IBM 2003 Annual Report Download - page 118

amended its postretirement plan to provide that new hires
will no longer be eligible for company-subsidized benefits.
Certain of the company’s non-U.S . subsidiaries have
similar plans for retirees. However, most of the retirees
outside the U.S. are covered by government-sponsored and
administered programs. The total cost of these plans for
the years ended December 31, 2003, 2002 and 2001, was
$41 million, $29 million and $28 million, respectively. At
December 31, 2003 and 2002, Other liabilities in the
Consolidated Statement of Financial Position include non-
U.S. postretirement benefit liabilities of $270 million and
$211 million, respectively.
The net periodic postretirement benefit cost for the U.S.
plan includes the following components:
(dollars in millions)
FOR THE YEAR ENDED DECEMBER 31: 2003 2002 2001
Service cost $«««36 $«««49 $«««65
Interest cost 382 421 437
Amortization of prior
service costs (130) (147) (148)
Recognized actuarial losses 630 22
Divestiture —(29) —
Net periodic post-retirement
benefit cost $«294 $«324 $«376
The changes in the benefit obligation and plan assets of
the U. S. plan for 2003 and 2002 are as follows:
(dollars in millions)
2003 2002
Change in benefit obligation:
Benefit obligation at
beginning of year $««5,882 $««6,148
Service cost 36 49
Interest cost 382 421
Actuarial losses/(gains) 419 (170)
Direct benefit payments (538) (566)
Benefit obligation at end of year 6,181 5,882
Change in plan assets:
Fair value of plan assets at
beginning of year 10 8
Actual return on plan assets —2
Participant contributions 153 119
Benefits paid from trust (149) (119)
Fair value of plan assets at end of year 14 10
Benefit obligation in excess
of plan assets (6,167) (5,872)
Unrecognized net actuarial losses 1,004 595
Unrecognized prior service costs (363) (493)
Accrued postretirement benefit
liability recognized in the
Consolidated Statement of
Financial Position $«(5,526) $«(5,770)
The BO was determined by applying the terms of medical,
dental and life insurance plans, including the effects of estab-
lished maximums on covered costs, together with relevant
actuarial assumptions.
WEIGHTED-AVERAGE DISCOUNT RATE
ASSUMPTIONS USED TO DETERMINE: 2003 2002 2001
The year-end benefit
obligation at December 31 6.0% 6.75% 7.0%
The net periodic post-
retirement benefit costs
for years ended December 31 6.75% 7.0% 7.25%
For the years ended December 31, 2003, 2002 and 2001, the
plan assets of $14 million, $10 million and $8 million invested
in short-term highly liquid securities, and as a result, the
expected long-term return on plan assets and the actual
return on those assets were not material for those years.
The company evaluates its actuarial assumptions on an
annual basis and considers changes in these long-term fac-
tors based upon market conditions and the requirements of
SFAS No. 106, “Employers’ Accounting for Postretirement
Benefits Other than Pensions.” The discount rate changes
did not have a material effect on net postretirement benefit
cost for the years ended December 31, 2003, 2002 and 2001.
ASSUMED HEALTH CARE COST TREND RATES
AT DECEMBER 31: 2003 2002
Health care cost trend rate assumed
for next year 8.9% 10.0%
Rate to which the cost trend rate is
assumed to decline (the ultimate
trend rate) 4.5% 4.5%
Number of years to ultimate trend rate 45
The health care cost trend rate has an insignificant effect
on plan costs and obligations. A one-percentage-point
change in the assumed health care cost trend rate would have
the following effects as of December 31, 2003:
(dollars in millions)
ONE-PERCENTAGE- ONE-PERCENTAGE-
POINT INCREASE POINT DECREASE
Effect on total service and
interest cost $«1 $«(1)
Effect on postretirement
benefit obligation $«6 $«(7)
Notes to Consolidated Financial Statements
INTERNATIONAL BUSINESS MACHINES CORPORATION AND SUBSIDIARY COMPANIES
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