IBM 2005 Annual Report Download - page 87
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NotestoConsolidatedFinancialStatements
INTERNATIONALBUSINESSMACHINESCORPORATION ANDSUBSIDIARYCOMPANIES
86_ NotestoConsolidatedFinancialStatements
based upon specified criteria used to determine each partici-
pant’seligibility.Thefirstmethod usesafiveyear,finalpayfor-
mulathatdeterminesbenefitsbasedonsalary,yearsofservice,
mortality and other participant-specific factors. The second
method isacashbalanceformulathat calculatesbenefitsusing
apercentageofemployees’ annualsalary,aswellasaninterest
creditingrate.
InDecember2005,thecompanyapprovedaplanamend-
ment which provides that benefits under the PPP will stop
accruingforactiveparticipantseffectiveDecember31,2007.
U.S.SupplementalExecutiveRetentionPlan
The company also has a non-qualified U.S. Supplemental
ExecutiveRetentionPlan(SERP).TheSERP,whichisunfunded,
providesdefinedbenefitpensionbenefitsinadditiontothePPP
toeligibleexecutivesbasedonaverageearnings,yearsofserv-
iceand age atretirement.EffectiveJuly1,1999,the company
adoptedtheSERP(whichreplacedthepreviousSupplemental
ExecutiveRetirementPlan).SomeparticipantsofthepriorSERP
willstillbeeligibleforbenefitsunderthat prior planifthoseben-
efitsaregreaterthanthebenefitsprovidedunderthenewplan.
Certain former partners of PwCC also participate in the SERP
undertwoseparatebenefitformulas. Thenumberofindividuals
receiving benefitpayments underthisplanwere354 and309as
ofDecember31,2005and2004,respectively.
InDecember2005,thecompany also approvedan amend-
ment to the SERP which provides that no further benefits will
accrue effective December31,2007.
DEFINEDCONTRIBUTIONPLANS
IBM SavingsPlan
U.S. regular, full-time and part-time employees are eligible to
participate in the IBM Savings Plan, which is a tax-qualified
defined contribution plan under section 401(k) of the Internal
RevenueCode. For employees hiredpriorto January1, 2005,
thecompanymatches50percentoftheemployee’scontribution
uptothefirst6percentoftheemployee’seligiblecompensation.
For employees hired or rehired after December 31, 2004 who
havealsocompletedoneyearofservice,thecompanymatches
100percentoftheemployee’scontributionuptothefirst6per-
cent of eligible compensation. All contributions, including the
companymatch,aremadeincash,inaccordancewiththepar-
ticipants’ investmentelections.Therearenominimumamounts
that must be invested in company stock, and there are no
restrictionsontransferringamountsoutofthecompany’sstock
toanotherinvestmentchoice.Thenumberofemployeesreceiv-
ing distributions under this plan were 2,786 and 2,659 as of
December31,2005and2004,respectively.
In January 2006, the company announced its intention to
amend the plan effective January 1, 2008. The announced
change willconsist oftwocomponentsincludingan automatic
contribution for all eligible U.S. employees and an increase in
the amount of company matching contribution for all eligible
U.S.employeeshiredonorbeforeDecember31,2004.
IBMExecutive Deferred CompensationPlan
The company also maintains an unfunded, non-qualified,
defined contribution plan, the IBM Executive Deferred
CompensationPlan(EDCP),whichallowseligible executivesto
defer compensation, and to receive company matching contri-
butionsundertheapplicableIBMSavingsPlanformula(depend-
ing on the date of hire as described above), with respect to
amountsinexcessofIRSlimitsfortax-qualifiedplans. Amounts
contributedtotheplanasaresultofdeferredcompensation,as
wellascompanymatchingcontributionsarerecordedasliabili-
ties.Deferredcompensationamountsmaybedirectedbypar-
ticipantsintoanaccountthatreplicatesthereturnthatwouldbe
receivedhadtheamountsbeeninvestedinsimilarIBMSavings
Plan investment options. Company matching contributions,
whichareprovidedin the “Plan Financial Information” section,
aredirectedtoparticipantaccountsandappreciateordepreci-
ateeachreportingperiodbasedonchangesinthecompany’s
stock price. The total participants receiving benefit payments
underthisplanwere 384 and 356 asofDecember31,2005and
2004,respectively.
NONPENSIONPOSTRETIREMENTBENEFITPLANS
U.S.NonpensionPostretirementPlan
Thecompanyhasadefinedbenefitnonpensionpostretirement
planthatprovidesmedicalanddentalbenefits foreligibleU.S.
retireesandeligibledependents, aswellaslifeinsuranceforeli-
gible U.S. retirees. Effective July1,1999, the company estab-
lisheda“FutureHealthAccount” (FHA)foremployeeswhowere
morethanfiveyearsawayfromretirementeligibility.Employees
who were within five years of retirement eligibility are covered
underthecompany’spriorretireehealthbenefitsarrangements.
UndereithertheFHAorthepriorretireehealthbenefitarrange-
ments,thereisamaximumcosttothecompanyforretireehealth
benefits.ForemployeeswhoretiredbeforeJanuary1,1992,that
maximumbecameeffectivein2001.Forallotheremployees,the
maximumiseffectiveuponretirement.EffectiveJanuary1,2004,
the company amended its nonpension postretirement plan to
providethatnewhires,asofthatdateorlater,willnolongerbe
eligible for company subsidized benefits. As of December 31,
2005 and 2004, the total participants receiving benefit pay-
ments underthisplanwere 115,921 and 113,716, respectively.
NON-U.S.PLANS
MostsubsidiariesandbranchesoutsidetheUnitedStateshave
defined benefit and/or defined contribution plans that cover
substantially all regular employees. The company deposits
funds under various fiduciary-type arrangements, purchases
annuitiesundergroupcontractsorprovidesreservesforthese
plans. Benefits under the defined benefit plans are typically
basedeitheronyearsofserviceandtheemployee’scompensa-
tion (generally during a fixed number of years immediately
beforeretirement)oronannualcredits.Therangeof assump-
tionsthatareusedforthenon-U.S.definedbenefitplansreflects
thedifferenteconomicenvironmentswithinvariouscountries.