Freddie Mac 2008 Annual Report Download - page 250

The measurement of our benefit obligations includes assumptions about the rate of future compensation increases
included in Table 15.3.
Table 15.3 — Weighted Average Assumptions Used to Determine Projected and Accumulated Benefit Obligations
December 31, 2008 September 30, 2007 December 31, 2008 September 30, 2007
Pension Benefits Postretirement Health Benefits
Discount rate ................................... 6.00% 6.25% 6.00% 6.25%
Rate of future compensation increase . . ................ 5.10% to 6.50% 5.10% to 6.50% — —
Table 15.4 presents the components of the net periodic benefit cost with respect to pension and postretirement health
care benefits for the years ended December 31, 2008, 2007 and 2006. Net periodic benefit cost is included in salaries and
employee benefits on our consolidated statements of operations.
Table 15.4 — Net Periodic Benefit Cost Detail
2008 2007 2006 2008 2007 2006
Year Ended December 31, Year Ended December 31,
Pension Benefits
Postretirement
Health Benefits
(in millions)
Net periodic benefit cost detail:
Service cost.................................................. $35 $34 $31 $ 9 $ 9 $ 9
Interest cost on benefit obligation . . . . ............................... 33 30 26 8 7 6
Expected return on plan assets . . . . . . ............................... (41) (37) (24) — — —
Recognized net (gain) loss. . . . . . . . . ............................... 2 4 6 — 1 2
Recognized prior service cost (credit) . ............................... — — — (1) (1) (1)
Net periodic benefit cost . . . . . . . . ............................... $29 $31 $39 $16 $16 $16
Table 15.5 presents the changes in AOCI, net of taxes, related to our defined benefit plans recorded to AOCI throughout
the year, after the effects of our federal statutory tax rate of 35%. However, we recorded a valuation allowance against our
net deferred tax assets of $44 million related to our defined benefit plans in 2008. See “NOTE 14: INCOME TAXES” for
further information on our deferred tax assets valuation allowance. The estimated net actuarial loss and prior service cost for
our defined benefit plans that will be amortized from AOCI into net periodic benefit cost in 2009 are $14 million and
$1 million, respectively. These amounts reflect the impact of the valuation allowance against our net deferred tax assets.
Table 15.5 — AOCI, Net of Taxes, Related to Defined Benefit Plans
2008 2007
Year Ended
December 31,
(in millions)
Beginning balance ............................................................................ $ (44) $(87)
Amounts recognized in AOCI, net of tax:
(1)
Recognized net gain (loss)
(2)
.................................................................. (126) 41
Net reclassification adjustments, net of tax:
(1)(3)
Recognized net loss (gain)
(4)
.................................................................. 2 3
Recognized prior service cost (credit) . . .......................................................... (1) (1)
Ending balance
(1)
............................................................................. $(169) $(44)
(1) 2008 includes the effect of the establishment of a valuation allowance against our net deferred tax assets.
(2) Net of tax expense of $— and $18 million for the year ended December 31, 2008 and 2007, respectively. 2007 also includes the correction of deferred
taxes of $5 million related to previously recorded Medicare Part D subsidies from prior years.
(3) Represent amounts subsequently recognized as adjustments to other comprehensive income as those amounts are recognized as components of net
periodic benefit cost.
(4) Net of tax benefit of $— and $2 million for the year ended December 31, 2008 and 2007, respectively.
Table 15.6 includes the assumptions used in the measurement of our net periodic benefit cost.
Table 15.6 — Weighted Average Assumptions Used to Determine Net Periodic Benefit Cost
2008 2007 2006 2008 2007 2006
Year Ended December 31, Year Ended December 31,
Pension Benefits
Postretirement
Health Benefits
Discount rate ................................. 6.25% 6.00% 5.75% 6.25% 6.00% 5.75%
Rate of future compensation increase ................ 5.10% to 6.50% 5.10% to 6.50% 5.10% to 6.50% — — —
Expected long-term rate of return on plan assets ......... 7.50% 7.50% 7.25% — — —
For the 2008 and 2007 benefit obligations, we determined the discount rate using a yield curve consisting of spot
interest rates at half-year increments for each of the next 30 years, developed with pricing and yield information from high-
quality bonds. The future benefit plan cash flows were then matched to the appropriate spot rates and discounted back to the
measurement date. Finally, a single equivalent discount rate was calculated that, when applied to the same cash flows, results
in the same present value of the cash flows as of the measurement date.
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