IBM 2006 Annual Report Download - page 103

Black
MAC
390 CG10
IBM Executive Deferred Compensation Plan
The company also maintains an unfunded, non-qualified, defined
contribution plan, the IBM Executive Deferred Compensation Plan
(EDCP), which allows eligible executives to defer compensation and
to receive company matching contributions under the applicable IBM
Savings Plan formula (depending on the date of hire, as described
earlier), with respect to amounts in excess of IRS limits for qualified
plans. Amounts contributed to the plan as a result of deferred com-
pensation, as well as company matching contributions, are recorded
as liabilities. Deferred compensation amounts may be directed by
participants into an account that replicates the return that would have
been received had the amounts been invested in similar IBM Savings
Plan investment options. The company matching contributions are
directed to participant accounts and change in value each reporting
period based on changes in the company’s stock price.
NONPENSION POSTRETIREMENT BENEFIT PLAN
U.S. Nonpension Postretirement Plan
The company sponsors a defined benefit nonpension postretirement
benefit plan that provides medical and dental benefits to eligible U.S.
retirees and eligible dependents, as well as life insurance for eligible
U.S. retirees. 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
prior retiree health benefit arrangements, 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.
Effective January 1, 2004, the company amended its nonpension
postretirement benefit plan to provide that new hires, as of that date
or later, will no longer be eligible for company subsidized benefits.
Non-U.S. Plans
Most subsidiaries and branches outside the United States sponsor
defined benefit and/or defined contribution plans that cover substan-
tially all regular employees. The company deposits funds under various
fiduciary-type arrangements, purchases annuities under group con-
tracts or provides reserves for these plans. Benefits under the defined
benefit plans are typically based either on years of service and the
employee’s compensation (generally during a fixed number of years
immediately before retirement) or on annual credits. The range of
assumptions that are used for the non-U.S. defined benefit plans
reflects the different economic environments within various countries.
In addition, certain of the company’s non-U.S. subsidiaries sponsor
defined benefit nonpension postretirement benefit plans that provide
medical and dental benefits for eligible non-U.S. retirees and eligible
dependents, as well as life insurance for certain eligible non-U.S.
retirees. However, most of the retirees outside the United States are
covered by local government sponsored and administered programs.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
INTERNATIONAL BUSINESS MACHINES CORPORATION AND SUBSIDIARY COMPANIES
101
IMPLEMENTATION OF SFAS NO. 158
As highlighted in note B, “Accounting Changes,” on page 71, effec-
tive December 31, 2006, the company adopted the provisions of
SFAS No. 158. In note A, “Significant Accounting Policies,” on pages
67 and 68, the requirements of SFAS No. 158 are discussed in detail.
SFAS No. 158 requires the recognition of the funded status of each
defined benefit pension plan and nonpension postretirement benefit
plan on the company’s balance sheet. Each overfunded plan is recog-
nized as an asset and each underfunded plan (or unfunded) is recognized
as a liability. The initial impact of SFAS No. 158 due to previously
unrecognized actuarial gains and losses and prior service costs or credits,
as well as subsequent changes in the funded status, is recognized as a
component of Accumulated gains and losses not affecting retained
earnings (net of tax) in Stockholders’ equity. The following table
presents the incremental effect of applying SFAS No. 158 on the
Consolidated Statement of Financial Position:
(Dollars in millions)
BEFORE AFTER
APPLICATION APPLICATION
AT DECEMBER 31, 2006 OF SFAS NO. 158 ADJUSTMENTS* OF SFAS NO. 158
Prepaid pension assets $ , $(,) $ ,
Investments and sundry
assets (deferred taxes) $ , $ , $ ,
Total Assets $, $ (,) $,
Current liabilities,
Compensation and
benefits $ , $  $ ,
Non-current liabilities,
Retirement
and nonpension
postretirement
obligations $ , $  $ ,
Other liabilities
(deferred taxes) $ , $ (,) $ ,
Total Liabilities $ , $  $ ,
Accumulated gains and
(losses) not affecting
retained earnings,
net of tax $  $ (,) $ (,)
Total Stockholders’ Equity $ , $ (,) $ ,
* Adjustments are primarily comprised of previously unrecognized gains/(losses),
prior service costs/(credits) and transition assets/(obligations).
At December 31, 2006, the company recorded prior service costs, net
gains/(losses) and transition assets/(obligations) in the Stockholders’
equity section of the Consolidated Statement of Financial Position, net
of tax, of $871 million, $(10,371) million and $2 million, respectively.
In addition, the minimum pension liability of $2,348 million was
eliminated upon the adoption of SFAS No. 158.