IBM 2006 Annual Report Download - page 112

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
INTERNATIONAL BUSINESS MACHINES CORPORATION AND SUBSIDIARY COMPANIES
110 2006 Annual Report
NONPENSION POSTRETIREMENT BENEFIT PLAN EXPECTED PAYMENTS
The following table reflects the total expected benefit payments to nonpension postretirement benefit plan participants, as well as the expected
receipt of the company’s share of the Medicare subsidy described below. These payments have been estimated based on the same assumptions
used to measure the company’s benefit obligation at year end.
(Dollars in millions)
LESS: U.S. PLAN TOTAL
EXPECTED EXPECTED
U.S. PLAN MEDICARE BENEFIT
PAYMENTS SUBSIDY PAYMENTS
2007 $  $ $ 
2008   
2009   
2010   
2011   
2012-2016 , — ,
The 2007 expected benefit payments to nonpension postretirement
benefit plan participants not covered by the plan assets represent a
component of Compensation and benefits, within Current liabilities,
in the Consolidated Statement of Financial Position.
MEDICARE PRESCRIPTION DRUG ACT
In connection with the Medicare Prescription Drug Improvement
and Modernization Act of 2003, the company is expected to receive
a federal subsidy of approximately $340 million to subsidize the
prescription drug coverage provided by the U.S. nonpension postre-
tirement benefit plan over a period of approximately six years beginning
in 2006. Approximately $204 million of the subsidy will be used by the
company to reduce its obligation and expense related to the U.S.
nonpension postretirement benefit plan. The company will contrib-
ute the remaining subsidy of $136 million to the plan in order to
reduce contributions required by the participants. The company
received $27 million of the subsidy during the year ended December
31, 2006, which was utilized to reduce the company contributions for
prescription drug-related coverage.
In accordance with the provision of FASB Staff Position FSP FAS
106-2, “Accounting and Disclosure Requirements Related to the
Medicare Prescription Drug, Improvement and Modernization Act of
2003,” the company has included the impact of its portion of the subsidy
in the determination of APBO for the U.S. nonpension postretirement
benefit plan for the years ended December 31, 2006 and 2005. The
impact of the subsidy resulted in a reduction in the benefit obligation
of approximately $154 million and $188 million, at December 31,
2006 and 2005, respectively, and a reduction of net periodic cost/
(income) of $24 million for the year ended December 31, 2006 and
there was no reduction for the year ended December 31, 2005.
OTHER PLAN INFORMATION
At December 31, 2005 the company elected not to fund certain of the
company’s non-U.S. plans that had unfunded positions to the accumu-
lated benefit obligation (ABO) level, which required the company to
record a minimum pension liability. As of December 31, 2005, the
company recorded a reduction in the minimum pension liability of
$1,726 million and an increase to stockholders’ equity of $436 million.
The differences between these amounts and the amounts included in
the Consolidated Statement of Financial Position and Consolidated
Statement of Stockholders’ Equity relate to the non-material plans.
This accounting transaction did not impact 2005 net periodic cost/
(income). The minimum pension liability at December 31, 2006 of
$2,348 million was eliminated upon adoption of SFAS No. 158.
The table on page 111 presents information for significant pen-
sion plans with an ABO in excess of plan assets. For a more detailed
presentation of the funded status of the company’s significant pension
plans, see the table on page 102.
Consolidated Statements ......................................................... 
Notes .....................................................................................
A-G ......................................................................................... 
H-M ......................................................................................... 
N-S .......................................................................................... 
T-X .......................................................................................... 
T. Rental Expense and Lease Commitments ....................... 
U. Stock-Based Compensation ............................................ 
V. Retirement-Related Benefits ......................................... 100
W. Segment Information.................................................... 111
X. Subsequent Events ........................................................ 115
Black
MAC
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