Health Net 2006 Annual Report Download - page 127

HEALTH NET, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
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, 2006 and 2005, the liability under these plans amounted to $45.1 million and $40.4
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 $4.6 million, $2.9 million and $3.4 million for the years ended
December 31, 2006, 2005 and 2004, respectively, and is included in general and administrative expense in our
consolidated statement of operations.
Pension and Other Postretirement Benefit Plans
In 2006, the FASB issued SFAS No. 158, “Employers’ Accounting for Defined Benefit Pension and Other
Postretirement Plans, an amendment of FASB Statements No. 87, 88, 106 and 132 (R)” (SFAS No. 158). SFAS
No. 158 requires an entity to recognize in its statement of financial position an asset for a defined benefit
postretirement plan’s overfunded status or a liability for a plan’s underfunded status, measure a defined benefit
postretirement plan’s assets and obligations that determine its funded status as of the employer’s fiscal year end,
and recognize changes in the funded status of a defined benefit postretirement plan in comprehensive income in
the year in which the changes occur. SFAS No. 158 does not change the amount of net periodic benefit cost
included in net income or address the various measurements issues associated with postretirement benefit plan
accounting. SFAS No. 158 also requires an employer to measure the funded status of a plan as of the date of its
year-end statement of financial position, with limited exceptions. The requirement to recognize the funded status
of a defined benefit postretirement plan and the disclosure requirements are effective for fiscal years ending after
December 15, 2006 for public entities. The requirement to measure the funded status of a plan as of the date of
its year-end statement of financial position is effective for fiscal years ending after December 15, 2008. We have
adopted the provisions of SFAS No. 158 at December 31, 2006, resulted in an increase in pension obligation of
$2.0 million and a decrease in comprehensive income for the same amount.
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
coverage depending upon years of service. 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.
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