IBM's Justifications

From Ibmukpensions

G1. Why is IBM proposing these changes?

A. The rapidly rising costs associated with the provision of Defined Benefit pensions is placing pressure on our long-term ability to invest for future growth and operate in an intensely competitive global market. If these proposals are implemented as planned they will help us to:

   * strengthen our competitive stance for the long term
   * safeguard our growth and leadership in this market
   * achieve sustainable progress against our Productivity objective
   * get back on course to consider salary investment programmes for our people

G2. I understand that IBM Corporation is performing strongly. Do these changes indicate that the UK business is in difficulty?

A. No. IBM UK continues to perform well in a challenging economic environment. The proposed changes are designed to ensure that we strengthen our long-term competitiveness, are able to achieve sustainable progress against our productivity objective, and ensure our future industry leadership.

G3. What has changed since 2006?

A. Although the changes made in 2006 were right for the business at the time, IBM in the UK remained exposed to a significant level of ongoing defined benefit pension cost and volatility. The current need to improve our competitiveness, together with the impact of the recent global downturn in the economy, which was unforeseen in 2006, means that we need to take further steps to enable the Company to retain our long-term competitiveness.

G4. What are other UK companies doing?

A. A number of factors, such as an increase in life expectancy, lower interest rates and the downturn in the economy, has resulted in many other UK companies having to review the pension benefits they provide. Currently around two in every three defined Benefit Schemes in the UK are closed to either new members or all employees. In recent months, BT, Morrisons, Barclays, and Fujitsu have all also announced that they will be making significant changes to their DB pension arrangements; Barclays and Fujitsu have announced their intention to close their pension plans to future accrual for those employees accruing final salary benefits.

Our competitors are predominantly younger companies that provide pensions on a Defined Contribution (DC) basis and are therefore not exposed to the volatile pension costs associated with DB pensions. Those competitors that do have Defined Benefit (DB) pensions schemes do not have the same level of liabilities that IBM UK has.

G5. Are the IBM UK Pension Plans in deficit?

A. The UK defined benefit pension plans had a combined surplus at the end of 2007 However, like many other UK pension schemes, asset values have been affected by the global economic downturn and have fallen significantly since the end of 2007 and as a result the deficit in the IBM UK pension plans has increased significantly. Like other UK businesses who provide defined benefit plans, the current economic downturn places tremendous cost pressure on IBM. This is on top of the longer term trends for increasing life expectancy and lower interest rates, which continue to increase our costs of providing these types of pension plan

G6. What percentage of our employees are in Defined Benefit plans?

A. About 28% of our employees are in the Defined Benefit plans and the remaining 72% are in Defined Contribution plans. A small number of employees have chosen not to join a pension plan. According to the 2007 Member's report for the IBM Pension Plan - Defined Benefit Section, the total number of Actives in the defined benefit plans was 3,074. According to http://www.ibm.com/ibm/uk/en/ as of 12 July 2009, the total number of employees in IBM UK is "around 20,000", 3,074 of 20,000 equates to 15.37%, not the 28% stated. Is it possible that the number has been mis-stated to make the problem look bigger than it is?