Fannie Mae 2012 Annual Report Download - page 211

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Defined Benefit Pension Plans
Retirement Plan. The Federal National Mortgage Association Retirement Plan for Employees Not Covered Under Civil
Service Retirement Law, referred to as the “Retirement Plan,” is a tax-qualified defined benefit pension plan. Participation in
the Retirement Plan has been frozen, and employees hired after December 31, 2007 and employees who did not satisfy the
age and service requirements to be grandfathered participants under the Retirement Plan do not earn benefits under the
Retirement Plan. Prior to 2007, participation in the Retirement Plan was generally available to employees. Participants are
fully vested in the Retirement Plan when they complete five years of credited service. Messrs. Williams and Benson are the
only named executives who participate in the Retirement Plan.
Under the Retirement Plan, normal retirement benefits are computed on a single life basis using a formula based on final
average annual earnings (which consists of base salary) and years of credited service. For years of service after 1988, the
pension formula is:
• 1 1/2% multiplied by final average annual earnings, plus
• 1/2% multiplied by final average annual earnings over Social Security-covered compensation multiplied by years of
credited service.
A different formula applies for years of service after 35 years. Final average annual earnings are average annual earnings in
the participant’s highest paid 36 consecutive calendar months during the participant’s last 120 calendar months of
employment. Earnings are base salary. Provisions of the Internal Revenue Code of 1986, as amended, limit the amount of
annual compensation that may be used for calculating pension benefits and the annual benefit that may be paid. For 2012, the
statutory compensation and benefit caps were $250,000 and $200,000, respectively. The normal form of benefit under the
Retirement Plan is an annuity providing monthly payments for the life of the participant and a survivor annuity for the
participant’s spouse, if applicable. The normal retirement age under the Retirement Plan is age 65; however, early retirement
under the plan is generally available at age 55. For employees who retire before age 65, benefit payments are reduced by
stated percentages for each year that they are younger than 65.
Mr. Williams is eligible for early retirement under the Retirement Plan, as well as under the Supplemental Pension Plan and
the 2003 Supplemental Pension Plan described below, and has elected to receive benefit payments under these plans at age
55. Applying the factors in these plans, Mr. Williams’ benefit payments were reduced by 37% as a result of his election to
start benefits at age 55. Payments to Mr. Williams under all three plans began in February 2013. See the “Pension Benefits for
2012” table below for more information.
Supplemental Pension Plan and 2003 Supplemental Pension Plan. The purpose of the Supplemental Pension Plan is to
provide supplemental retirement benefits using the Retirement Plan formula to employees whose base 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. The purpose of the Supplemental Pension Plan of 2003 (the “2003
Supplemental Pension Plan”) is to provide additional benefits based on eligible incentive compensation not taken into
account under the Retirement Plan or the Supplemental Pension Plan. Eligible incentive compensation for executive officers
includes deferred salary under our current executive compensation program and other types of incentive compensation paid
in prior years under our prior executive compensation programs. For purposes of determining benefits under the 2003
Supplemental Pension Plan, the amount of an officer’s eligible incentive compensation taken into account is limited in the
aggregate to 50% of the officer’s base salary. Benefits under these plans vest at the same time as benefits under the
Retirement Plan, and benefits under these plans typically commence at the later of age 55 or separation from service. The
normal retirement age under these plans is age 65; however, early retirement under the plans is generally available at age 55.
For employees who retire before age 65, benefit payments are reduced by stated percentages for each year that they are
younger than 65 in the same manner as under the Retirement Plan. Messrs. Williams and Benson are the only named
executives who participate in the Supplemental Pension Plan and the 2003 Supplemental Pension Plan.
In general, officers who are eligible to participate in the Executive Pension Plan receive the greater of their Executive
Pension Plan benefits or combined Supplemental Pension Plan and 2003 Supplemental Pension Plan benefits. However, for
2010 and 2011, Mr. Williams accrued benefits under the Supplemental Pension Plan and the 2003 Supplemental Pension Plan
that will not be offset by his Executive Pension Plan benefit. In light of its decision to freeze Mr. Williams’ benefit under the
Executive Pension Plan, the Board adopted this change for 2010 and 2011, with the approval of FHFA, to provide
Mr. Williams a pension benefit for 2010 and 2011. The Board did not adopt this change for 2012.
Executive Pension Plan. The Executive Pension Plan was designed to supplement the benefits payable under the Retirement
Plan. Mr. Williams is the only named executive with a benefit under the Executive Pension Plan, and his benefit under the
plan was frozen as of December 31, 2009. Because the Executive Pension Plan is frozen, Mr. Williams’ compensation, years