Employee Retirement Benefits

12 Months Ended

Dec. 31, 2013

Compensation and Retirement Disclosure [Abstract]

We sponsor both defined benefit plans and defined contribution plans for our employees, as well as a healthcare plan that provides certain health benefits for retired employees and their dependents. Net periodic benefit costs for defined benefit and healthcare plans, which are determined on an actuarial basis, and expenses for our defined contribution plans, are included in “Salaries and employee benefits expense” in our consolidated statements of operations and comprehensive income (loss). For the years ended December 31, 2013, 2012 and 2011, we recognized net periodic benefit costs for our defined benefit and healthcare plans and expenses for our defined contribution plans of $94 million, $133 million and $118 million, respectively.

Defined Benefit Pension Plans and Postretirement Health Care Plan

Our defined benefit pension plans include qualified and nonqualified noncontributory plans. Our qualified defined benefit pension plan is the Fannie Mae Retirement Plan (referred to as our “qualified pension plan”). Our nonqualified defined benefit pension plans include the Executive Pension Plan, Supplemental Pension Plan and the Supplemental Pension Plan of 2003. These plans cover certain employees and supplement the benefits payable under the qualified pension plan. Benefits under the Executive Pension Plan are paid through a rabbi trust. In 2007, the defined benefit pension plans were amended to cease benefits accruals for employees that did not meet certain criteria to be grandfathered under the plans. Effective December 31, 2009, our Executive Pension Plan was amended to cease benefit accruals for participating employees. In April 2013, the Board of Directors approved plan amendments effective June 30, 2013 to cease benefit accruals for our qualified pension plan, our Supplemental Pension Plan and our Supplemental Pension Plan of 2003, which resulted in a curtailment and a remeasurement of these plans.

In October 2013, pursuant to a directive from our conservator, our Board of Directors approved an amendment to terminate our qualified pension plan and our nonqualified Supplemental Pension Plan, Supplemental Pension Plan of 2003 and Executive Pension Plan, effective December 31, 2013. We plan to distribute all benefits remaining under the qualified pension plan following receipt of regulatory approvals. We expect the distribution for the qualified and nonqualified pension plans to be completed by December 31, 2015. Except for retirees receiving payments under the qualified pension plan (or “in pay status”), participants in the qualified pension plan will have the choice of receiving either a single lump sum payment or an annuity. Retirees in pay status will continue to receive payments of their pension plan benefits pursuant to their current annuity elections. We plan to purchase annuity contracts from an insurance company for retirees and participants that choose annuities as a payment option. All participants in the nonqualified pension plans will receive lump sum payments of their remaining accrued benefits under the plans. The lump sum payments paid to participants in all of the terminated plans will represent the actuarial equivalent value of the participants’ remaining accrued benefits under the plans as of the applicable distribution dates, calculated in accordance with the terms of the plans using the plans’ benefit reduction factors for early retirement applicable for annuity payments and based on the participants’ ages on the distribution dates.

Pension plan benefits are based on years of credited service and a percentage of eligible compensation. We fund our qualified pension plan through employer contributions to a qualified irrevocable trust that is maintained for the sole benefit of plan participants and their beneficiaries. Contributions to our qualified pension plan are subject to a minimum funding requirement and maximum funding limit under the Employee Retirement Income Security Act of 1974 (“ERISA”) and IRS regulations.

The Supplemental Pension Plan provides retirement benefits to employees who participate in our qualified pension plan and do not receive a benefit from the Executive Pension Plan, and whose salary exceeds the statutory compensation cap applicable to the qualified plan or whose benefit is limited by the statutory benefit cap. The Supplemental Pension Plan of 2003 provides additional benefits to our officers based on eligible incentive compensation, if any, received by an officer, but the amount of incentive compensation considered is limited to 50% of the officer’s base salary.

We also sponsor a postretirement Health Care Plan that covers substantially all regular full-time employees who meet the applicable age and service requirements at the time they terminate employment with us. We subsidize premium costs for medical coverage for some employees who meet the age and service requirements. Employees hired after 2007 receive access to our retiree medical plan, when eligible, but they do not qualify for the subsidy.

The following table displays components of our net periodic benefit cost for our qualified and nonqualified pension plans and other postretirement plan for the years ended December 31, 2013, 2012 and 2011. The net periodic benefit cost for each period is calculated based on assumptions at the end of the prior year, except for the interim remeasurement in April 2013 due to the plan amendments to cease benefit accruals as of June 30, 2013.



	For the Year Ended December 31,
	2013								2012								2011
					Other Post-								Other Post-								Other Post-
	Pension				Retirement				Pension				Retirement				Pension				Retirement
	Plans				Plan				Plans				Plan				Plans				Plan
	(Dollars in millions)
Service cost		$	22			$	6			$	37			$	6			$	39			$	6
Interest cost		68				8				72				9				72				9
Expected return on plan assets		(85		)		—				(73		)		—				(69		)		—
Curtailment gain		(5		)		—				—				—				—				—
Amortization		16				(4		)		30				(3		)		12				(7		)
Net periodic benefit cost		$	16			$	10			$	66			$	12			$	54			$	8

Prior service costs, which are changes in benefit obligations due to plan amendments, are amortized over the period prior to the full eligibility date for the other postretirement Health Care Plan. The balance in prior service cost for pension plans was fully recognized in 2013 due to the curtailment of benefits. Subsequent to the plan amendments to cease benefit accruals effective June 30, 2013, actuarial gains and losses for pension plans are amortized over the average expected life of all participants.

The following table displays the changes in the pre-tax and after-tax amounts recognized in AOCI that have not been recognized as a component of net periodic benefit cost for the years ended December 31, 2013 and 2012.



	For the Year Ended
	2013								2012
					Other Post-								Other Post-
	Pension				Retirement				Pension				Retirement
	Plans				Plan				Plans				Plan
	(Dollars in millions)
Actuarial Loss:
Beginning balance, January 1		$	499			$	43			$	393			$	36
Current year actuarial (gain) loss		(236		)		(34		)		135				8
Actuarial gain due to curtailment		(135		)		—				—				—
Actuarial loss due to plan amendment⁽¹⁾		226				—				—				—
Amortization		(16		)		(2		)		(29		)		(1		)
Ending balance, December 31		338				7				499				43
Prior Service Cost (Credit):
Beginning balance, January 1		$	3			$	(40	)		$	4			$	(46	)
Prior service credit due to curtailment		(3		)		—				—				—
Amortization		—				5				(1		)		6
Ending balance, December 31		—				(35		)		3				(40		)
Pre-tax amount recorded in AOCI		$	338			$	(28	)		$	502			$	3
After-tax amount recorded in AOCI		$	406			$	(11	)		$	502			$	3

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⁽¹⁾	Primarily includes the incremental costs incurred due to risk premiums required by insurance carriers to provide annuities and the higher actuarial value of lump sums distributed earlier than previously expected retirement ages.

We expect to recognize pre-tax amounts in AOCI of $6 million in net periodic benefit costs associated with our pension plans and $5 million in net periodic benefit credits associated with our other postretirement plan during 2014. Upon settlement of the pension plans, which is expected to be completed by December 31, 2015, the ending balance remaining in AOCI will be recognized in our consolidated statements of operations and comprehensive income (loss).

The following table displays the status of our pension and other postretirement plans as of December 31, 2013 and 2012.



	As of December 31,
	2013								2012
					Other Post-								Other Post-
	Pension				Retirement				Pension				Retirement
	Plans				Plan				Plans				Plan
	(Dollars in millions)
Change in Projected Benefit Obligation:
Projected benefit obligation at beginning of year		$	1,724			$	201			$	1,452			$	183
Service cost		22				6				37				6
Interest cost		68				8				72				9
Plan participants’ contributions		—				2				—				2
Net actuarial loss (gain)		15				(34		)		198				9
Curtailment		(142		)		—				—				—
Benefits paid		(39		)		(8		)		(35		)		(8		)
Projected benefit obligation at end of year		1,648				175				1,724				201
Change in Plan Assets:
Fair value of plan assets at beginning of year		1,227				—				1,042				—
Actual return on plan assets		111				—				136				—
Employer contributions		25				6				84				6
Plan participants’ contributions		—				2				—				2
Benefits paid		(39		)		(8		)		(35		)		(8		)
Fair value of plan assets at end of year		1,324				—				1,227				—
Funded status at end of year⁽¹⁾		$	(324	)		$	(175	)		$	(497	)		$	(201	)

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⁽¹⁾	Included in “Other liabilities” in our consolidated balance sheets as of December 31, 2013 and 2012.

Actuarial gains or losses reflect annual changes in the amount of either the benefit obligation or the fair value of plan assets that result from the difference between actual experience and projected amounts or from changes in assumptions.

As of December 31, 2013, the projected benefit obligation is equal to the accumulated benefit obligation as a result of the amendment to cease benefit accruals as of June 30, 2013. As of December 31, 2012, the accumulated benefit obligation for our pension plans was $1.6 billion.

Contributions to the qualified pension plan increase the plan assets while contributions to the unfunded plans are made to fund current period benefit payments or to fulfill annual funding requirements. We were not required to make minimum contributions to our qualified pension plan for each of the years in the three-year period ended December 31, 2013 since we met the minimum funding requirements as prescribed by ERISA. However, we did make a discretionary contribution to our qualified pension plan of $16 million, $76 million and $124 million during 2013, 2012 and 2011, respectively.

During 2013, we also contributed $9 million to our nonqualified pension plans and $6 million to our other postretirement benefit plan. During 2014, we anticipate contributing $17 million to our benefit plans, consisting of $9 million to our nonqualified pension plans and $8 million to our other postretirement plan.

The fair value of plan assets of our funded qualified pension plan was less than our accumulated benefit obligation by $115 million and $140 million as of December 31, 2013 and 2012, respectively. There were no plan assets returned to us as of February 21, 2014 and we do not expect any plan assets to be returned to us during the remainder of 2014.

Assumptions

Pension and other postretirement benefit amounts recognized in our consolidated financial statements are determined on an actuarial basis using several different assumptions. The following table displays the actuarial assumptions for our plans used in determining the net periodic benefit costs and the projected and accumulated benefit obligations for the periods presented below.



	December 31,
	Pension Benefits							Postretirement Benefits
	2013			2012		2011		2013		2012		2011
Weighted-average assumptions used to determine net periodic benefit costs for the years ended:
Discount rate	4.25	%	⁽¹⁾	4.95	%	5.65	%	4.05	%	4.75	%	5.40	%
Average rate of increase in future compensation	N/A		⁽²⁾	4.00		4.00
Expected long-term weighted-average rate of return on plan assets	6.75			7.00		7.25
Weighted-average assumptions used to determine benefit obligation as of:
Discount rate	4.60	%		4.15	%	4.95	%	4.93	%	4.05	%	4.75	%
Average rate of increase in future compensation	N/A		⁽²⁾	4.00		4.00
Health care cost trend rate assumed for next year:
Pre-65								7.00	%	7.50	%	8.00	%
Post-65								7.00		7.50		8.00
Rate that cost trend rate gradually declines to and remains at:								5.00		5.00		5.00
Year that rate reaches the ultimate trend rate								2018		2018		2018

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⁽¹⁾	The pension benefit plans were remeasured as of April 30, 2013. As a result, a discount rate of 4.15% was used for the period January 1 through April 30, 2013.


⁽²⁾	Future compensation increases were not factored into the pension benefit plans after June 30, 2013. An average rate of increase in future compensation of 4% was used for the period January 1 through June 30, 2013.

As of December 31, 2013, the effect of a 1% increase in the assumed health care cost trend rate would change the accumulated postretirement benefit obligation by $6 million. The effect of a 1% decrease in the assumed health care cost trend rate would change the accumulated postretirement benefit obligation by $8 million.

We review our pension and other postretirement benefit plan assumptions on an annual basis. We calculate the net periodic benefit cost each year based on assumptions established at the end of the previous calendar year, unless we have a remeasurement as a result of a significant event relating to the plans. In determining our net periodic benefit costs, we assess the discount rate to be used in the annual actuarial valuation of our pension and other postretirement benefit obligations at year-end. We consider the current yields on high-quality, corporate fixed-income debt instruments with maturities corresponding to the expected duration of our benefit obligations and supported by cash flow matching analysis based on expected cash flows specific to the characteristics of our plan participants, such as age and gender. As of December 31, 2013, the discount rate used to determine our obligation increased by 45 basis points for pension and 88 basis points for the other postretirement benefit plan, reflecting a corresponding rate increase in corporate-fixed income debt instruments during 2013. The discount rate used to determine our benefit obligation for the qualified plan as of December 31, 2013 reflects credit adjustments made by insurance carriers based on annuity pricing observed in the market. We also assess the long-term rate of return on plan assets for our qualified pension plan. The return on asset assumption reflects our expectations for plan-level returns over a term of approximately seven to ten years. Changes in assumptions used in determining pension and other postretirement benefits resulted in an increase in benefit cost of $26 million, $22 million and $17 million for the years ended December 31, 2013, 2012 and 2011, respectively.

Qualified Pension Plan Assets

The following table displays our qualified pension plan assets by asset category at their fair value as of December 31, 2013 and 2012. The fair value of assets in Level 1 have been determined based on quoted prices of identical assets in active markets as of year end, while the fair value of assets in Level 2 have been determined based on the net asset value per share of the investments as of year end. None of the fair values for plan assets were determined by using significant unobservable inputs, or Level 3.



	Fair Value Measurement as of December 31,
	2013								2012
	Quoted Prices in Active Markets for Identical Assets (Level 1)			Significant Other Observable Inputs (Level 2)			Total		Quoted Prices in Active Markets for Identical Assets (Level 1)			Significant Other Observable Inputs (Level 2)			Total
	(Dollars in millions)
Cash equivalents		$	—		$	6	$	6		$	—		$	16	$	16
Equity securities:
U.S. large-cap⁽¹⁾		—			—		—			405			—		405
U.S. mid/small cap⁽²⁾		—			—		—			105			—		105
International⁽³⁾		—			—		—			—			215		215
Fixed income investments:
Long-term U.S. investment grade corporate bond fund⁽⁴⁾		927			—		927			—			—		—
Long-term U.S. government bond fund⁽⁵⁾		257			—		257			—			—		—
Long-term U.S. government / credit bond fund⁽⁶⁾		134			—		134			—			—		—
Investment grade credit⁽⁷⁾		—			—		—			—			486		486
Total plan assets at fair value		$	1,318		$	6	$	1,324		$	510		$	717	$	1,227

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⁽¹⁾	Consists of a publicly traded equity index fund that tracks the S&P 500.


⁽²⁾	Consists of a publicly traded equity index fund that tracks all regularly traded U.S. stocks except those in the S&P 500.


⁽³⁾	Consists of an international equity fund that tracks an index of approximately 6,100 securities across over 40 countries. United Kingdom has the largest share with 15%.


⁽⁴⁾	This mutual fund’s objective is to track the performance of the Barclays US Long Credit A/Better Index.


⁽⁵⁾	This mutual fund’s objective is to track the performance of the Barclays U.S. Treasury STRIPS 20-30 Year Equal Par Bond Index.


⁽⁶⁾	This mutual fund’s objective is to track the performance of the Barclays US Long Government/Credit Float Adjusted Index.


⁽⁷⁾	Consists of a bond fund that tracks a broadly diversified investment grade index that consists of approximately 3,600 issuances of investment grade bonds from diverse industries. International markets represent 19% of the fund.

Our investment strategy is to invest in a manner intended to stabilize the qualified pension plan’s funded status. The assets of the qualified pension plan consist of diversified long duration, fixed income index funds primarily holding U.S. government and corporate fixed income securities. In addition, the plan holds liquid short-term investments that provide for the plan’s ongoing cash flow needs.

Expected Benefit Payments

The following table displays the benefits we expect to pay in each of the next five years and in the aggregate for the subsequent five years for our pension plans and other postretirement plan and are based on the same assumptions used to measure our benefit obligation as of December 31, 2013.



	Expected Retirement Plan Benefit Payments
					Other Postretirement Benefits
	Pension Benefits				Before Medicare Part D Subsidy			Medicare Part D Subsidy
	(Dollars in millions)
2014		$	37			$	8		$	1
2015		1,763		⁽¹⁾		8			1
2016		N/A		⁽¹⁾		9			1
2017		N/A		⁽¹⁾		10			1
2018		N/A		⁽¹⁾		10			1
2019 — 2023		N/A		⁽¹⁾		64			6

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⁽¹⁾	Benefits under the pension plans are expected to be distributed by December 31, 2015.

Defined Contribution Plans

Retirement Savings Plan

The Retirement Savings Plan is a defined contribution plan that includes a 401(k) before-tax feature, a regular after-tax feature and a Roth after-tax feature. Under the plan, eligible employees may allocate investment balances to a variety of investment options. There was no option to invest directly in our common stock for the years ended December 31, 2013, 2012 and 2011. We recorded expense for this plan of $65 million, $53 million and $55 million for the years ended December 31, 2013, 2012 and 2011, respectively. Employees who were active in the qualified pension plan as of June 30, 2013 (referred to as “grandfathered employees”) became eligible for additional benefits under the Retirement Savings Plan effective July 1, 2013.

We match employee contributions in cash up to 6% of eligible compensation (base salary, overtime pay and eligible incentive compensation). Prior to July 1, 2013, grandfathered employees received a match of up to 3% of eligible compensation (base salary only). Effective July 1, 2013, the match level for grandfathered employees was increased to 6% and eligible compensation was changed to include base salary, overtime pay and eligible incentive compensation. Matching contributions for all employees other than grandfathered employees are immediately 100% vested. Matching contributions for grandfathered employees were fully vested after five years of service.

Grandfathered employees who were both (1) at least age 50, and (2) the sum of whose age and years of vested service under our qualified pension plan was 65 or more, as of June 30, 2013 will receive an additional fully vested 4% contribution under the plan each year for the period July 1, 2013 through June 2018.

All employees receive an additional 2% contribution regardless of employee contributions to this plan. Participants are fully vested in this 2% contribution after three years of service.

The maximum employee contribution as established by the IRS was $17,500, $17,000 and $16,500 for the years ended December 31, 2013, 2012 and 2011, with additional “catch-up” contributions permitted for participants aged 50 and older of $5,500.

Supplemental Retirement Savings Plan

The Supplemental Retirement Savings Plan is an unfunded, nonqualified defined contribution plan. This plan supplements our Retirement Savings Plan to provide benefits to employees whose annual eligible earnings exceed the IRS annual limit on eligible compensation for 401(k) plans, which is $255,000 in 2013. Eligible compensation consists of base salary plus eligible incentive compensation earned, if any, up to a combined maximum of two times base salary. Prior to July 1, 2013, employees who were active in our qualified pension plan were not eligible for this plan.