Aetna 2006 Annual Report Download - page 69

Page 67
We paid (received refunds of) net income taxes of $732 million, $247 million and $(331) million in 2006, 2005 and
2004, respectively.
12. Employee Benefit Plans
Defined Benefit Retirement Plans
We sponsor various noncontributory defined benefit plans, including two pension plans that cover substantially all
employees and other postretirement plans (“OPEB”) that provide certain health care, dental and life insurance
benefits for retired employees, including those of our former parent company.
We provide for certain of our employees a noncontributory, defined benefit pension benefit under two plans, the
Aetna Pension Plan, a tax-qualified pension plan, and the Supplemental Pension Plan, which provides benefits for
wages above the Internal Revenue Code wage limits applicable to tax qualified pension plans and benefits not paid
under the qualified plan for special pension arrangements. The pension benefits accrued by employees are based on
formulas which are dependant on the employee’ s effective date of hire. Employees hired or rehired after December
31, 1998 accrue benefits based on a cash balance formula, which credits employees annually with an amount equal
to eligible pay based on age and years of service, as well as an interest credit based on individual account balances.
Employees hired before December 31, 1998 accrued benefits using the greater of a final average pay formula or our
cash balance formula, until December 31, 2006.
Effective January 1, 2007, all pension plan participants will accrue future benefits under the same cash balance
formula, and no new benefits will accrue under the Supplemental Pension Plan. Interest will continue to be
credited on outstanding supplemental cash balance accounts, and the plan may continue to be used to credit special
pension arrangements. Participants will continue to participate in the Aetna Pension Plan, up to the applicable
wage limits each year.
In addition, we currently provide certain medical, dental and life insurance benefits for retired employees, including
those of our former parent company. A comprehensive medical plan is offered to all full-time employees who
terminate employment at age 45 or later with at least five years of service. We provide subsidized health benefits to
certain employees as of December 31, 2002 whose sum of age and service is at least equal to 65 (due to a plan
amendment, employees hired after January 1, 2002 and all employees under the age of 35 at that date are not
eligible for subsidized retiree health benefits). There is a cap on our portion of the cost of providing medical and
dental benefits to our retirees. Plan assets for our OPEB plan are held in trust and administered by an affiliated
company, Aetna Life Insurance Company.
On January 1, 2004, we began phasing-out the retiree medical subsidy for active employees (and eligible
dependents) who terminated employment after December 31, 2004. The subsidy decreased 25% each year until it
was eliminated for employees terminating employment on or after January 1, 2007. In January 2004, we made a
plan amendment to eliminate the dental subsidy for all retirees. As a result of this amendment, we recorded a
curtailment benefit of approximately $32 million pretax in 2004. All current and future retirees and employees who
terminate employment at age 45 or later with at least five years of service are eligible to participate in our group
health plans at their own cost.
On December 8, 2003, the Medicare Prescription Drug, Improvement and Modernization Act of 2003 (the
“Medicare Act”) was signed into law. The Medicare Act expanded Medicare, primarily by adding a voluntary
prescription drug benefit for Medicare eligible individuals beginning in 2006. The Medicare Act provides
employers currently sponsoring prescription drug programs for Medicare-eligible individuals with a range of
options for coordinating with the new Medicare prescription drug program that can potentially reduce employer
program cost. These options include: (1) supplementing the Medicare program on a secondary payer basis; (2)
accepting a direct subsidy from the federal government to support a portion of the cost of the employer’ s program;
and (3) direct contracting with a PDP provider to provide prescription drug benefits to the employer’ s Medicare-
eligible retirees.
In 2004, we adopted FASB Staff Position 106-2, “Accounting and Disclosure Requirements Related to the
Medicare Prescription Drug, Improvement and Modernization Act of 2003” (“FSP 106-2”), which required
employers to recognize the potential savings from the direct federal subsidy if their plans were expected to qualify
for the subsidy. At the time of adoption of this FSP, our postretirement medical plan was expected to qualify for
the direct federal subsidy. Adoption of FSP 106-2 in 2004 resulted in a reduction in our accumulated
postretirement benefit obligation of approximately $23 million.