Freddie Mac 2008 Annual Report Download - page 251

The expected long-term rate of return on plan assets was estimated using a portfolio return calculator model. The model
considered the historical returns and the future expectations of returns for each asset class in our defined benefit plans in
conjunction with our target investment allocation to arrive at the expected rate of return.
The assumed health care cost trend rates used in measuring the accumulated postretirement benefit obligation as of
December 31, 2008 are 9% in 2009, gradually declining to an ultimate rate of 5% in 2016 and remaining at that level
thereafter.
Table 15.7 sets forth the effect on the accumulated postretirement benefit obligation for health care benefits as of
December 31, 2008, and the effect on the service cost and interest cost components of the net periodic postretirement health
benefit cost that would result from a 1% increase or decrease in the assumed health care cost trend rate.
Table 15.7 — Selected Data Regarding our Retiree Medical Plan
1% Increase 1% Decrease
(in millions)
Effect on the accumulated postretirement benefit obligation for health care benefits . . ...................... $28 $(22)
Effect on the service and interest cost components of the net periodic postretirement health benefit cost .......... 4 (3)
Plan Assets
Table 15.8 sets forth our Pension Plan asset allocations, based on fair value, at December 31, 2008 and September 30,
2007, and target allocation by asset category.
Table 15.8 — Pension Plan Assets by Category
Asset Category
Target
Allocation December 31, 2008 September 30, 2007
Plan Assets at
Equity securities . . .................................................. 65.0% 57.6% 66.5%
Debt securities . . . .................................................. 35.0 42.3 33.4
Other . . . ........................................................ — 0.1 0.1
Total . . ........................................................ 100.0% 100.0% 100.0%
The Pension Plan’s retirement investment committee has fiduciary responsibility for establishing and overseeing the
investment policies and objectives of our Pension Plan. The Pension Plan’s retirement investment committee reviews the
appropriateness of our Pension Plan’s investment strategy on an ongoing basis. In 2008 and 2007, our Pension Plan
employed a total return investment approach whereby a diversified blend of equities and fixed income investments was 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 characteristics, such as benefit commitments, demographics and actuarial funding policies. Furthermore,
equity investments are diversified across U.S. and non-U.S. listed companies with small and large capitalizations. Derivatives
may be used to gain market exposure in an efficient 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 and liability
studies.
Our Pension Plan assets did not include any direct ownership of our securities at December 31, 2008 and September 30,
2007.
Cash Flows Related to Defined Benefit Plans
Our general practice is to contribute to our 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. During 2008, we made
a contribution to our Pension Plan of approximately $16.5 million. During 2007, we made no contributions to our Pension
Plan. We have not yet determined whether a contribution to our Pension Plan is required for 2009.
In addition to the Pension Plan contributions noted above, we paid $2 million during 2008 and $1 million during 2007
in benefits under our SERP. Allocations under our SERP, as well as our Retiree Health Plan, are in the form of benefit
payments, as these plans are required to be unfunded.
Table 15.9 sets forth estimated future benefit payments expected to be paid for our defined benefit plans. The expected
benefits are based on the same assumptions used to measure our benefit obligation at December 31, 2008.
Table 15.9 — Estimated Future Benefit Payments
Pension Benefits
Postretirement
Health Benefits
(in millions)
2009 . . ........................................................................ $ 15 $ 2
2010 . . ........................................................................ 12 3
2011 . . ........................................................................ 14 3
2012 . . ........................................................................ 16 4
2013 . . ........................................................................ 19 4
Years 2014-2018 . . . ............................................................... 139 31
248 Freddie Mac