More than 12,000 employees of the U.S. government-backed mortgage giants Freddie Mac and Fannie Mae will lose their pension plans at the end of the year.
The move comes at the behest of the Federal Housing Finance Agency, which has been the conservator for the two companies since 2008 when huge losses required a $188 billion bailout. A memo to staff, first reported by the Washington Post, said the pension was being eliminated "to manage the cost of the retirement benefits at a more predictable rate and to limit long-term liabilities."
Pension plan participants will be able to roll their benefits into an annuity or defined contributions account. Freddie Mac and Fannie Mae said they plan to offer a 401(k) to replace the current pension system. Employees hired after Dec. 31, 2011, had been barred from enrolling in the pension plan.
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Fannie Mae was created in 1938 to give local banks federal money to keep mortgage money flowing. Freddie Mac was created in 1970 to expand the secondary home mortgage market.
Freddie Mac reported a profit of $5 billion for the second quarter. It has been profitable since the last quarter of 2011. Fannie Mae's profit for the same period was $10.1 billion, its sixth straight quarter of profitability.
The elimination of the pension plans comes as other companies change or eliminate retirement benefits as projected costs weigh on corporate plans. In August, Goodyear announced it would freeze its defined benefit plan once it is fully funded. Other employers want to stop paying for retiree health benefits.
The federal insurance agency for private retirement systems, the Pension Benefit Guaranty Corp., has reported that the number of plans within its purview fell by more than 75 percent from 1985 to 2011, from about 110,000 to about 25,000.
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