IBM 2002 Annual Report Download - page 101

Notes to Consolidated Financial Statements
99international business machines corporation and Subsidiary Companies
Changes in the discount rate assumptions and rate of
compensation increase assumptions since 2000 have not had
a material impact on the company’s Consolidated Financial
Statements. The changes in the expected long-term return
on plan assets assumption in the U.S. and non-U.S. for 2002
reduced the 2002 income from retirement-related plans by
approximately $375 million as compared to 2001.
funded status for defined benefit pension plans
It is the company’s practice to fund amounts for pensions suf-
ficient to meet the minimum requirements set forth in
applicable employee benefits laws and local tax laws. From
time to time, the company contributes additional amounts as
it deems appropriate. The assets of the various plans include
corporate equities, government securities, corporate debt
securities and real estate. In the fourth quarter of 2002, the
company voluntarily fully funded the qualified portion of the
PPP, as measured by its ABO, through a total contribution of
$3,963 million. The contribution comprised $2,092 million in
cash and $1,871 million, or 24,037,354, shares, of IBM stock.
In contrast, the company’s plan assets were less than the
ABO in certain non-U.S. countries, and the company did not
contribute funds up to the ABO level. As a result and consis-
tent with the accounting rules for these “unfunded” positions
as described on page 58, the company recorded an additional
minimum liability of $2,676 million and a reduction to stock-
holders’ equity of $2,765 million as of December 31, 2002.
This accounting transaction does not impact 2003 retirement-
related plans income.
The company’s Benefit Obligation (BO) for its significant
plans is disclosed at the top of page 98. BO is calculated sim-
ilarly to ABO except for the fact that BO includes an estimate
for future salary increases. SFAS No. 132, “Employers’
Disclosures about Pensions and Other Postretirement
Benefits,” requires that companies disclose the aggregate BO
and plan assets of all plans in which the BO exceeds plan
assets. Similar disclosure is required for all plans in which the
ABO exceeds plan assets. The aggregate BO and plan assets
are also disclosed for plans in which the plan assets exceed the
BO. The following table excludes the U.S. plans due to the
fact that these plans’ BO and plan assets, if any, appear either
in the narrative on page 96 or the table on page 98.
2002 2001*
benefit plan benefit plan
(dollars in millions) obligation assets obligation assets
Plans with BO
in excess of plan
assets $«20,212 $«13,132 $«14,757 $«10,929
Plans with ABO
in excess of plan
assets $«15,978 $«10,086 $«««5,305 $÷«2,636
Plans with assets
in excess of BO $«««5,487 $«««7,505 $«««7,044 $«10,602
*Reclassified to conform with 2002 presentation.
Nonpension Postretirement Benefits
The total cost of the company’s nonpension postretirement
benefits for the years ended December 31, 2002, 2001 and
2000, were $353 million, $404 million and $401 million,
respectively. The company has a defined benefit postretire-
ment plan that provides medical, dental and life insurance
for U.S. retirees and eligible dependents. The total cost of
this plan for the years ended December 31, 2002, 2001 and
2000, was $324 million, $376 million and $374 million,
respectively. The changes in the benefit obligation and plan
assets for this plan are presented on page 100. Effective July 1,
1999, the company established a “Future Health Account”
(FHA) for employees who were more than five years away
from retirement eligibility. Employees who were within five
years of retirement eligibility are covered under the company’s
prior retiree health benefits arrangements. Under either the
FHA or the preexisting plan, there is a maximum cost to the
company for retiree health benefits. For employees who
retired before January 1, 1992, that maximum became effective
in 2001. For all other employees, the maximum is effective
upon retirement.
Certain of the company’s non-U.S. subsidiaries have similar
plans for retirees. However, most of the retirees outside the
United States are covered by government-sponsored and
administered programs. The total cost of these plans for the
years ended December 31, 2002, 2001 and 2000, was $29 mil-
lion, $28 million and $27 million, respectively. At December 31,
2002 and 2001, Other liabilities in the Consolidated Statement
of Financial Position include non-U.S. postretirement benefit
liabilities of $211 million and $200 million, respectively.
The net periodic postretirement benefit cost for the U.S.
plan for the years ended December 31 include the following
components:
(dollars in millions) 2002 2001 2000
Service cost $«««49 $«««65 $«««50
Interest cost 421 437 449
Expected return on
plan assets ——« (2)
Amortization of
prior service costs (147) (148) (147)
Recognized actuarial losses 30 22 24
Divestiture (29) ——
Net periodic post-
retirement benefit cost $«324 $«376 $«374