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Notes to Consolidated Financial Statements
INTERNATIONAL BUSINESS MACHINES CORPORATION AND SUBSIDIARY COMPANIES
No significant amendments of retirement-related benefit plans
occurred during the year ended December 31, 2007 that had a
material effect on the Consolidated Statement of Earnings.
Assumptions Used to Determine Plan
Financial Information
Underlying both the measurement of benefit obligations and net
periodic (income)/cost are actuarial valuations. These valuations
use participant-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 assump-
tions, at a minimum, annually, and makes changes as necessary.
The table below presents the assumptions used to measure
the net periodic (income)/cost and the year-end benefit obliga-
tions for retirement-related benefit plans.
Defined Benefit Pension Plans
U.S. Plans Non-U.S. Plans
For the year ended December 31: 2009 2008 2007 2009 2008 2007
Weighted-average assumptions used to measure net
periodic (income)/cost for the year ended December 31:
Discount rate 5.75% 6.00% 5.75% 4.89% 5.06% 4.40%
Expected long-term returns on plan assets 8.00% 8.00% 8.00% 6.73% 6.86% 6.95%
Rate of compensation increase* N/A N/A 4.00% 3.09% 3.23% 3.05%
Weighted-average assumptions used to measure
benefit obligations at December 31:
Discount rate 5.60% 5.75% 6.00% 4.84% 4.89% 5.06%
Rate of compensation increase* N/A N/A N/A 2.92% 3.09% 3.23%
* Rate of compensation increase is not applicable to the U.S. defined benefit pension plans as benefit accruals ceased December 31, 2007 for all participants.
N/A—Not applicable
Nonpension Postretirement Benefit Plans
U.S. Plans Non-U.S. Plans
For the year ended December 31: 2009 2008 2007 2009 2008 2007
Weighted-average assumptions used to measure
net periodic cost for the year ended December 31:
Discount rate 5.75% 6.00% 5.75% 7.36% 7.13% 6.93%
Expected long-term returns on plan assets N/A 3.02% N/A 9.19% 9.04% 9.95%
Weighted-average assumptions used to measure
benefit obligations at December 31:
Discount rate 5.40% 5.75% 6.00% 7.92% 7.36% 7.13%
N/A—Not applicable
DISCOUNT RATE
The discount rate assumptions used for retirement-related ben-
efit plans accounting reflect the yields available on high-quality,
fixed income debt instruments at the measurement date. For
the U.S. discount rate assumptions, a portfolio of high-quality
corporate bonds is used to construct a yield curve. The cash
flows from the company’s expected benefit obligation payments
are then matched to the yield curve to derive the discount rates.
In the non-U.S., where markets for high-quality long-term bonds
are not generally as well developed, a portfolio of long-term
government bonds is 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.
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