Freddie Mac 2014 Annual Report Download - page 271

266 Freddie Mac
Of the NEOs, only Mr. Weiss was eligible to participate in the Pension Plan. Pension Plan benefits are based on an
employee’s years of service and compensation paid through December 31, 2013, up to limits imposed by the Internal Revenue
Code. The normal retirement benefit under the Pension Plan for service after December 31, 1988 is a monthly payment
commencing at age 65 calculated as follows:
• 1% of the participant’s highest average monthly compensation for the 36-consecutive month period during which the
participant’s compensation was the highest;
• multiplied by the participant’s full and partial years of credited service through December 31, 2013.
The normal form of benefit under the Pension Plan is an annuity providing monthly payments for the life of the
participant (and a survivor annuity for the participant’s spouse if applicable). Optional forms of benefit payment are available.
A benefit with an actuarial present value equal to or less than $5,000 may only be paid as a lump sum. Participants that
terminate after December 31, 2011, may elect a lump sum payout.
In connection with the Pension Plan’s termination, participants have been given a limited opportunity to elect an
immediately payable lump sum or annuity benefit. For participants who elect the immediate lump sum or annuity, payment is
expected to occur in 2015. For other participants, in connection with the termination of the plan, annuity contract(s) will be
purchased that provide for payments as provided in the Pension Plan.
Supplemental Executive Retirement Plan — Pension SERP Benefit
To be eligible for the Pension SERP Benefit for any year, an NEO must have been eligible to participate in the Pension
Plan. The Pension SERP Benefit component of the SERP was an unfunded (benefits were paid from general assets), non-
qualified plan, designed to provide participants with the full amount of benefits to which they would have been entitled under
the Pension Plan if that plan: (a) was not subject to certain dollar limits under the Internal Revenue Code; and (b) did not
exclude from “compensation” Deferred Base Salary amounts prior to 2012.
The Pension SERP Benefit was calculated as the participant’s accrued annual benefit payable at age 65 under the Pension
Plan without application of the limits described in the preceding paragraph, less the participant’s actual accrued benefit under
the Pension Plan. The Pension SERP Benefit was terminated effective December 31, 2013. See “Other Executive
Compensation Considerations - Supplemental Executive Retirement Plan and Supplemental Executive Retirement Plan II”
above. All unpaid Pension SERP Benefits were fully distributed to each participant in a lump sum payment by October 31,
2014. As of December 31, 2014, none of the NEOs has a benefit payable under the Pension SERP.
Nonqualified Deferred Compensation
Supplemental Executive Retirement Plan — Thrift/401(k) SERP Benefit
The Thrift/401(k) SERP Benefit component of the SERP is an unfunded, nonqualified defined contribution plan designed
to provide participants with the full amount of benefits to which they would have been entitled under the Thrift/401(k) Savings
Plan if that plan was not subject to certain dollar limits under the Internal Revenue Code. For example, in 2014 under the
Internal Revenue Code, only the first $260,000 of an employee’s compensation was considered when determining our
percentage-based matching contribution and the 2.5% contribution for any participant in the Thrift/401(k) Savings Plan. The
SERP was amended to provide that the maximum covered compensation for purposes of the SERP, relative to an NEO, may not
exceed two times the NEO’s Base Salary. We believe the Thrift/401(k) SERP Benefit is an appropriate benefit because offering
such a benefit helps us remain competitive with companies in the Comparator Group.
The Thrift/401(k) SERP Benefit equals the amount of the employer matching contributions and 2.5% contributions for
each NEO that would have been made to the Thrift/401(k) Savings Plan during the year, based upon the participant’s eligible
compensation, without application of the above limits, less the amount of the matching contributions and 2.5% contributions
actually made to the Thrift/401(k) Savings Plan during the year. Participants are credited with earnings or losses in their
Thrift/401(k) SERP Benefit accounts based upon each participant’s individual direction of the investment of such notional
amounts among the virtual investment funds available under the SERP. Such investment options are based upon and mirror the
performance of the investment options available under the Thrift/401(k) Savings Plan. As of December 31, 2014, there were 23
investment options in which participants’ notional amounts could be deemed invested.
To be eligible for the Thrift/401(k) SERP Benefit, the NEO must be eligible for matching contributions and the 2.5%
contribution under the Thrift/401(k) Savings Plan for part of the year. In addition, to be eligible for the portion of the Thrift/401
(k) SERP Benefit attributable to employer matching contributions, the NEO must contribute the maximum amount permitted
under the terms of the Thrift/401(k) Savings Plan on a pre-tax basis. The portion of the Thrift/401(k) SERP Benefit that is
attributable to employer matching contributions and 2.5% contributions made after 2014 is vested when accrued, while the
accrual relating to 2.5% contributions made in 2014 is subject to three-year cliff vesting, and the 2.5% contributions made prior
to 2014 become fully vested after five years.
The Thrift/401(k) SERP Benefits that vest on or after January 1, 2005 are generally distributed in a lump sum payable
90 days after the end of the calendar year in which separation from service occurs. A six-month delay in commencement of
distributions on account of separation from service applies to key employees, in accordance with Internal Revenue Code
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