The Federal Housing Finance Agency directed both enterprises to terminate their defined retirements plans as soon as the new year begins.
In replace of the defined retirement plans, both Fannie Mae and Freddie Mac will continue to provide competitive benefits for their employees through defined contribution plans, the conservator said.
What’s the difference between the plans? It’s a numbers game.
A defined benefit pension plan is when an employer promises a specified monthly benefit on retirement, which is predetermined by an employee’s earnings history, tenure and age — rather than depending directly on individual investment returns.
"Terminating the defined benefit retirement plans eliminates risk to Fannie Mae and Freddie Mac and helps to conserve their assets on behalf of taxpayers, one of our main priorities as a conservator," explained FHFA current acting director Ed DeMarco.
The contribution plan is a retirement plan in which the employer, employee or both parties make contributions on a regular basis.
Discussing changes in benefit plans is definitely a political hot potato. Freddie Mae declined to comment and directed me to reach out to FHFA. Ironically, FHFA then declined to comment and pointed me back to Fannie and Freddie.
However, Fannie Mae did have a statement to make on the transition.
"Fannie Mae offers our employees competitive benefits while carefully managing our resources," explained Fannie Mae spokesperson Andrew Wilson.
He added, "With direction from our conservator, the Federal Housing Finance Agency, we have terminated our pension plans. These plans were previously frozen. Payouts to pension plan participants will be made either in the form of a lump sum or an annuity."
Going forward, GSE employees will be able to elect a pension annuity or rollover their benefits into another retirement vehicle such as an IRA or 401K.