IBM 2007 Annual Report Download - page 113

111
Notes to Consolidated Financial Statements
International Business Machines Corporation and Subsidiary Companies
No significant amendments of the U.S. retirement-related benefit
plans or significant non-U.S. defined benefit pension plans occurred
during the years ended December 31, 2007, 2006 and 2005 that would
have a material effect on the Consolidated Statement of Earnings.
In 2006, the company redesigned certain non-U.S. defined ben-
efit pension plans that resulted in a reduction to the PBO of $688
million. The majority of the reduction was attributed to modified
plans in the United Kingdom, Switzerland and the Netherlands.
In December 2005, the company approved amendments to the PPP
and the SERP, which provided that participants would no longer accrue
benefits under these plans beginning January 1, 2008, resulting in a
curtailment charge of $267 million that was recorded in the Consolidated
Statement of Earnings for the year ended December 31, 2005.
ASSUMPTIONS USED TO DETERMINE PLAN
FINANCIAL INFORMATION
Underlying both the measurement of benefit obligations and net
periodic cost are actuarial valuations. These valuations use partici-
pant-specific information such as salary, age and years of service, as
well as certain assumptions, the most significant of which include
estimates of discount rates, expected return on plan assets, rate of
compensation increases, interest crediting rates and mortality rates.
The company evaluates these assumptions, at a minimum, annually,
and makes changes as necessary.
The following table presents the assumptions used to measure the
net periodic cost and the year-end benefit obligations for significant
retirement-related benefit plans:
The following table presents the estimated net loss, estimated prior service credits and estimated transition assets of the company’s significant
retirement-related benefit plans that will be amortized from Accumulated gains and (losses) not affecting retained earnings into net periodic
cost/(income) and recorded in the Consolidated Statement of Earnings in 2008:
($ in millions)
SIGNIFICANT DEFINED POSTRETIREMENT
BENEFIT PENSION PLANS BENEFIT PLAN
U.S. PLAN NON-U.S. PLANS U.S. PLAN
Net loss $281 $ 600 $ 10
Prior service credits — (134) (62)
Transition assets — 1 —
NONPENSION POSTRETIREMENT
SIGNIFICANT DEFINED BENEFIT PENSION PLANS BENEFIT PLAN
U.S. PLAN NON-U.S. PLANS U.S. PLAN
2007 2006 2005 2007 2006 2005 2007 2006 2005
Weighted-average assumptions used to measure net
periodic cost for the year ended December 31:
Discount rate 5.75% 5.50% 5.75% 4.40% 4.20% 4.70% 5.75% 5.50% 5.75%
Expected long-term return on plan assets 8.00% 8.00% 8.00% 7.00% 7.10% 7.10% N/A N/A N/A
Rate of compensation increase 4.00% 4.00% 4.00% 2.90% 3.00% 3.00% N/A N/A N/A
Weighted-average assumptions used to
measure benefit obligations at December 31:
Discount rate 6.00% 5.75% 5.50% 5.40% 4.40% 4.20% 6.00% 5.75% 5.50%
Rate of compensation increase* N/A 4.00% 4.00% 3.00% 2.90% 3.00% N/A N/A N/A
* Rate of compensation increase is not applicable to the PPP as benefit accruals ceased for all participants beginning January 1, 2008.
N/A — Not applicable
Discount Rate
The discount rate assumptions used for the retirement-related ben-
efit plans accounting reflect the yields available on high-quality, fixed
income debt instruments. For the U.S. discount rate assumptions, a
portfolio of corporate bonds is constructed with maturities that
match the expected timing of the benefit obligation payments. In the
non-U.S., where markets for high-quality long-term bonds are not
generally as well developed, long-term government bonds are used as
a base, to which a credit spread is added to simulate corporate bond
yields at these maturities in the jurisdiction of each plan, as the
benchmark for developing the respective discount rates.