Health Net 2010 Annual Report Download - page 133

HEALTH NET, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Deferred Compensation Plans
We have a voluntary deferred compensation plan pursuant to which certain management and highly
compensated employees are eligible to defer a certain portion of their regular compensation and bonuses (the
Employee Plan). In addition, we have a voluntary deferred compensation plan pursuant to which the Health Net,
Inc. non-employee Board of Directors are eligible to defer a certain portion of their meeting fees and other cash
remuneration (the BOD Plan). The compensation deferred under these plans is credited with earnings or losses
measured by the mirrored rate of return on investments elected by plan participants. These plans are unfunded.
Each plan participant is fully vested in all deferred compensation and earnings credited to his or her account. In
December 2009, these plans were amended to comply with, among other things, Section 409A of the Code. The
BOD Plan was amended and restated effective December 31, 2009 and the Employee Plan was amended and
restated effective January 1, 2010.
As of December 31, 2010 and 2009, the liability under these plans amounted to $47.6 million and $44.2
million, respectively. These liabilities are included in other noncurrent liabilities on our consolidated balance
sheets. Deferred compensation expense is recognized for the amount of earnings or losses credited to participant
accounts. Our expense under these plans totaled $4.5 million, $6.2 million and $5.7 million for the years ended
December 31, 2010, 2009 and 2008, respectively, and is included in general and administrative expense in our
consolidated statements of operations.
Pension and Other Postretirement Benefit Plans
Pension Plans—We have an unfunded non-qualified defined benefit pension plan, the Supplemental
Executive Retirement Plan. The plan was amended and restated effective January 2008 to comply with
Section 409A of the Code. This plan is noncontributory and covers key executives as selected by the Board of
Directors. Benefits under the plan are based on years of service and level of compensation during the final five
years of service.
Postretirement Health and Life Plans—Certain of our subsidiaries sponsor postretirement defined benefit
health care and life insurance plans that provide postretirement medical and life insurance benefits to directors,
key executives, employees and dependents who meet certain eligibility requirements. The Health Net health care
plan is non-contributory for employees retired prior to December 1, 1995 who have attained the age of 62;
employees retiring after December 1, 1995 who have attained age 62 contribute from 25% to 100% of the cost of
coverage depending upon years of service. The plan was amended in 2008 to vest benefits for eligible associates
who were terminated in connection with the Company’s operations strategy. We have two other benefit plans that
we have acquired as part of the acquisitions made in 1997. One of the plans is frozen and non-contributory,
whereas the other plan is contributory by certain participants. Under these plans, we pay a percentage of the costs
of medical, dental and vision benefits during retirement. The plans include certain cost-sharing features such as
deductibles, co-insurance and maximum annual benefit amounts that vary based principally on years of credited
service.
As of December 31, 2010 and 2009, our benefit obligations for pensions and other benefits were $50.0
million and $40.6 million, respectively. We did not have any plan assets as of December 31, 2010 and 2009.
Therefore, our underfunded status was $(50.0) million and $(40.6) million as of December 31, 2010 and 2009,
respectively, and are included primarily in noncurrent liabilities on our consolidated balance sheets. We
recognized $4.8 million and $0.9 million in accumulated other comprehensive income as of December 31, 2010
and 2009, respectively. During the years ended December 31, 2010, 2009 and 2008, we recognized $4.3 million,
$4.2 million and $4.1 million, respectively, of net periodic benefit costs for pension and other benefits in our
consolidated statements of operations.
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