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IBM guarantees UK DB scheme contributions

UK – Computer giant IBM has made says it has guaranteed to make contributions of 181 million pounds for the next three years to its 3.25 billion-pound (4.6 billion-euro) UK defined benefit pension scheme, which is 900 million pounds in deficit.

“It has been agreed in principle that company contributions to the defined benefit sections of the plan will be 181 million pounds in each of the next three years,” said trustee chairman Jim Lamb in a letter to members. “This compares to 121 million pounds this year. Contributions to the defined contribution sections are in addition to these numbers.”

He said an agreement has been reached in principle with IBM Corp. “that will guarantee company contributions to the fund” and that the legal documentation is being prepared.

The guarantee, which will cover the period up to the end of the first quarter 2014, will be given by IBM World Trade Corp., the holding company that conducts IBM’s business outside the US.

The 10-year period covers the next three valuation reports, Lamb said. It “roughly coincides with the period in which, if the future experience of the Plan is in line with the actuarial assumptions, company contributions are expected to extinguish the deficit”.

“The deficit is large in absolute terms and large in relation to the resources of the plan sponsor.” Scheme actuary Watson Wyatt has now prepared the valuation report, which will be published next month.

Lamb summarised the reasons for the deficit, saying returns on assets were substantially lower than assumed in the 2000 valuation – costing 870 million pounds.

And assumptions about future investment returns in the 2003 valuation were lower than assumed in 2000 valuation – costing 300 million pounds. And the assumptions made for life expectancy cost 220 million pounds.

And, Lamb said, total company and member contributions to the plan over the period were around 190 million pounds lower than the total cost of benefits accrued during the period.

Meanwhile, the company is planning to make changes to the scheme’s trust deed and rules. Lamb said: “In summary, IBM is seeking a change to the trust deed and Rules which would require employees to share with IBM the increased cost of future service benefits resulting from improved life expectancy.”

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