IBM 2000 Annual Report Download - page 89

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page no.
eighty-seven
notes to consolidated financial statements
international business machines corporation
and Subsidiary Companies
The changes in the benefit obligations and plan assets of the U.S. and material non-U.S. defined benefit plans for 2000 and
1999 were as follows:
U.S. Plan Non-U.S. Plans
(dollars in millions) 2000 1999 2000 1999
Change in benefit obligation:
Benefit obligation at beginning of year $«34,434 $«36,561 $«21,770 $«22,048
Service cost 563 566 445 475
Interest cost 2,553 2,404 1,234 1,282
Plan participants’ contributions — — 28 29
Acquisitions/divestitures, net 36 68 (65) (47)
Amendments 645 75 63 —
Actuarial losses/(gains) 1,729 (2,766) 243 522
Benefits paid from trust (2,421) (2,474) (728) (737)
Direct benefit payments — — (218) (257)
Foreign exchange impact — — (1,626) (1,552)
Plan curtailments/settlements/termination benefits —— 4 7
Benefit obligation at end of year 37,539 34,434 21,150 21,770
Change in plan assets:
Fair value of plan assets at beginning of year 45,584 41,593 27,843 25,294
Actual return on plan assets 1,395 6,397 (196) 5,184
Employer contribution — — 66 143
Acquisitions/divestitures, net 36 68 (50) (36)
Plan participants’ contributions — — 28 29
Benefits paid from trust (2,421) (2,474) (728) (737)
Foreign exchange impact — — (2,015) (1,995)
Settlements — — (115) (39)
Fair value of plan assets at end of year 44,594 45,584 24,833 27,843
Fair value of plan assets in excess of benefit obligation 7,055 11,150 3,683 6,073
Unrecognized net actuarial gains (2,768) (7,003) (1,860) (4,597)
Unrecognized prior service costs 883 269 168 140
Unrecognized net transition asset (491) (632) (56) (72)
Adjustment to recognize minimum liability — — (90) (84)
Net prepaid pension asset recognized in the
Consolidated Statement of Financial Position $«««4,679 $«««3,784 $«««1,845 $«««1,460
Actuarial assumptions used to determine costs and benefit obligations for principal pension plans follow:
WEIGHTED-AVERAGE ACTUARIAL ASSUMPTIONS U.S. Plans Non-U.S. Plans
AS OF DECEMBER 31: 2000 1999 1998 2000 1999 1998
Discount rate 7.25% 7.75% 6.5% 4.5-7.1% 4.5-7.3% 4.5-7.5%
Expected return on plan assets 10.0% 9.5% 9.5% 5.0-11.0% 6.0-10.5% 6.5-10.0%
Rate of compensation increase 6.0% 6.0% 5.0% 2.6-6.1% 2.6-6.1% 2.7-6.1%
The company evaluates its actuarial assumptions on an annual
basis and considers changes in these long-term factors based
upon market conditions and the requirements of SFAS No.
87, “Employers’ Accounting for Pensions.”
The change in expected return on plan assets and the
discount rate for the 2000 U.S. plan year had an effect of an
additional $(195) million and $(26) million of net retirement
plan (income)/cost, respectively, for the year ended
December 31, 2000. This compares with an additional $46
million and $65 million of net retirement plan (income)/cost
for the year ended December 31, 1999, as a result of plan
year 1999 changes in the rate of compensation increase and
the discount rate, respectively.
Net periodic pension cost is determined using the
Projected Unit Credit actuarial method.
Funding Policy
It is the company’s practice to fund amounts for pensions
sufficient to meet the minimum requirements set forth in
applicable employee benefits laws and local tax laws. From