Fannie Mae 2008 Annual Report Download - page 251

Defined benefit pension plans
Retirement Plan. The Federal National Mortgage Association Retirement Plan for Employees Not Covered
Under Civil Service Retirement Law, which we refer to as the Retirement Plan, provides benefits for eligible
employees, including Messrs. Hisey, Bacon, Lund, Williams, Mudd, Swad, Dallavecchia and Levin. Normal
retirement benefits are computed on a single life basis using a formula based on final average annual earnings
and years of credited service. Participants are fully vested when they complete five years of credited service.
Since 1989, provisions of the Internal Revenue Code of 1986, as amended, have limited the amount of annual
compensation that may be used for calculating pension benefits and the annual benefit that may be paid. For
2008, the statutory compensation and benefit caps were $230,000 and $185,000, respectively. Before 1989,
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. The Executive Pension Plan supplements the benefits payable to key officers under
the Retirement Plan. Participation in the Executive Pension Plan was frozen in November 2007. Each of our
named executives other than Messrs. Allison, Johnson and Hisey participates in the Executive Pension Plan,
except that Messrs. Swad and Dallavecchia terminated employment prior to vesting in the plan. The
Compensation Committee approved the participants in the Executive Pension Plan. The Board of Directors
approved 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 maximum annual pension benefit (when combined with the Retirement Plan benefit) that would be
payable to Mr. Mudd is 50%, and to our other named executives who participate in the plan is 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 who participate in the plan and 200% of base salary for
Mr. Mudd. 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, and for 2008 and 2009, the 2008 Retention Program bonuses.
Participants who retire before age 60 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 before he
turns 60. Based on his age at termination of employment, Mr. Mudd’s benefit will commence when he reaches
age 55. 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. Mr. Mudd
was 90% vested in his Executive Pension Plan benefit upon his termination of employment in 2008. 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. The benefit payment to the
surviving spouse is subject to an actuarial adjustment for participants who joined the Executive Pension Plan
on or after March 1, 2007 and for Mr. Mudd. 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 participant would have reached 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. 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 Retirement Plan or the
Supplemental Pension Plan. Officers hired after December 31, 2007 are not eligible to participate in these
plans. Benefits under the supplemental pension plans vest at the same time as benefits under the Retirement
Plan. For 2008 and 2009, the pension benefit under the 2003 Supplemental Pension Plan will also be based on
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