HP 2012 Annual Report Download - page 146

HEWLETT-PACKARD COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
Note 16: Retirement and Post-Retirement Benefit Plans (Continued)
programs. Plan participants in the Pre-2003 Program make contributions based on their choice of
medical option and length of service. U.S. employees hired or rehired on or after January 1, 2003 may
become eligible to participate in a post-retirement medical plan, the HP Retiree Medical Program, but
must bear the full cost of their participation. Effective January 1, 2006, employees whose combination
of age and years of service was less than 62 were no longer eligible for the subsidized Pre-2003
Program, but instead were eligible for the HP Retiree Medical Program. Employees no longer eligible
for the Pre-2003 Program, as well as employees hired on or after January 1, 2003, are eligible for
certain credits under the HP Retirement Medical Savings Account Plan (‘‘RMSA Plan’’) upon attaining
age 45. Upon retirement, former employees may use credits under the RMSA Plan for the
reimbursement of certain eligible medical expenses, including premiums required for coverage under
the HP Retiree Medical Program. In February 2007, HP further limited future eligibility for the
Pre-2003 HP Retiree Medical Program to those employees who were within five years of satisfying the
program’s retirement criteria on June 30, 2007. Employees not meeting the modified program criteria
may become eligible for participation in the HP Retiree Medical Program. In November 2008, HP
announced that it was changing the limits on future cost-sharing for the Pre-2003 Program whereby all
future cost increases will be paid by participating retirees starting in 2011. In June 2008, HP modified
the RMSA Plan to provide that generally only those employees who were employed with HP as of
July 31, 2008 would be eligible to receive employer credits. In September 2008, HP further modified
the RMSA Plan to provide that such employees would receive employer credits only in the form of
matching contributions.
HP currently collects a retiree drug subsidy from the U.S. federal government relating to the
retiree prescription drug benefits that it provides. Collecting the retiree drug subsidy is one of several
alternatives under Medicare Part D that employers have in financing these benefits. In March 2010, HP
decided to contract with a prescription drug plan, leveraging the employer group waiver plan process,
to provide group benefits under Medicare Part D as an alternative to collecting the retiree drug
subsidy. This change in retiree prescription drug financing strategy will take effect in 2013, and, due to
the health care reform legislation enacted in March 2010, is expected to give HP access to greater U.S.
federal subsidies over time to help pay for retiree benefits. Aside from this impact, the health care
reform legislation is not expected to affect the cost of HP’s retiree welfare programs because the
subsidy offered by HP to retiree participants is fixed.
During fiscal year 2010, HP also announced the elimination of company-paid retiree life insurance
effective January 1, 2011.
Defined Contribution Plans
HP offers various defined contribution plans for U.S. and non-U.S. employees. Total defined
contribution expense was $628 million in fiscal 2012, $626 million in fiscal 2011 and $535 million in
fiscal 2010. U.S. employees are automatically enrolled in the Hewlett-Packard Company 401(k) Plan
(the ‘‘HP 401(k) Plan’’) when they meet eligibility requirements, unless they decline participation.
Effective April 1, 2009, HP matching contributions for the HP 401(k) Plan was changed to a
quarterly, discretionary, performance-based match of up to a maximum of 4% of eligible compensation
for all U.S. employees to be determined each fiscal quarter based on business results. HP’s matching
contributions for all of the quarters in fiscal 2010 were 100% of the maximum 4% match. Effective at
the beginning of fiscal 2011, the quarterly employer matching contributions in the HP 401(k) Plan were
138