Freddie Mac 2004 Annual Report Download - page 224

For the 2004 and 2003 beneÑt obligations, Freddie Mac used the Moody's Aa Corporate Bond Rate
Index as a basis for selecting the discount rate shown in Table 15.4. The expected long-term rate of return on
plan assets for 2004 and 2003 is estimated using a portfolio return calculator model. The model considers the
historical returns and the future expectations for returns for each asset class in the company's deÑned beneÑt
plans in conjunction with Freddie Mac's target investment allocation to arrive at the expected rate of return.
The assumed health care cost trend rates used in measuring the accumulated post-retirement beneÑt
obligation as of September 30, 2004 are 13 percent in 2005, gradually declining to an ultimate rate of
Ñve percent in 2011 and remaining at that level thereafter.
Table 15.6 sets forth the eÅect on the accumulated post-retirement health beneÑt obligation as of
September 30, 2004, and the sum of the service-cost and interest-cost components of the net periodic post-
retirement health beneÑt costs that would result from a one percent increase or decrease in the assumed health
care cost trend rate.
Table 15.6 Ì Selected Data Regarding the Retiree Health Plan
One One
Percent Percent
Increase Decrease
(dollars in millions)
EÅect on the accumulated post-retirement beneÑt obligation for health
care beneÑtsÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $24 $(19)
EÅect on the net periodic post-retirement health beneÑt cost components 4 (3)
Plan Assets
Table 15.7 sets forth Freddie Mac's Pension Plan weighted average asset allocations, based on fair value,
at September 30, 2004 and 2003, and target allocation by asset category.
Table 15.7 Ì Pension Plan Assets by Category
Plan Assets at
Target September 30,
Allocation
Asset Category 2003 - 2004 2004 2003
Equity securities ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 65.0% 61.2% 51.7%
Debt securities ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 35.0% 34.0% 28.0%
Other(1) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ Ì 4.8% 20.3%
TotalÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 100.0% 100.0% 100.0%
(1) Consists of cash contributions made in the third quarter of 2004 and 2003 that were not fully invested by September 30th of that
year.
Freddie Mac's Retirement Committee has Ñduciary responsibility for establishing and overseeing the
Pension Plan's investment policies and objectives. The Retirement Committee reviews the appropriateness of
the Pension Plan's investment strategy on an ongoing basis. Freddie Mac's Pension Plan employs a total return
investment approach whereby a diversiÑed blend of equities and Ñxed income investments are used to
maximize the long-term return of plan assets for a prudent level of risk. Risk tolerance is established through
careful consideration of plan liabilities, plan funded status, and corporate Ñnancial condition. Furthermore,
equity investments are diversiÑed across U.S. and non-U.S. listed companies with small and large capitaliza-
tions. Derivatives may be used to gain market exposure in an eÇcient and timely manner; however, derivatives
may not be used to leverage the portfolio beyond the market value of the underlying investments. Investment
risk is measured and monitored on an ongoing basis through quarterly investment portfolio reviews, annual
liability measurements and periodic asset/liability studies.
The Pension Plan assets did not include any direct ownership of Freddie Mac securities at September 30,
2004 and 2003.
Contributions
As discussed above, Freddie Mac does not currently expect to contribute to its Pension Plan in 2005. Any
contributions to the company's Retiree Health Plan will be in the form of beneÑt payments since it is an
unfunded plan.
Freddie Mac
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