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Retirement-Related Benefits:
 9 Months Ended
Sep. 30, 2014
Retirement-Related Benefits:  
Retirement-Related Benefits:

8. Retirement-Related Benefits: The company offers defined benefit pension plans, defined contribution pension plans, as well as nonpension postretirement plans primarily consisting of retiree medical benefits. The following tables provide the total retirement-related benefit plans’ impact on income before income taxes:

Yr. to Yr.
(Dollars in millions)Percent
For the three months ended September 30:20142013Change
Retirement-related plans – cost
Defined benefit and contribution pension plans – cost $ 408 $ 631 (35.4)%
Nonpension postretirement plans – cost 67 74 (8.3)
Total$ 475 $ 705 (32.6)%

Yr. to Yr.
(Dollars in millions)Percent
For the nine months ended September 30:20142013Change
Retirement-related plans – cost
Defined benefit and contribution pension plans – cost $ 1,280 $ 1,941 (34.1)%
Nonpension postretirement plans – cost 204 224 (8.9)
Total$ 1,484 $ 2,165 (31.4)%

The following tables provide the components of the cost/(income) for the company’s pension plans:

Cost/(Income) of Pension Plans
(Dollars in millions)U.S. PlansNon-U.S. Plans
For the three months ended September 30:2014201320142013
Service cost$—$—$113 $124
Interest cost553 495 385 379
Expected return on plan assets(1,024)(995)(565)(546)
Amortization of prior service costs/(credits)2 2 (28)(29)
Recognized actuarial losses264 448 351 397
Curtailments and settlements——7 0
Multi-employer plans/other costs——36 16
Total net periodic pension (income)/cost of defined
benefit plans(205)(50)300 341
Cost of defined contribution plans179 204 133 137
Total defined benefit and contribution plans cost recognized
in the Consolidated Statement of Earnings$(25)$154 $433 $478

(Dollars in millions)U.S. PlansNon-U.S. Plans
For the nine months ended September 30:2014201320142013
Service cost$ —$ —$346 $375
Interest cost1,659 1,485 1,170 1,137
Expected return on plan assets(3,072)(2,986)(1,715)(1,636)
Amortization of prior service costs/(credits)7 7 (85)(90)
Recognized actuarial losses792 1,343 1,072 1,195
Curtailments and settlements — —20 —
Multi-employer plan/other costs — —131 71
Total net periodic pension (income)/cost of defined
benefit plans(614)(151)938 1,052
Cost of defined contribution plans554 603 402 437
Total defined benefit and contribution plans cost recognized
in the Consolidated Statement of Earnings$(60)$452 $1,340 $1,489

On March 24, 2014, the Supreme Court of Spain issued a ruling against IBM Spain in litigation involving its defined benefit and defined contribution plans. See page 45 for additional information. As a result of the ruling, the company recorded an additional pre-tax retirement-related obligation of $55 million in the first quarter of 2014 in selling, general and administrative expense in the Consolidated Statement of Earnings. This charge was not reflected in operating (non-GAAP) expense. This obligation is reflected in "Non-U.S. Plans - Multi-employer plans/other costs" in the nine months table above. To date, the rulings in this case are declaratory only.

In March 2014, the company initiated a change to the investment strategy of its U.S. defined benefit plan. The 2014 target asset allocation was modified, primarily by reducing equity securities from 42 percent to 32 percent, and increasing debt securities from 47 percent to 57 percent of total plan assets, respectively. The asset allocation change was substantially completed by March 31, 2014. This change was designed to reduce the potential negative impact that equity markets might have on the funded status of the U.S. defined benefit plan. The change is expected to reduce the 2015 expected long-term rate of return on assets to approximately 7.75 percent. See note S, "Retirement-Related Benefits," on page 135 in the company's 2013 Annual Report for additional information regarding the company's investment strategy.

In 2014, the company expects to contribute to its non-U.S. defined benefit and multi-employer plans approximately $600 million, which will be mainly contributed to the defined benefit pension plans in Japan, the UK, Switzerland and the Netherlands. This amount represents the legally mandated minimum contributions. Total net contributions to the non-U.S. plans in the first nine months of 2014 were $387 million.

The following tables provide the components of the cost/(income) for the company's nonpension postretirement plans:
Cost of Nonpension Postretirement Plans
(Dollars in millions)U.S. PlansNon-U.S. Plans
For the three months ended September 30:2014201320142013
Service cost$7 $9 $1 $2
Interest cost47 41 16 14
Expected return on plan assets00(2)(2)
Amortization of prior service costs/(credits)(2)––(1)(1)
Recognized actuarial losses05 3 6
Total nonpension postretirement plan cost recognized in
Consolidated Statement of Earnings$51 $55 $16 $19

(Dollars in millions)U.S. PlanNon-U.S. Plans
For the nine months ended September 30:2014201320142013
Service cost$20 $26 $5 $7
Interest cost140 123 48 46
Expected return on plan assets0(1)(7)(7)
Amortization of prior service costs/(credits)(6) —(4)(4)
Recognized actuarial losses016 8 18
Curtailments and settlements0 —00
Total nonpension postretirement plan cost recognized in
Consolidated Statement of Earnings$154 $164 $50 $60

In connection with the Medicare Prescription Drug Improvement and Modernization Act of 2003 (the ‘Act’), the company qualified to receive a subsidy through 2013. Due to benefit plan changes effective January 1, 2014, the company no longer qualifies for the subsidy as of that date. The company may receive or pay additional amounts after 2013 to true up the final subsidy amount due to IBM under the Act. The company received a $23.0 million subsidy for the first nine months of 2014. For further information related to the Act, refer to page 141 in the company’s 2013 Annual Report.