Northrop Grumman 2010 Annual Report Download - page 105

Medical and Life Benefits – The company provides a portion of the costs for certain health care and life insurance
benefits for a substantial number of its active and retired employees. Covered employees achieve eligibility to
participate in these contributory plans upon retirement from active service if they meet specified age and years of
service requirements. Qualifying dependents are also eligible for medical coverage. Approximately 64 percent of
the company’s current retirees participate in the medical plans. The company reserves the right to amend or
terminate the plans at any time. In November 2006, the company adopted plan amendments and communicated
to plan participants that it would cap the amount of its contributions to substantially all of its remaining post
retirement medical and life benefit plans that were previously not subject to limits on the company’s
contributions.
In addition to a medical inflation cost-sharing feature, the plans also have provisions for deductibles,
co-payments, coinsurance percentages, out-of-pocket limits, conformance to a schedule of reasonable fees, the
use of managed care providers, and maintenance of benefits with other plans. The plans also provide for a
Medicare carve-out. Subsequent to January 1, 2005 (or earlier at some segments), newly hired employees are not
eligible for post employment medical and life benefits.
The effect of the Medicare prescription drug subsidy from the Medicare Prescription Drug, Improvement and
Modernization Act of 2003 to reduce the company’s net periodic post-retirement benefit cost and accumulated
post-retirement benefit obligation for the periods presented was not material. Pursuant to the new healthcare law
described below, the tax benefits related to Medicare Part D subsidies will expire on December 31, 2012.
New Health Care Legislation – The Patient Protection and Affordable Care Act and the Health Care and Education
Reconciliation Act became law during the first quarter of 2010. The provisions of these new laws will affect the
company’s costs of providing health care benefits to its employees beginning in 2011. The company participated
in the Early Retiree Reinsurance Program and continues to assess the extent to which the provisions of the new
laws will affect its future health care and related employee benefit plan costs.
Summary Plan Results
The cost to the company of its retirement benefit plans in each of the three years ended December 31 is shown
in the following table:
$ in millions 2010 2009 2008 2010 2009 2008
Pension Benefits
Medical and
Life Benefits
Components of Net Periodic Benefit Cost
Service cost $ 658 $ 661 $ 721 $49 $48 $55
Interest cost 1,394 1,350 1,335 155 164 166
Expected return on plan assets (1,749) (1,559) (1,895) (56) (48) (64)
Amortization of
Prior service cost (credit) 48 50 40 (60) (59) (65)
Net loss from previous years 244 337 24 26 28 22
Other 17
Net periodic benefit cost $ 595 $ 856 $ 225 $114 $133 $114
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NORTHROP GRUMMAN CORPORATION