Retirement-Related Benefits

9 Months Ended

Sep. 30, 2024

Retirement Benefits [Abstract]

Retirement-Related Benefits

Retirement-Related Benefits:

The company offers defined benefit (DB) pension plans, defined contribution plans, as well as nonpension postretirement plans primarily consisting of retiree medical benefits.

IBM U.S. Retirement Plan Changes

Effective January 1, 2024, IBM changed how it provides certain retirement-related benefits in the U.S. IBM is providing a new benefit to most U.S. employees under its existing Qualified PPP called the Retirement Benefit Account (RBA). This is in place of any IBM contributions to the U.S. employees' 401(k) Plus accounts. IBM U.S. regular full-time and part-time employees with at least one year of service will participate in the RBA. Each eligible employee's RBA is credited monthly with an amount equal to five percent of their eligible pay with no employee contribution required. Under the RBA, eligible employees earn six percent interest through 2026 and starting in 2027, will earn interest equal to the 10-year U.S. Treasury Yield, subject to a three percent minimum per year through 2033. Eligible employees also received a salary increase effective January 1, 2024 for the difference between the IBM 401(k) Plus contribution percent they were previously entitled to receive and the five percent RBA pay credit. Since the RBA is a component of the Qualified PPP, it is funded by the trust for the Qualified PPP along with all other benefits in the Qualified PPP.

As a result of this change, inactive pension plan participants no longer represent substantially all of the participants in the Qualified PPP. As required by U.S. GAAP, this changed the amortization period of unrecognized actuarial losses from the average remaining life expectancy of inactive plan participants to the average remaining service period of active plan

participants in 2024. Recognized actuarial losses for the U.S. Plans increased by approximately $100 million and $300 million for the three and nine months ended September 30, 2024, respectively, as compared to the prior-year periods, primarily driven by the change in amortization period. There was no impact to funded status, retiree benefit payments or funding requirements of the Qualified PPP due to the change in amortization period.

Over the past several years, the company has taken actions to reduce the risk profile of its worldwide retirement-related plans, while at the same time increasing the funded status of the plans. As described in note 1, "Basis of Presentation," in September 2024, the Qualified PPP irrevocably transferred to the Insurer approximately $6 billion of the Qualified PPP's defined benefit pension obligations and related plan assets, thereby reducing the company's pension obligations and assets by the same amount. This transaction further de-risks the company's retirement-related plans by eliminating the potential for the company to make future cash contributions to fund this portion of pension obligations being transferred to the Insurer. After the transaction, the Qualified PPP remained in an overfunded position as of September 30, 2024.

Upon issuance of the group annuity contract, the Qualified PPP's benefit obligations and administration for approximately 32,000 of the company's Plan participants and beneficiaries (the "Transferred Participants") were transferred to the Insurer. Under the group annuity contract, the Insurer has made an irrevocable commitment, and will be solely responsible, to pay the pension benefits of each Transferred Participant that are due on or after January 1, 2025. The transaction resulted in no changes to the amount of benefits payable to the Transferred Participants. The company recognized a one-time, non-cash, pre-tax pension settlement charge of $2.7 billion ($2.0 billion net of tax) in the third quarter of 2024 primarily related to the accelerated recognition of actuarial losses included within AOCI in the Consolidated Statement of Equity. As a result of this transaction, the company was required to remeasure the benefit obligations and plan assets of the Qualified PPP. The remeasurement reflects the use of the current discount rate and actual return on plan assets as of August 31, 2024, applying the practical expedient to remeasure plan assets and obligations as of the nearest calendar month-end date.

The following table presents the changes in benefit obligations and plan assets of the company's retirement-related benefit plans affected by the interim remeasurements described above for the nine months ended September 30, 2024.

	Qualified PPP
(Dollars in millions)	U.S. Plan
Change in benefit obligation:
Benefit obligation at January 1, 2024	$	19,854
Service cost	295
Interest cost	686
Plan participants' contributions	—
Actuarial losses/(gains) (1)	46
Benefits paid from trust	(1,073)
Direct benefit payments	—
Amendments/curtailments/settlements/other (2)	(6,229)
Benefit obligation at September 30, 2024	$	13,578
Change in plan assets:
Fair value of plan assets at January 1, 2024	$	24,437
Actual return of plan assets (1)	1,140
Employer contributions	—
Plan participants' contributions	—
Benefits paid from trust	(1,073)
Direct benefit payments	—
Amendments/curtailments/settlements/other (2)	(6,229)
Fair value of plan assets at September 30, 2024	$	18,275
Funded status at September 30, 2024	$	4,697
Accumulated benefit obligation (3)	$	13,578

(1)Reflects a 5.00 percent discount rate at both December 31, 2023 and at the remeasurement date.

(2)Primarily represents the transfer of pension obligations and related plan assets to the Insurer pursuant to a group annuity contract and lump sum payments to Transferred Participants.

(3)Represents the benefit obligation assuming no future participant compensation increases.

IBM Non-U.S. Retirement Plan Change

In the fourth quarter of 2024, IBM Canada Ltd. (“IBMC”) purchased two separate nonparticipating single premium group annuity contracts from RBC Life Insurance Company and Brookfield Annuity Company (collectively the "Insurers") that will transfer to the Insurers approximately $1.2 billion of the IBMC IBM Retirement Plan’s (the “Plan”) defined benefit pension obligations for approximately 6,000 Plan participants and beneficiaries. The purchase of the group annuity contracts was completed October 29, 2024 and was funded directly by assets of the Plan and required no cash contribution from IBM. As a result of the transaction, the company expects to recognize a one-time, non-cash, pre-tax, pension settlement charge of approximately $0.4 billion in the fourth quarter of 2024. The actual charge will depend on finalization of the actuarial and other assumptions.

The following tables provide the pre-tax cost for all retirement-related plans.

					Yr.-to-Yr.
(Dollars in millions)					Percent
For the three months ended September 30:	2024		2023		Change
Retirement-related plans — cost:
Defined benefit pension and defined contribution plans — cost (1)	$	3,024	$	250	nm
Nonpension postretirement plans — cost	30		33		(9.4)	%
Total	$	3,053	$	283	nm

					Yr.-to-Yr.
(Dollars in millions)					Percent
For the nine months ended September 30:	2024		2023		Change
Retirement-related plans — cost:
Defined benefit pension and defined contribution plans — cost (1)	$	3,667	$	791	nm
Nonpension postretirement plans — cost	90		98		(7.8)	%
Total	$	3,757	$	888	nm

(1)2024 includes the impact of a one-time, non-cash, pre-tax pension settlement charge of $2.7 billion related to the Qualified PPP, as described above.

nm - not meaningful

Cost/(Income) of Retirement Plans

The following tables provide the components of the cost/(income) for the company’s retirement-related benefit plans.

(Dollars in millions)	U.S. Plans				Non-U.S. Plans
For the three months ended September 30:	2024		2023		2024		2023
Service cost (1)	$	98	$	—	$	43	$	44
Interest cost (2)	228		272		271		293
Expected return on plan assets (2)	(313)		(382)		(395)		(363)
Amortization of prior service costs/(credits) (2)	—		—		6		5
Recognized actuarial losses (2)	113		27		131		99
Curtailments and settlements (2) (3)	2,725		—		2		2
Multi-employer plans	—		—		3		4
Other costs/(credits) (2)	—		—		0		3
Total net periodic pension (income)/cost of defined benefit plans	$	2,851	$	(82)	$	62	$	88
Cost of defined contribution plans	15		150		95		95
Total defined benefit pension and defined contribution plans cost recognized in the Consolidated Income Statement	$	2,866	$	68	$	158	$	182

(1)Increase in U.S. Plans service cost in 2024 is due to the Qualified PPP plan changes effective January 1, 2024 described above.

(2)These components of net periodic pension cost are included in other (income) and expense in the Consolidated Income Statement.

(3)U.S. Plans in 2024 reflects the impact of a one-time, non-cash, pre-tax pension settlement charge related to the Qualified PPP, as described above.

(Dollars in millions)	U.S. Plans				Non-U.S. Plans
For the nine months ended September 30:	2024		2023		2024		2023
Service cost (1)	$	295	$	—	$	128	$	133
Interest cost (2)	735		817		803		873
Expected return on plan assets (2)	(994)		(1,146)		(1,168)		(1,081)
Amortization of prior service costs/(credits) (2)	—		0		17		15
Recognized actuarial losses (2)	370		82		389		302
Curtailments and settlements (2) (3)	2,725		—		7		7
Multi-employer plans	—		—		10		10
Other costs/(credits) (2)	—		—		20		21
Total net periodic pension (income)/cost of defined benefit plans	$	3,131	$	(247)	$	206	$	281
Cost of defined contribution plans	42		473		288		283
Total defined benefit pension and defined contribution plans cost recognized in the Consolidated Income Statement	$	3,173	$	226	$	494	$	565

(1)Increase in U.S. Plans service cost in 2024 is due to the Qualified PPP plan changes effective January 1, 2024 described above.

(2)These components of net periodic pension cost are included in other (income) and expense in the Consolidated Income Statement.

(3)U.S. Plans in 2024 reflects the impact of a one-time, non-cash, pre-tax pension settlement charge related to the Qualified PPP, as described above.

Cost of Nonpension Postretirement Plans

The following tables provide the components of the cost for the company’s nonpension postretirement plans.

(Dollars in millions)	U.S. Plan				Non-U.S. Plans
For the three months ended September 30:	2024		2023		2024		2023
Service cost	$	1	$	1	$	1	$	1
Interest cost (1)	27		29		10		10
Expected return on plan assets (1)	—		—		0		(1)
Amortization of prior service costs/(credits) (1)	(7)		(7)		0		0
Recognized actuarial losses (1)	—		—		0		0
Curtailments and settlements (1)	—		—		—		—
Total nonpension postretirement plans cost recognized in the Consolidated Income Statement	$	20	$	23	$	10	$	10

(Dollars in millions)	U.S. Plan				Non-U.S. Plans
For the nine months ended September 30:	2024		2023		2024		2023
Service cost	$	2	$	3	$	2	$	2
Interest cost (1)	80		88		31		29
Expected return on plan assets (1)	—		—		(1)		(2)
Amortization of prior service costs/(credits) (1)	(22)		(22)		0		0
Recognized actuarial losses (1)	—		—		(1)		(1)
Curtailments and settlements (1)	—		—		—		—
Total nonpension postretirement plans cost recognized in the Consolidated Income Statement	$	59	$	69	$	30	$	28

(1)These components of net periodic pension cost are included in other (income) and expense in the Consolidated Income Statement.

Plan Contributions

The company does not anticipate any significant changes to the expected plan contributions in 2024 from the amounts disclosed in the 2023 Annual Report. The table below includes contributions to the following plans:

(Dollars in millions)	Plan Contributions
For the nine months ended September 30:	2024		2023
U.S. nonpension postretirement benefit plan	$	155	$	188
Non-U.S. DB and multi-employer plans (1)	53		45
Total plan contributions	$	208	$	233

(1)Amounts reported net of refunds.

The U.S. nonpension postretirement benefit plan contributions in the table above were funded with U.S. Treasury Securities. Additionally, during the nine months ended September 30, 2024 and 2023, the company contributed $600 million and $537 million of U.S. Treasury securities, respectively, to the Active Medical Trust. Contributions made with U.S. Treasury securities are considered a non-cash transaction.