IBM 1998 Annual Report Download - page 85

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS International Business Machines Corporation and Subsidiary Companies
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Net periodic pension cost is determined using the Projected
Unit Credit actuarial method.
The effects on the company’s results of operations and finan-
cial position from changes in the estimates and assumptions
used in computing pension and prepaid pension assets or
pension liability is mitigated by the delayed recognition provi-
sions of SFAS 87, with the exception of the effects of settle-
ment gains, curtailment losses and early terminations, which
are recognized immediately. The 0.5% decrease in the dis-
count rate in 1998 resulted in an actuarial loss of $2,144 mil-
lion for the U.S. plan. The 0.75% decrease in the discount rate
in 1997 resulted in an actuarial loss of $2,723 million for the
U.S. plan.
It is the company’s practice to fund amounts for pensions suf-
ficient to meet the minimum requirements set forth in applica-
ble employee benefits laws and with regard to local tax laws.
Additional amounts are contributed from time to time when
deemed appropriate by the company. Liabilities for amounts in
excess of these funding levels are accrued and reported in the
company’s Consolidated Statement of Financial Position. The
assets of the various plans include corporate equities, gov-
ernment securities, corporate debt securities and real estate.
At December 31, 1998, the material non-U.S. defined benefit
plans in which the plan assets exceeded the benefit obligation
had obligations of $18,217 million and assets of $21,736 mil-
lion. The material non-U.S. defined benefit plans in which the
benefit obligation exceeded the fair value of plan assets had
obligations of $3,831 million and assets of $3,558 million.
At December 31, 1997, the material non-U.S. defined benefit
plans in which the plan assets exceeded the benefit obligation
had obligations of $18,322 million and assets of $21,391 mil-
lion. The material non-U.S. defined benefit plans in which the
benefit obligation exceeded the fair value of plan assets had
obligations of $524 million and assets of $450 million.
XNonpension Postretirement Benefits
The company and its U.S. subsidiaries have defined benefit
postretirement plans that provide medical, dental and life
insurance for retirees and eligible dependents. Plan cost
maximums for those who retired prior to January 1, 1992, will
take effect beginning with the year 2001. Plan cost maximums
for all other employees take effect upon retirement.
The changes in the benefit obligation and plan assets of the
U.S. plans for 1998 and 1997 are as follows:
(Dollars in millions) 1998 1997*
Change in benefit obligation:
Benefit obligation at beginning
of year $««6,384 $««6,453
Service cost 42 32
Interest cost 427 455
Amendments (26) (290)
Actuarial gains (146) (234)
Actuarial losses 272 435
Benefits paid from trust (486) (455)
Direct benefit payments (10) (12)
Benefit obligation at end of year 6,457 6,384
Change in plan assets:
Fair value of plan assets at
beginning of year 120 559
Actual return on plan assets 10 16
Employer contributions 479 —
Benefits paid, net
of employee contributions (486) (455)
Fair value of plan assets at
end of year 123 120
Benefit obligation in excess
of plan assets (6,334) (6,264)
Unrecognized net actuarial losses 700 578
Unrecognized prior service cost (965) (1,073)
Accrued postretirement
benefit liability recognized in the
Consolidated Statement
of Financial Position $«(6,599) $«(6,759)
*Reclassified to conform to 1998 presentation.
The benefit obligation was determined by application of the
terms of medical, dental and life insurance plans, including
the effects of established maximums on covered costs,
together with relevant actuarial assumptions. These actuarial
assumptions included a projected healthcare cost trend rate
of 6 percent.