Health Net 2007 Annual Report Download - page 128

HEALTH NET, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
$20.6 million, $16.0 million and $9.6 million for the years ended December 31, 2007, 2006 and 2005,
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 members of the Board of Directors
(Board) 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. This plan is unfunded. 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, 2007 and 2006 the liability under these plans amounted to $48.6 million and $45.1
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 $3.3 million, $4.6 million and $2.9 million for the years ended
December 31, 2007, 2006 and 2005, 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
adopted the provisions of SFAS No. 158 at December 31, 2006, which resulted in an increase in pension
obligation of $2.0 million and a decrease in accumulated other comprehensive income for the same amount.
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