Navy Federal Credit Union 2008 Annual Report Download - page 15

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2008 FINANCIAL SECTION
The weighted-average assumptions used to determine the net periodic benefit cost for the pension and other
postretirement benefits were:
The following table discloses the benefits expected to be paid in the next ten years:
The anticipated employer contribution in 2009 is $25.0 million for the pension plan and $1.2 million for the
postretirement benefit plan. The accumulated benefit obligation for the pension plan was $401.0 million and
$350.9 million at December 31, 2008 and 2007, respectively.
The measurement date for the pension and postretirement benefit plan in 2008 and 2007 was December 31.
Navy Federal’s pension plan asset allocations by asset category for 2008 and 2007 and the target allocations
for 2009 were as follows:
Navy Federal employs a total return investment approach whereby a mix of equities and fixed income
investments are used to maximize the long-term return of plan assets for a prudent level of risk. The intent
of this strategy is to minimize plan expenses by outperforming plan liabilities over the long run. Risk tolerance
is established through careful consideration of plan liabilities, plan funded status, and corporate financial con di-
tion. The investment portfolio contains a diversified blend of equity and fixed income investments. Investment
risk is measured and monitored on an ongoing basis through annual liability measurements, periodic asset/
liability studies, and quarterly investment portfolio reviews.
NAVY FEDERAL CREDIT UNION
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Navy Federal 401(k) Savings Plan
The Navy Federal 401(k) savings plan is a defined
contribution plan where employees can contribute
pre-tax money to a 401(k) retirement account and
receive employer matching contributions. The match-
ing contributions are based on participation in a
defined benefit retirement plan. Employees partici-
pating in the Cash Balance Plan receive a 100%
employer match on the first 6% of pay they con-
tribute to their 401(k) account and are vested after
the first two years. The employees participating in
the Traditional Plan receive an employer match of
50% on the first 6% of pay they contribute to their
401(k) account.
The cost recognized for the 401(k) Plan including
matching contributions and administrative costs was
$12.5 million and $10.1 million for the years ended
December 31, 2008 and 2007, respectively.
Deferred Compensation Plan (457)
The deferred compensation plan is a non-qualified
deferred compensation plan as allowed under
Internal Revenue Code Section 457(b). This plan
offers a before-tax savings opportunity to highly-
compensated employees in the Executive and
Professional compensation programs. The annual
deferral amount allowed mirrors the 401(k) plan
and contributions are held by Navy Federal and earn
monthly interest based on Navy Federal’s gross in-
come for the month divided by the average earnings
on assets (loans and investments) for the month.
Non-Qualified Supplemental Retirement
Plan (SERP)
This non-qualified plan is designed to “make up”
for benefits not paid through the defined benefit
retirement plan as a result of limitations imposed
by the IRS. The Internal Revenue Code Section
401(a)(17) limits the amount of compensation that
can be used in the defined benefit retirement plan’s
annuity calculation and Internal Revenue Code Section
415 limits the amount of monthly annuity that can
be paid by the defined benefit retirement plan.
All benefits are paid from the plan trust.
Navy Federal makes all contributions to the trust
in accordance with the company’s funding policy
and in compliance with all federal laws and regula-
tions. Navy Federal accrued $3.0 million and $11.1
million to cover this expense at December 31, 2008
and 2007, respectively.
Note 14: Related Party
Transactions
In the normal course of business, Navy Federal
extends loans to credit union officials. The total
principal amount at December 31, 2008 and 2007,
was $32.8 million and $30.0 million, respectively.
Credit union officials are defined as volunteer
members of the Board of Directors and board
committees, and employees with the title of
Vice President and above.
Note 15: Reserves and
Undivided Earnings
Navy Federal is subject to regulatory capital require-
ments administered by the NCUA. Failure to meet
minimum capital requirements can initiate certain
mandatory and possibly additional discretionary
actions by regulators that, if undertaken, could have
a direct material effect on Navy Federal’s consolidated
financial statements. Under capital adequacy regula-
tions and the regulatory framework for prompt
corrective action, Navy Federal must meet specific
capital requirements that involve quantitative meas-
ures of Navy Federal’s assets, liabilities and certain
commitments as calculated under generally accepted
accounting principles. Navy Federal’s capital amounts
and net worth classification are also subject to
qualitative judgments by the regulators about
components, risk weightings and other factors.
Quantitative measures established by regulation
to ensure capital adequacy require Navy Federal to
maintain minimum amounts and ratios of net worth
to total assets. Credit unions are also required to cal-
culate a risk-based net worth (RBNW) requirement
that establishes whether the credit union will be con-
sidered “complex” under the regulatory framework.
A credit union is defined as “complex” if the credit
union's quarter-end total assets exceed ten million
dollars ($10,000,000) and its risk-based net worth
requirement exceeds six percent (6%). Navy Federal’s
RBNW requirement as of December 31, 2008, was
6.23%, which exceeds the regulatory threshold
of 6% and places Navy Federal in the “complex”
category. There is no impact to Navy Federal based
on the complex designation because our statutory
net worth ratio qualifies us as “well capitalized”
by NCUA standards and our statutory net worth
Pension Retiree Medical
2008 2007 2008 2007
Discount rate 6.30% 5.95% 6.30% 5.95%
Expected return on plan assets 8.25% 8.25% N/A N/A
Rate of compensation increase 5.00% 5.00% N/A N/A
(dollars in thousands) Pension Retiree Medical
2009 $ 17,386 $ 1,222
2010 18,742 1,489
2011 20,576 1,719
2012 22,633 1,908
2013 24,881 2,004
2014–2018 166,854 10,827
Total benefits expected, next 10 years $ 271,072 $ 19,169
2009 (target) 2008 2007
Equity securities 70% 58% 69%
Debt securities 30% 42% 31%