IBM 1998 Annual Report Download - page 84

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS International Business Machines Corporation and Subsidiary Companies
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U.S. Plan: U.S. regular, full-time and part-time employees are
covered by a noncontributory plan that is funded by company
contributions to an irrevocable trust fund, which is held for the
sole benefit of employees. Under a new formula, which is
being phased in over five years, retirement benefits will be
determined based on points accumulated for each year
worked and final average compensation period. To preserve
benefits of employees close to retirement, service and earn-
ings credit will continue to accrue under the prior formula
through the year 2000, and upon retirement, these employees
will receive the benefit from either the new or prior formulas,
whichever is higher. Benefits become vested upon the com-
pletion of five years of service. The number of individuals
receiving benefits at December 31, 1998 and 1997, was
116,685 and 108,415, respectively.
Non-U.S. Plans: Most subsidiaries and branches outside the
U.S. have retirement plans covering substantially all regular
employees, under which funds are deposited under various
fiduciary-type arrangements, annuities are purchased under
group contracts or reserves are provided. Retirement benefits
are based on years of service and the employee’s compensa-
tion, generally during a fixed number of years immediately
prior to retirement. The ranges of assumptions used for the
non-U.S. plans reflect the different economic environments
within various countries.
U.S. Supplemental Executive Retirement Plan: The company also
has a non-qualified U.S. Supplemental Executive Retirement
Plan (SERP). The SERP, which is unfunded, provides eligible
executives defined pension benefits outside the IBM Retirement
Plan, based on average earnings, years of service and age
at retirement. At December 31, 1998 and 1997, the projected
benefit obligation was $178 million and $128 million, respec-
tively, and the amounts included in the Consolidated Statement
of Financial Position were pension liabilities of $81 million and
$56 million, respectively.
WEIGHTED-AVERAGE ASSUMPTIONS AS OF DECEMBER 31:
U.S. Plan Non-U.S. Plan
1998 1997 1996 1998 1997 1996
Discount rate 6.5% 7.0% 7.75% 4.5«- « «7.5% 4.5«- ««7.5% 4.5«- «««8.5%
Expected return on plan assets 9.5% 9.5% 9.25% 6.5«- 10.0% 6.0«-« «9.5% 6.5«- «10.0%
Rate of compensation increase 5.0% 5.0% 5.0% 2.7«- « «6.1% 2.6«- ««6.1% 2.3«- «««6.5%
The cost of the defined benefit plans for 1998, 1997 and 1996 was as follows:
U.S. Plan Non-U.S. Plan
(Dollars in millions) 1998 1997*1996*1998 1997*1996***
Service cost $«««532 $«««397 $«««412 $«««399 $«««366 $«««384
Interest cost 2,261 2,215 2,125 1,213 1,182 1,302
Expected return on plan assets (3,123) (2,907) (2,701) (1,739) (1,457) (1,485)
Net amortization (124) (125) (121) 21 15 27
Settlement losses/(gains) ——— 10 (63) (102)
Net periodic pension cost (benefit)— U.S. Plan
and material non-U.S. Plans $÷(454) $÷(420) $÷(285) $÷÷(96) $«÷÷43 $«÷126
Total net periodic pension cost (benefit) for all
non-U.S. plans $««««(42) $«««««50 $«÷148
*Reclassified to conform to 1998 presentation.
Cost of defined contribution plans $÷«258 $«««236 $«««209 $÷÷«90 $÷÷«64 $÷÷«29
Cost of complementary defined benefits $«««««34 $÷«««33 $÷«««27
Cost of U.S. supplemental executive
retirement plan $÷÷«25 $÷«««20 $÷«««19