Fannie Mae 2009 Annual Report Download - page 349

As of December 31, 2009, the effect of a 1% increase in the assumed health care cost trend rate would
increase the accumulated postretirement benefit obligation by $2 million. The effect of a 1% decrease in this
rate would decrease the accumulated postretirement benefit obligation by $2 million.
As a result of our reduction in workforce from voluntary and involuntary terminations in 2007, our pension
and other postretirement assets and liabilities were remeasured, resulting in curtailment charges of $11 million.
We review our pension and other postretirement benefit plan assumptions on an annual basis. We calculate the
net periodic benefit cost each year based on assumptions established at the end of the previous calendar year,
unless we remeasure as a result of a curtailment. In determining our net periodic benefit costs, we assess the
discount rate to be used in the annual actuarial valuation of our pension and other postretirement benefit
obligations at year-end. We consider the current yields on high-quality, corporate fixed-income debt
instruments with maturities corresponding to the expected duration of our benefit obligations and supported by
cash flow matching analysis based on expected cash flows specific to the characteristics of our plan
participants, such as age and gender. As of December 31, 2009, the discount rate used to determine our
obligation decreased by 5 basis points for pension and 40 basis points for postretirement, reflecting a
corresponding rate decrease in corporate-fixed income debt instruments during 2009. We also assess the long-
term rate of return on plan assets for our qualified pension plan. The return on asset assumption reflects our
expectations for plan-level returns over a term of approximately seven to ten years. Given the longer-term
nature of the assumption and a stable investment policy, it may or may not change from year to year.
However, if longer-term market cycles or other economic developments impact the global investment
environment, or asset allocation changes are made, we may adjust our assumption accordingly. The expected
long-term rate of return on plan assets for 2009 remained unchanged from the 2008 rate of 7.5%. Changes in
assumptions used in determining pension and other postretirement benefit plan expense resulted in a decrease
in expense of $4 million, $15 million and $10 million in our consolidated statements of operations for the
years ended December 31, 2009, 2008 and 2007, respectively.
Qualified Pension Plan Assets
As of December 31, 2009, we have adopted the new accounting standard requiring various disclosures about
postretirement benefit plan assets. The following table displays our qualified pension plan assets by asset
category at their fair value as of December 31, 2009. The fair value of assets in Level 1 have been determined
based on quoted prices of identical assets in active markets as of year end, while the fair value of assets in
F-91
FANNIE MAE
(In conservatorship)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)