Health Net 1998 Annual Report Download - page 49

F O U N D AT IO N H EALTH SYST EMS, I N C. 4 7
c e rtain exceptions contained in the Rights A gr e e-
ment) will instead become exe rc i s a b le for Class A
Common Stock having a market value at such time
equal to $340.00.The Rights are re d e e m a ble under
c e rtain circumstances at $.01 per Right and will
e x p i r e,unless earlier re d e e m e d , on July 31, 2 0 0 6 .
In connection with the FHS Combination,
the Company entered into Amendment No. 1 to
the Rights Agreement to exempt the FHS Combi-
nation and related transactions from triggering the
Rights. In addition,the amendment modified certain
terms of the Rights Agreement applicable to the
determination of certain “Adverse Persons,” which
modifications became effective upon consummation
of the FHS Combination.
Note 9 – Employee Benefit Plans
Defined Contribution Retirement Plans
The Company and certain subsidiaries sponsor
defined contribution retirement plans intended to
qualify under Sections 401(a) and 401(k) of the
Internal Revenue Code of 1986,as amended (the
“Code”). Participation in the plans is available to
substantially all employees who meet certain eligi-
bility requirements and elect to participate. Employ-
ees may contribute up to the maximum limits
allowed by Sections 401(k) and 415 of the Code,
with Company contributions based on matching or
other formulas.The Company’s expense under the
plans totaled $7.4 million,$4.2 million and $5.1
million for the years ended December 31,1998,
1997 and 1996, respectively.
Defer red Compensation Plans
Effective May 1,1998,the Company adopted a
deferred compensation plan pursuant to which cer-
tain management and highly compensated employ-
ees are eligible to defer between 5% and 50% of
their regular compensation and between 5% and
100% of their bonuses,and non-employee Board
members are eligible to defer up to 100% of their
directors compensation.The compensation deferred
under such plan is credited with earnings or losses
measured by the rate of return on investments
elected by plan participants.Each plan participant is
fully vested in all deferred compensation and earn-
ings credited to his or her account.
Prior to May 1997,certain members of man-
agement,highly compensated employees and non-
employee Board members were permitted to defer
payment of up to 90% of their compensation under
a prior deferred compensation plan (the “Prior
Plan”).As part of the FHS Combination,the Prior
Plan was frozen in May 1997 at which time each
participant’s account was credited with three times
the 1996 Company match (or a lesser amount for
certain prior participants) and each participant
became 100% vested in all such contributions.The
current provisions with respect to the form and tim-
ing of payments under the Prior Plan remain
unchanged.At December 31,1998 and 1997, the
liability under these plans amounted to $27.9 mil-
lion and $29.3 million, respectively.The Company’s
expense under these plans totaled $6.1 million, $7.8
million and $3.7 million for the years ended
December 31,1998, 1997 and 1996, respectively.
Pension and Other Postretirement
Benefit Plans
Retirement Plans – In 1995, the Company adopted
t wo unfunded non-qualified defined benefit pension
p l a n s , a Supplemental Exe c u t ive Retirement Plan
and a Dire c t o rs ’R e t i rement Plan (collective l y, t h e
“FHC SERPs”). In 1996, the Company adopted two
additional unfunded non-qualified defined benefit
pension plans, a Supplemental Exe c u t i ve Retire m e n t
Plan and a Dire c t o rs ’R e t i rement Plan (collective l y,
the “HSI SERPs”).These plans cover key exe c u t ive s ,
as selected by the Board of Dire c t o rs , and non-
e m p l oyee dire c t o rs . Benefits under the plans are
based on ye a rs of service and level of compensation.
As part of the FHS Combination,the FHC
SERPs were frozen in April 1997 at which time
each participant became 100% vested in his or her
benefits under the plans which are equal to 90% of
the actuarial equivalent of the participant’s retire-
ment benefit as of December 31,1996.All benefits
under the FHC SERPs were paid out either in cash,
or as a rollover to the deferred compensation plan.
Postretirement Health and Life Plans – C e rt a i n
s u b s i d i a ries of the Company sponsor postre t i re m e n t
defined benefit health care plans that provide postre-
t i r ement medical benefits to dire c t o rs , key exe c u t i v e s ,
e m p l oyees and dependents who meet certain eligi b i l -
ity re q u i re m e n t s . Under these plans, the Company
p ays a percentage of the costs of medical, dental and
vision benefits during re t i re m e n t .The plans include
c e rtain cost-sharing features such as deductibl e s ,c o i n-
surance and maximum annual benefit amounts which
va ry based principally on ye a rs of credited serv i c e .
On December 31,1998,the Company
adopted SFAS No. 132 “Employers’Disclosures
about Pensions and Other Postretirement Benefits”
(“FAS 132”),which revises employers’ disclosures
about pension and other postretirement benefit
plans. FAS 132 standardizes the disclosure require-
ments.The Company has chosen to disclose the
information required by FAS 132 by aggregating
retirement plans into one category and postretire-
ment plans into another category.