Fannie Mae 2006 Annual Report Download - page 294

Actuarial gains or losses reflect annual changes in the amount of either the benefit obligation or the fair value
of plan assets that result from the difference between actual experience and projected amounts or from
changes in assumptions.
The following table displays information pertaining to the projected benefit obligation, accumulated benefit
obligation and fair value of plan assets for our pension plans as of December 31, 2006 and 2005.
Qualified
Non-
Qualified Qualified
Non-
Qualified
Pension Plans
2006
Pension Plans
2005
As of December 31,
(Dollars in millions)
Projected benefit obligation . . . . . . . . . . . . . . . . . . . . . . . . . . . $770 $161 $708 $164
Accumulated benefit obligation . . . . . . . . . . . . . . . . . . . . . . . . 564 121 516 115
Fair value of plan assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 769 — 602 —
Our current funding policy is to contribute an amount at least equal to the minimum required contribution
under ERISA as well as to maintain a 105% current liability funded status as of January 1 of every year. The
plan assets of our funded qualified pension plan were greater than our accumulated benefit obligation by
$205 million and $86 million as of December 31, 2006 and 2005, respectively.
The pension and postretirement benefit amounts recognized in the consolidated financial statements are
determined on an actuarial basis using several different assumptions that are measured as of December 31,
2006, 2005 and 2004. The following table displays the actuarial assumptions for our principal plans used in
determining the net periodic benefit expense in the consolidated statements of income for the years ended
December 31, 2006, 2005 and 2004 and the net prepaid benefit cost (accrued benefit liability) in the
consolidated balance sheets as of December 31, 2006, 2005 and 2004.
2006 2005 2004 2006 2005 2004
Pension Benefits Postretirement Benefits
As of December 31,
Weighted average assumptions used to determine net periodic benefit
costs:
Discount rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.75% 5.75% 6.25% 5.75% 5.75% 6.25%
Average rate of increase in future compensation . . . . . . . . . . . . . . . . . 5.75 5.75 5.75
Expected long-term weighted average rate of return on plan assets . . . . 7.50 7.50 7.50
Weighted average assumptions used to determine benefit obligation
at year-end:
Discount rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.00% 5.75% 5.75% 6.00% 5.75% 5.75%
Average rate of increase in future compensation . . . . . . . . . . . . . . . . . 5.75 5.75 5.75
Health care cost trend rate assumed for next year:
Pre-65 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9.00% 10.00% 11.00%
Post-65 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9.00 10.00 11.00
Rate that cost trend rate gradually declines to and remains at . . . . . . 5.00 5.00 5.00
Year that rate reaches the ultimate trend rate . . . . . . . . . . . . . . . . . . . . . 2011 2011 2011
As of December 31, 2006, the effect of a 1% increase in the assumed health care cost trend rate would
increase the accumulated postretirement benefit obligation by $5 million, while a 1% decrease would decrease
the accumulated postretirement benefit obligation by $4 million. There would be no material change in the net
periodic postretirement benefit cost from a 1% change in either direction.
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FANNIE MAE
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)