Fannie Mae 2006 Annual Report Download - page 205

some employees accrued benefits based on higher income levels. For employees who retire before age 65,
benefits are reduced by stated percentages for each year that they are younger than 65.
Executive Pension Plan
We adopted the Executive Pension Plan to supplement the benefits payable to key officers under the
Retirement Plan. The Compensation Committee approves the participants in the Executive Pension Plan, who
include the named executives. The Board of Directors approves each participant’s pension goal, which is part
of the formula that determines pension benefits. Payments under the Executive Pension Plan are reduced by
any amounts payable under the Retirement Plan.
The annual pension benefit (when combined with the Retirement Plan benefit) for Mr. Mudd equals 50% and
for our other named executives equals 40% of the named executive’s highest average covered compensation
earned during any 36 consecutive months within the last 120 months of employment. Covered compensation
generally is a participant’s average annual base salary, including deferred compensation, plus the participant’s
other taxable compensation (excluding income or gain in connection with the exercise of stock options) earned
for the relevant year, in an amount up to 150% of base salary for our executive vice presidents and 200% of
base salary for Mr. Mudd. As a result, Mr. Mudd’s maximum annual benefit under the Executive Pension Plan
is 100% of his salary. The other named executives could receive a maximum annual benefit equal to 60% of
salary. Effective for benefits earned on and after March 1, 2007, the only taxable compensation other than
base salary considered for the purpose of calculating covered compensation is a participant’s annual incentive
plan cash bonus.
Participants who retire before age 60 generally receive a reduced benefit. The benefit is reduced by 2% for
each year between the year in which benefit payments begin and the year in which the participant turns 60.
However, Mr. Mudd’s employment agreement provides that his benefit will be reduced by 3% for each year. A
participant is not entitled to receive a pension benefit under the Executive Pension Plan until the participant
has completed five years of service as a plan participant, at which point the pension benefit becomes 50%
vested and continues vesting at the rate of 10% per year during the next five years. The benefit payment
typically is a monthly amount equal to 1/12th of the participant’s annual retirement benefit payable during the
lives of the participant and the participant’s surviving spouse. If a participant dies before receiving benefits
under the Executive Pension Plan, generally his or her surviving spouse will be entitled to a death benefit that
begins when the spouse reaches age 55, based on the participant’s pension benefit at the date of death.
Supplemental Pension Plans
We adopted the Supplemental Pension Plan to provide supplemental retirement benefits to employees whose
salary exceeds the statutory compensation cap applicable to the Retirement Plan or whose benefit under the
Retirement Plan is limited by the statutory benefit cap applicable to the Retirement Plan and who do not
participate in or are not fully vested in the Executive Pension Plan . Separately, we adopted the 2003
Supplemental Pension Plan to provide additional benefits to our officers based on their annual cash bonuses,
which are not taken into account under the Supplemental Pension Plan. Officers who do not participate in or
are not fully vested in the Executive Pension Plan may receive benefits under the 2003 Supplemental Pension
Plan. Benefits under the supplemental pension plans vest at the same time as benefits under the Retirement
Plan. For purposes of determining benefits under the 2003 Supplemental Pension Plan, the amount of an
officer’s annual cash bonus taken into account is limited to 50% of the officer’s base salary. Benefits under the
supplemental pension plans typically commence at the same time as benefits under the Retirement Plan.
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