IBM 1999 Annual Report Download - page 89

notes to consolidated financial statements
International Business Machines Corporation
and Subsidiary Companies
87
U.S. Plan
U.S. regular, full-time and part-time employees are covered by
a noncontributory plan that is funded by company contribu-
tions to an irrevocable trust fund, which is held for the sole
benefit of participants.
Effective July 1, 1999, IBM converted to a new formula, the
Personal Pension Account (PPA), for determining pension benefits
for most of its employees. Under the PPA, retirement benefits
are credited to each employee’s cash balance account monthly
based on a percentage of the employee’s pensionable com-
pensation. Employees who were retirement eligible or within
five years of retirement eligibility with at least one year of service,
or who were at least forty years of age with at least ten years of
service as of June 30, 1999, could elect to participate in the PPA
or to have their service and earnings credit accrue under the
preexisting benefit formula. Benefits become vested on the com-
pletion of five years of service under either formula.
The number of individuals who were receiving benefits at Decem-
ber 31, 1999 and 1998, was 124,175 and 116,685, respectively.
Non-U.S. Plans
Most subsidiaries and branches outside the U.S. have retire-
ment plans that cover substantially all regular employees, under
which the company deposits funds under various fiduciary-type
arrangements, purchases annuities under group contracts or
provides reserves. Retirement benefits are based on years of
service and the employee’s compensation, generally during a
fixed number of years immediately before retirement. The ranges
of assumptions that are used for the non-U.S. plans reflect the
different economic environments within various countries.
U.S. Supplemental Executive Retention Plan
The company also has a non-qualified U.S. Supplemental
Executive Retention Plan (SERP). The SERP, which is unfunded,
provides defined pension benefits outside the IBM Retirement
Plan to eligible executives based on average earnings, years of
service and age at retirement. Effective July 1, 1999, the company
adopted the Supplemental Executive Retention Plan (which
replaces the previous Supplemental Executive Retirement
Plan). Some participants of the pre-existing SERP still will be
eligible for benefits under that plan, but will not be eligible for
the new plan. At December 31, 1999 and 1998, the projected
benefit obligation was $149 million and $178 million, respec-
tively, and the amounts included in the Consolidated Statement
of Financial Position were pension liabilities of $109 million and
$81 million, respectively.
WEIGHTED-AVERAGE ASSUMPTIONS AS OF DECEMBER 31:
U.S. Plan Non-U.S. Plans
1999 1998 1997 1999 1998 1997
Discount rate 7.75% 6.5% 7.0% 4.5–7.3% 4.5–7.5% 4.5–7.5%
Expected return on plan assets 9.5% 9.5% 9.5% 6.0–10.5% 6.5-–10.0% 6.0–9.5%
Rate of compensation increase 6.0% 5.0% 5.0% 2.6–6.1% 2.7–6.1% 2.6–6.1%
COST OF THE DEFINED BENEFIT PLANS:
U.S. Plan Non-U.S. Plans
(Dollars in millions) 1999 1998 1997 1999 1998 1997
Service cost $«««566 $«««532 $«««397 $«««475 $«««399 $«««366
Interest cost 2,404 2,261 2,215 1,282 1,213 1,182
Expected return on plan assets (3,463) (3,123) (2,907) (1,937) (1,739) (1,457)
Net amortization of unrecognized net actuarial
gains, net transition asset and prior service costs (145) (124) (125) 42 21 15
Settlement (gains)/ losses ——— (23) 10 (63)
Net periodic pension (benefit) cost—U.S. Plan
and material non-U.S. Plans $÷(638) $÷(454) $÷(420) $÷(161) $««÷(96) $«««÷43
Total net periodic pension (benefit) cost for all
non-U.S. Plans $««(124) $««««(42) $«««÷50
Cost of defined contribution plans $÷«275 $«««258 $«««236 $÷«131 $÷÷«90 $÷÷«64
Cost of complementary defined benefits $«««««38 $÷«««34 $÷«««33
Cost of U.S. Supplemental Executive
Retention Plan $÷÷«30 $÷«««25 $÷«««20