES” for additional information about the fair value hierarchy.
Table 15.8 — Pension Plan Assets Measured at Fair Value by Asset Category
Quoted Prices in
Active Markets for
Identical Assets
(Level 1)
Significant Other
Observable Inputs
(Level 2)
Significant
Unobservable Inputs
(Level 3) Total
Quoted Prices in
Active Markets for
Identical Assets
(Level 1)
Significant Other
Observable Inputs
(Level 2)
Significant
Unobservable Inputs
(Level 3) Total
2010 2009
Plan Assets at December 31,
(in millions)
Asset Category:
Equity:
U.S. large-cap . . . . . . . . . . . . $— $146 $— $146 $— $120 $— $120
U.S. small/mid cap . . . . . . . . . 81 — — 81 63 — — 63
International Equity. . . . . . . . . — 65 — 65 — 64 — 64
Fixed Income:
Government/Corporate Bonds . . . — 9 — 9 — 40 — 40
Synthetic Fixed Income . . . . . . — 260 — 260 — 180 — 180
Other Types of Investments:
Asset Allocation Funds . . . . . . — 130 — 130 — 110 — 110
Subtotal . . . . . . . . . . . . . . $81 $610 $— 691 $63 $514 $— 577
Cash and Cash Equivalents . . . . . 2 2
Total . . . . . . . . . . . . . . . . $693 $579
For U.S. small/mid cap equity securities that are measured using individual price quotes available on nationally-
recognized exchanges, we classify these investments as Level 1 under the fair value hierarchy since they represent unadjusted
245 Freddie Mac