Health Net 2005 Annual Report Download - page 116

HEALTH NET, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Note 9—Employee Benefit Plans
Defined Contribution Retirement Plans
We and certain of our subsidiaries sponsor defined contribution retirement plans intended to qualify under
Section 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 eligibility requirements and elect to participate.
Employees 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. Our expense under these plans totaled $9.6 million,
$9.8 million and $9.1 million for the years ended December 31, 2005, 2004 and 2003, respectively, and is
included in general and administrative expense in our consolidated statement of operations.
Deferred Compensation Plans
Effective May 1, 1998, we adopted a voluntary deferred compensation plan pursuant to which certain
management and highly compensated employees are eligible to defer between 5% and 90% 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 this plan is credited with
earnings or losses measured by the mirrored rate of return on investments elected by plan participants. We do not
fund this plan. Each plan participant is fully vested in all deferred compensation and earnings credited to his or
her account. Certain employee deferrals were invested through a trust until November 2003. In January 2004, the
Company adopted a new deferred compensation plan for non-employee members of its Board of Directors. In
connection therewith, the Company amended and restated its existing deferred compensation plan to provide that,
among other things, non-employee members of the Board are no longer eligible participants under that plan.
Prior to May 1997, certain members of management, 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). 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 participants) and
each participant became 100% vested in all such contributions. The current provisions with respect to the form
and timing of payments under the Prior Plan remain unchanged.
As of December 31, 2005 and 2004, the liability under these plans amounted to $40.2 million and $37.6
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 $2.9 million, $3.4 million and $3.8 million for the years ended
December 31, 2005, 2004 and 2003, respectively, and is included in general and administrative expense in our
consolidated statement 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 (adopted in 1996 and amended in August 2004). 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
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