Freddie Mac 2011 Annual Report Download - page 357

Supplemental Executive Retirement Plan — Thrift/401(k) SERP Benefit
The Thrift/401(k) SERP Benefit component of the SERP is an unfunded, nonqualified defined contribution plan
designed to provide participants with the full amount of benefits that they would have been entitled to under the Thrift/
401(k) Savings Plan if that plan: (a) was not subject to certain limits on compensation that can be taken into account
under the Internal Revenue Code; and (b) did not exclude from compensation Deferred Base Salary and amounts deferred
under our EDCP. For example, in 2011 under the Internal Revenue Code, only the first $245,000 of an employee’s
compensation is considered when determining our percentage-based matching contribution and the basic contribution for
any participant in the Thrift/401(k) Savings Plan. Effective January 1, 2010, the SERP was amended to provide that the
maximum covered compensation for purposes of the SERP, relative to a Covered Officer, may not exceed two times the
Covered Officer’s Semi-Monthly Base Salary. We believe the Thrift/401(k) SERP Benefit is an appropriate benefit
because offering such a benefit helps us remain competitive with companies in the Comparator Group.
The Thrift/401(k) SERP Benefit equals the amount of the employer matching contributions and basic contribution for
each Named Executive Officer that would have been made to the Thrift/401(k) Savings Plan during the year, based upon
the participant’s eligible compensation, without application of the above limits, less the amount of the matching
contributions and basic contribution actually made to the Thrift/401(k) Savings Plan during the year. Participants are
credited with earnings or losses in their Thrift/401(k) SERP Benefit accounts based upon each participant’s individual
direction of the investment of such notional amounts among the virtual investment funds available under the SERP. Such
investment options are based upon and mirror the performance of the investment options available under the Thrift/401(k)
Savings Plan. As of December 31, 2011, there were 21 investment options in which participants’ notional amounts could
be deemed invested.
To be eligible for the Thrift/401(k) SERP Benefit, the Named Executive Officer must be eligible for matching
contributions and basic contributions under the Thrift/401(k) Savings Plan for part of the year. In addition, to be eligible
for the portion of the Thrift/401(k) SERP Benefit attributable to employer matching contributions, the Named Executive
Officer must contribute the maximum amount permitted under the terms of the Thrift/401(k) Savings Plan on a pre-tax
basis throughout the entire portion of the year in which the Named Executive Officer is eligible to make such
contributions. The portion of the Thrift/401(k) SERP Benefit that is attributable to employer matching contributions is
vested when accrued, while the accrual relating to the basic contribution paid prior to 2008 is subject to five-year cliff
vesting, the accrual relating to the basic contribution attributable to calendar years 2008-2011 is subject to five-year
graded vesting of 20% per year, and the accrual relating to the new employer discretionary contribution (which will
replace the basic contribution for 2012) will be subject to three-year cliff vesting. The Thrift/401(k) SERP Benefits that
vest on or after January 1, 2005 are generally distributed in a lump sum payable 90 days after the end of the calendar year
in which separation from service occurs. A six-month delay in commencement of distributions on account of separation
from service applies to key employees, in accordance with Internal Revenue Code Section 409A. If the Named Executive
Officer dies, the vested Thrift/401(k) SERP Benefit is paid in the form of a lump sum within 90 days of death.
Thrift/401(k) SERP Benefits that vested prior to January 1, 2005 are generally distributed after separation from
service (other than retirement) in the form of three reasonably equal annual installments, starting in the first quarter of the
calendar year following the year in which the separation from service occurs. In the case of retirement, the vested pre-
2005 Thrift/401(k) SERP Benefit is combined with the vested pre-2005 Pension SERP Benefit and is payable in the form
of a single life annuity at age 65 (or in a series of reasonably equal installments over 15 years commencing with
retirement if actuarial estimates indicate that this payment form would yield a longer period of payment). In the case of
death, the vested pre-2005 Thrift/401(k) SERP Benefit is paid in the form of a lump sum within 90 days of such event.
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