IBM 2005 Annual Report Download - page 95
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NotestoConsolidatedFinancialStatements
INTERNATIONALBUSINESSMACHINESCORPORATION ANDSUBSIDIARYCOMPANIES
94_ NotestoConsolidatedFinancialStatements
increasingtheirdependenceoncontributionsfromthecompany.
Withineachassetclass,carefulconsiderationisgiventobalanc-
ing the portfolio among industry sectors, geographies, interest
ratesensitivity,dependenceoneconomicgrowth,currencyand
otherfactorsthataffectinvestmentreturns.
Theassetsaremanagedbyprofessionalinvestmentfirms,
aswellasbyinvestmentprofessionalswhoareemployeesofthe
company.Theyareboundbyprecisemandatesandaremeas-
ured against specific benchmarks. Among these managers,
considerationisgiven, butnotlimitedto, balancingsecuritycon-
centration,issuerconcentration,investmentstyle,andreliance
onparticularactiveinvestmentstrategies.Marketliquidityrisks
are tightly controlled, with only a small percentage of the PPP
portfolioinvestedinprivatemarketassetsconsistingofprivate
equitiesandprivaterealestateinvestments,whicharelessliq-
uid than publicly traded securities. The PPP included private
marketassetscomprisingapproximately 10.5 percentand10.1
percentoftotalassetsatDecember31,2005and2004,respec-
tively.Thetargetallocationforprivatemarketassetsin2006is
10.5 percent.AsofDecember31,2005,theFundhas$3,702mil-
lionincommitmentsforfutureprivatemarketinvestmentstobe
made over a number of years. These commitments are
expectedtobefulfilledfromplanassets.Derivativesareprima-
rily used to hedge currency, adjust portfolio duration, and
reducespecificmarketrisks.
EquitysecuritiesincludeIBMcommonstockintheamounts
of $139 million (0.3 percent of total PPP plan assets) at
December31,2005and$1,376million(3.1 percentoftotalPPP
planassets)atDecember31,2004.
OutsidetheU.S.,theinvestmentobjectivesaresimilar,sub-
jecttolocalregulations.Insomecountries,ahigherpercentage
allocation to fixed income securities is required. In others, the
responsibility for managing the investments typically lies with a
board thatmayincludeupto50percentofmemberselectedby
employeesandretirees.Thiscanresultinslightdifferencescom-
paredwiththestrategiesdescribedabove.Generally,thesenon-
U.S.fundsarenotpermitted to investin illiquid assets,suchas
privateequities,andtheiruse of derivatives is usuallylimitedto
passivecurrencyhedging.Therewasnosignificantchangeinthe
investmentstrategiesoftheseplansduringeither2005or2004.
NONPENSIONPOSTRETIREMENTBENEFITPLANS
The U.S. nonpension postretirement plan is not subject to
significant advance funding. The company currently makes
contributionstoatrustfundinamounts,whichcoupledwiththe
contributionsmadebyretirees,approximateannualbenefitpay-
mentsandexpense. Thecompany maintainsanominal,highly
liquidfund balance toensurepaymentsaremade ona timely
basis.FortheyearsendedDecember31,2005,2004and2003,
the plan assets of $66 million, $50 million and $14 million,
respectively, were invested in short-term highly liquid fixed
income securities, and as a result, the expected long-term
returnonplanassetsandtheactualreturnonthoseassetswere
notmaterialforthoseyears.
EXPECTED CONTRIBUTIONS
Thecompanyreviewseachdefinedbenefitpensionplansepa-
rately in order to determine the amount of company contribu-
tions,ifany.In2006,thecompanyisnotlegallyrequiredtomake
any contributions to the PPP. However, depending on market
conditions,thecompanymayelecttomakediscretionarycontri-
butionstothequalifiedportionofthePPPduringtheyear.
In2006,thecompanyestimatescontributionstoitsnon-U.S.
planstobe approximately$1.8 billion ofwhich,approximately$1
billionwillbemadetotheU.K.pensionplaninthefirstquarterof
2006.Thecompanycouldelecttocontributemoreorlessthan
the anticipated $1.8 billion based on market conditions. The
legallymandatedminimumcontributionstothecompany’snon-
U.S.plansareexpectedtobe$842 million.
EXPECTED BENEFIT PAYMENTS
DEFINEDBENEFITPENSIONPLANEXPECTEDPAYMENTS
Thefollowingtablereflectsthetotalexpectedbenefitpayments
to defined benefit pension plan participants. These payments
havebeenestimatedbasedonthesameassumptionsusedto
measurethecompany’sPBOatyear endandincludebenefits
attributabletoestimatedfuturecompensationincreases.
(Dollarsinmillions)
TOTAL
QUALIFIED NON-QUALIFIED QUALIFIED NON-QUALIFIED EXPECTED
U.S. PLANS U.S. PLANS NON-U.S. PLANS NON-U.S. PLANS BENEFIT
PAYMENTS PAYMENTS PAYMENTS PAYMENTS PAYMENTS
2006 $««3,008 $«««71 $«1,459 $««275 $«««4,813
2007 3,151 73 1,506 276 5,006
2008 3,040 76 1,539 284 4,939
2009 3,060 80 1,594 275 5,009
2010 3,108 85 1,623 276 5,092
2011-2015 «16,107 «514 «7,890 «««1,418 25,929