HP 2006 Annual Report Download - page 122

HEWLETT-PACKARD COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
Note 15: Retirement and Post-Retirement Benefit Plans (Continued)
employees who did not meet defined criteria based on age and years of service (calculated as of
December 31, 2005).
Additionally, the HP subsidy for the retiree medical program will be capped upon reaching two
times the 2003 subsidy levels.
During fiscal 2006, HP recognized curtailment gains of $24 million for the HP subsidized U.S.
retiree medical program. The gains reflected the reduction in the eligible plan population stemming
from the U.S. Enhanced Early Retirement program and the restructuring plans implemented in fiscal
2005. HP recorded such gains as reductions of restructuring charges. As subsequent headcount
reductions take place under the restructuring program, HP expects additional curtailment accounting to
occur for U.S. pension and post-retirement plans during the first quarter of fiscal 2007.
During fiscal 2006, HP also recognized settlement gains of $46 million for the U.S. pension plans.
During the measurement period between October 1, 2005 and September 30, 2006, lump-sum benefit
payments were made primarily to pension plan participants who left HP under the U.S. Enhanced
Early Retirement program and the restructuring plans. These lump sum benefit payments represent a
reduction in the projected benefit obligation. As a result, a portion of the unrecognized gain was
recognized in fiscal 2006. The gain was recorded in accordance with SFAS No. 88, ‘‘Employers’
Accounting for Settlements and Curtailments of Defined Benefit Pension Plans and for Termination
Benefits,’’ which requires that a settlement event be recorded once prescribed payment thresholds have
been reached. HP recorded the gain as a reduction of restructuring charges in fiscal 2006.
Effective January 1, 2006, HP increased its matching 401(k) contribution to 6% from 4% of
eligible salary for those employees who had their pension and retiree medical-program benefits frozen
and for all new employees.
Defined Benefit Plans
HP sponsors a number of defined benefit pension plans worldwide, of which the most significant
are in the United States. The HP Retirement Plan (the ‘‘Retirement Plan’’) is a defined benefit pension
plan for U.S. employees hired on or before December 31, 2002. Benefits under the Retirement Plan
generally are based on pay and years of service, except for eligible pre-acquisition Compaq employees,
who do not receive credit for years of service prior to January 1, 2003. Effective December 31, 2005,
participants whose combination of age plus years of service was less than 62 ceased accruing benefits
under the Retirement Plan. For U.S employees hired or rehired on or after January 1, 2003, HP
sponsors the Hewlett-Packard Company Cash Account Pension Plan (the ‘‘Cash Account Pension
Plan’’), under which benefits accrue pursuant to a cash accumulation account formula based upon a
percentage of pay plus interest. Effective December 31, 2005, the Cash Account Pension Plan was
closed to new participants, and participants whose combination of age plus years of service is less than
62 ceased accruing benefits.
Effective November 30, 2005, HP merged the Cash Account Pension Plan into the Retirement
Plan; the merged plan is treated as one plan for certain legal and financial purposes, including funding
requirements. The merger has no impact on the separate benefit structures of the plans.
HP reduces the benefit payable to a U.S. employee under the Retirement Plan for service before
1993, if any, by any amounts due to the employee under HP’s frozen defined contribution Deferred
Profit-Sharing Plan (‘‘the DPSP’’). HP closed the DPSP to new participants in 1993. The DPSP plan
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