Proposal by IBM shareholders on the IBM SA Pension Fund

Background:

The IBM SA Pension Fund has for 4 years been under attack by the IBM Corporation for approximately R180 million ($24 million) of what IBM calls its "surplus funds". This Fund is a Defined Benefit Fund which comprises 440 pensioners and 30 employees, and has been closed to new members for the last 6 years. The current value of the assets of the Fund is R493 million (approx $64 million). Despite commitments made by IBM to its employees over 30 years that the Fund was for the exclusive benefit of its retired staff, the Corporation has, in defiance of local statutory pension funds legislation, attempted to enhance the surplus of the Fund by denying benefits to the pensioners, and to use the fund assets to finance its contribution to the newly-created funds for the current employees.

Four years ago local legislation required that all funds be managed by trustees at least 50% of whom should be elected from the membership. IBM delayed the election for 2 1/2 years, and when elected trustees attempted to restore good governance to the Fund, they were blocked by Fund Rules that would not allow pensioners their rights. Charges of maladministration have therefore been levied to the Financial Services Board by the elected trustees .

The key complaints are:-

1. While the surplus of the Fund has ballooned by an average 20% pa over the last five years, pensions have been increased by only 4.5% pa which places the Fund in the bottom 10% of pension funds in South Africa. A black pensioner with 26 years service with the company died in poverty in July on a pension of $110 pm.
2. Deferred Pensioners have been exploited. One pensioner with some 11 years service now receives $6 pm pension.
3. IBM has used pension fund assets to finance penalty waivers for retrenched employees, without approval of the trustees.
4. IBM has suspended contributions to the Fund since 1997 without trustee approval.
5. IBM withheld pension increases in 1998 despite the trustees having granted a CPI increase. They then offered the increase if members agreed to allow IBM to transfer the remaining surplus to an "employer's reserve".

The following pensioners, who own an aggregate of 2,161 IBM shares listed on the NYSE submit the following proposal at the Stockholder's Meeting of March 2001:-

That the IBM Corporation Board of Directors

1. Re-affirm that the assets of the IBM SA Pension Fund are for the exclusive benefit of the members and cannot be used for any other purpose.
2. Undertake to adhere scrupulously to South African law regarding pension funds.
3. Agree to change Rules which are discriminating and illegally constituted and which entrench the employer's right to withhold improvements of benefits.
4. Agree to retroactive compensation of member's pensions as from 1995, to restore the purchasing power of the pensioners as represented by the CPI.
5. Agree to future improvements of benefits, to be decided solely by the Board of Trustees, and dictated by the financial performance of the Fund.
6. To seriously consider proposals by the IBM SA Pension Fund Action Group (PFAG) to outsource the management of the Fund.

Shareholders

R H Goldschmidt, S Conforti, DIG Murdoch, A Dry, S Spitze, R Bhana, P Bagley, J Schiff, M Soltynski, P Riches