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Employee Retirement Benefits
 12 Months Ended
Dec. 31, 2014
Compensation and Retirement Disclosure [Abstract]  
Employee Retirement Benefits
Employee Retirement Benefits
We sponsor defined benefit plans and defined contribution plans for our employees. Net periodic benefit costs for our defined benefit plans, which are determined on an actuarial basis, and expenses for our defined contribution plans, are included in “Salaries and employee benefits” in our consolidated statements of operations and comprehensive income. For the years ended December 31, 2014, 2013 and 2012, we recognized net periodic benefit costs for our defined benefit and healthcare plans and expenses for our defined contribution plans of $114 million, $94 million and $133 million, respectively.
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.
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 under the pension plans during 2015.
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, 2014 and 2013.
 
 
 
For the Year Ended
 
2014
 
2013
 
(Dollars in millions)
Actuarial Loss:
 
 
 
 
 
Beginning balance
 
$
338

 
$
499

 
Current year actuarial gain
 
(16
)
 
(236
)
 
Actuarial gain due to curtailment
 
—

 
(135
)
 
Actuarial loss due to plan amendment(1)
 
—

 
226

 
Amortization
 
(6
)
 
(16
)
 
Ending balance recorded in AOCI (Pre-tax)
 
$
316

 
$
338

 
After-tax balance recorded in AOCI
 
$
391

 
$
406

 

__________
(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.
Upon settlement of the defined benefit pension plans, all related amounts in AOCI will be reclassified (gross of taxes) to “Other administrative expenses” in our consolidated statements of operations and comprehensive income. This reclassification will decrease “Net income” and will be offset by an increase in “Other comprehensive income” with no material impact to “Total comprehensive income” in our consolidated statements of operations and comprehensive income.
The projected benefit obligation of our defined benefit pension plans was $1.9 billion and $1.6 billion as of December 31, 2014 and 2013, respectively. As of December 31, 2014 and 2013, the projected benefit obligation of the defined benefit pension plans is equal to the accumulated benefit obligation as a result of the amendment to cease benefit accruals. The fair value of the plan assets held by the defined benefit pension plans was $1.6 billion and $1.3 billion as of December 31, 2014 and 2013, respectively. We expect these assets will be used to fund distributions required upon settlement of the defined benefit pension plans. The projected benefit obligation that is not funded as part of the assets held by the defined benefit pension plans is $320 million and $324 million as of December 31, 2014 and 2013, respectively. This unfunded portion has been accrued and included in “Other Liabilities” in our consolidated balance sheets.
Assumptions
Pension benefit amounts recognized in our consolidated financial statements are determined on an actuarial basis using various assumptions. The critical assumption used to determine our benefit obligation for the defined benefit pension plans is the weighted average discount rate, which was 3.83%, 4.60% and 4.15% for the years ended December 31, 2014, 2013 and 2012, respectively.
Qualified Pension Plan Assets
Our investment strategy is to invest in a manner intended to meet the liquidity requirements necessary to distribute the pension plan assets during 2015.
The fair value of our qualified plan assets in 2014 that were classified as Level 1 consisted of $767 million invested in a long-term U.S. investment grade corporate bond fund and $784 million in a money market fund. The corporate bond fund’s objective is to track the performance of Barclays US Long Credit A/Better index. The fair value of our qualified plan assets also included $1 million of cash equivalents classified as Level 2.
The fair value of our qualified plan assets in 2013 that were classified as Level 1 consisted of $927 million invested in a long-term U.S. investment grade corporate bond fund, $257 million invested in a long-term U.S. government bond fund, and $134 million invested in a long-term U.S. government/credit bond fund. These mutual funds’ objective was to track the performance of the Barclays US Long Credit A/Better index, the Barclays U.S. Treasury STRIPS 20-30 Year Equal Par Bond Index, and the Barclays U.S. Long Government/Credit Float Adjusted Index, respectively. The fair value of our qualified plan assets also included $6 million of cash equivalents classified as Level 2.
The fair value of plan assets in Level 1 are determined based on quoted prices of identical assets in active markets as of year end, while the fair value of plan assets in Level 2 are determined based on the net asset value per share of the investments as of year end.