Freddie Mac 2004 Annual Report Download - page 221

NOTE 15: EMPLOYEE BENEFITS
DeÑned BeneÑt Plans
Freddie Mac maintains a tax-qualiÑed deÑned beneÑt pension plan (""Pension Plan'') covering substan-
tially all of its employees. Pension Plan beneÑts are based on years of service and the employee's highest
average compensation (up to legal plan limits) over any consecutive 36 months of employment. Freddie Mac's
general practice is to contribute to the Pension Plan an amount equal to at least the minimum required
contribution, if any, but no more than the maximum amount deductible for federal income tax purposes each
year. Based on a preliminary analysis, Freddie Mac currently believes that under applicable law no minimum
contribution will be required and no tax-deductible contribution will be permitted for 2005. Therefore, Freddie
Mac does not currently expect to contribute to its Pension Plan in 2005. Pension Plan assets are held in trust
and investments consist primarily of listed stocks and corporate bonds. In addition to the Pension Plan,
Freddie Mac maintains nonqualiÑed, unfunded deÑned beneÑt pension plans for oÇcers and certain other
employees of the company (the ""non-qualiÑed pension plans''). The related retirement beneÑts for the
nonqualiÑed pension plans are paid from Freddie Mac's general assets. These nonqualiÑed and qualiÑed
deÑned beneÑt pension plans are collectively referred to in this NOTE 15 as ""deÑned beneÑt pension plans.''
Freddie Mac maintains a deÑned beneÑt post-retirement health care plan (""Retiree Health Plan'') that
generally provides post-retirement health care beneÑts on a contributory basis to retired employees age 55 or
older who rendered at least ten years of service (Ñve years of service if retiree is eligible to retire prior to
March 1, 2007) and who, upon separation or termination, immediately elected to commence beneÑts under
the Pension Plan in the form of an annuity. The company's Retiree Health Plan is currently unfunded and the
beneÑts are paid from Freddie Mac's general assets. This plan, along with the deÑned beneÑt pension plans,
are collectively referred to in this NOTE 15 as ""deÑned beneÑt plans.''
The Medicare Prescription Drug, Improvement and Modernization Act of 2003 (""Medicare Part D'')
was signed into law on December 8, 2003. Medicare Part D authorizes a federal subsidy for sponsors of retiree
health care plans with prescription drug beneÑts that are at least actuarially equivalent to the prescription drug
beneÑts available under Medicare Part D. In May 2004, the FASB issued FASB StaÅ Position
(""FSP'') 106-2, ""Accounting and Disclosure Requirements Related to the Medicare Prescription Drug,
Improvement and Modernization Act of 2003,'' which supersedes FSP 106-1 of the same title. FSP 106-2
clariÑed the accounting for beneÑts provided by the new government subsidies. Freddie Mac, in consultation
with its actuaries, has determined that the prescription drug beneÑts provided to participants by the Retiree
Health Plan are at least actuarially equivalent to those available under Medicare Part D. Therefore, in
accordance with the FSP 106-2 transition provisions, the eÅects of the future Medicare Part D subsidies are
reÖected as an actuarial gain, included in Net actuarial loss (gain) in Table 15.1, that reduces the year-end
accumulated post-retirement beneÑt obligation for 2004 by $12 million. No determination has yet been made
with respect to actuarially equivalent beneÑts provided to participants' spouses and dependents. The ongoing
eÅect of the subsidy under Medicare Part D is to reduce the current service cost.
For Ñnancial reporting purposes, Freddie Mac uses a September 30 valuation measurement date for all of
its deÑned beneÑt plans. The company is required to accrue the estimated cost of retiree beneÑts as employees
render the services necessary to earn their pension and post-retirement health beneÑts. Freddie Mac's pension
and post-retirement health care costs related to these deÑned beneÑt plans for 2004, 2003 and 2002 presented
in the following tables were calculated using assumptions as of September 30, 2003, 2002 and 2001,
respectively. The funded status of Freddie Mac's pension and post-retirement health care deÑned beneÑt plans
for 2004, 2003 and 2002 presented in the following tables was calculated using assumptions as of
September 30, 2004, 2003 and 2002, respectively.
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