Fannie Mae 2007 Annual Report Download - page 259

Compensation cost is measured as the fair value of the shares or cash contributed to, or to be contributed to,
the ESOP. We record these contributions as “Salaries and employee benefits expense” in the consolidated
statements of operations. Expense recorded in connection with the ESOP was $12 million, $11 million and
$10 million for the years ended December 31, 2007, 2006 and 2005, respectively, based on actual
contributions of 2% of salary for each of the reported years. The fair value of unearned ESOP shares, which
represents the fair value of common shares issued or treasury shares sold to the ESOP, was $1 million and
$2 million as of December 31, 2007 and 2006, respectively.
Participants are 100% vested in their ESOP accounts either upon attainment of age 65 or five years of service.
Employees who are at least 55 years of age, and have at least 10 years of participation in the ESOP, may
qualify to diversify vested ESOP shares by rolling over all or a portion of the value of their ESOP account
into investment funds available under the Retirement Savings Plan without losing the tax-deferred status of the
value of the ESOP.
Participants are immediately vested in all dividends paid on the shares of Fannie Mae common stock allocated
to their account. Unless employees elect to receive the dividend in cash, ESOP dividends are automatically
reinvested in Fannie Mae common stock within the ESOP. If the employee does elect to receive the dividend
in cash, the dividends are accrued upon declaration and are distributed in February for the four previous
quarters pursuant to the employee’s election. Shares held but not allocated to participants who forfeited their
shares prior to vesting are used to reduce our future contributions. ESOP shares are a component of our basic
weighted-average shares outstanding for purposes of our EPS calculations, except unallocated shares, which
are not treated as outstanding until they are committed to be released for allocation to employee accounts. All
cash contributions are held in a trust managed by the plan trustee and are invested in Fannie Mae common
stock. Participation in this plan was frozen effective December 31, 2007. Refer to “Changes to Benefit Plans”
below.
The following table displays our ESOP activity for the years ended December 31, 2007 and 2006.
2007 2006
For the Year Ended
December 31,
Common shares allocated to employees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,839,532 1,760,570
Common shares committed to be released to employees . . . . . . . . . . . . . . . . . . . . . . . 348,757 199,923
Unallocated common shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,925 1,029
Changes to Benefit Plans
In the fourth quarter of 2007, a series of changes to our defined benefit pension plans, postretirement Health
Care Plan, Retirement Savings Plan and Employee Stock Ownership Plan were approved. These changes are
effective as described below:
•Defined Benefit Pension Plans—The defined benefit pension plans were amended to cease benefits
accruals for employees that did not meet certain criteria to be grandfathered under the plans. All non-
grandfathered employees and new hires after December 31, 2007 will receive benefits under the amended
Retirement Savings Plan.
•Retirement Savings Plan—While eligible employees will continue to allocate investment balances to a
variety of investment options, our matching contributions were increased from 3% of base salary to 6% of
base, bonus and overtime for non-grandfathered employees and new hires. Grandfathered employees will
continue to receive benefits under the current matching program. Effective January 1, 2008, all
employees, with the exception of those participating in the Executive Pension Plan, will receive an
additional 2% contribution from the company regardless of employee contributions to this plan. There will
continue to be no option to invest directly in our common stock.
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FANNIE MAE
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)