My original submission listed 20 complaints under 4 headings. A subsequent letter added a further 4 complaints under two more headings. In a third letter I withdrew two of the additional complaints (both under the same heading). Thus my consolidated complaint lists 22 outstanding complaints under 5 headings:

1. those relating to IBM's intentions in 1997 with regard to M Plan funding
2. those relating to IBM's changing terminology with regard to Plans, Schemes, Funds and Sections between early 1997 and the present (December 2000)
3. those relating to IBM's failure to contribute to the M Plan between 1997 and the present
4. those relating to the composition and partiality of the Trustee over the period from early 1997 until 2000.
5. those relating to the interpretation of Schedule C Rule 1(2) of the April 1997 Money Purchase Rules

1. that the Trustee, if indeed it knew of IBM's intentions before agreeing to the Trust Deed amendment of April 1997 which set up the M Plan, should not have so agreed. Appendix A of my complaint gave my reasons for this.

Mr Newman's answer to this is that the Trustee was acting in the best interests of members of the Plan in agreeing to the changes because IBM could have run down the surplus anyway and there was the risk that IBM might make employees pay for the statutory LPI increases required by the 1995 Pensions Act.

I am not satisfied with this response for the following reasons. First, I find the argument that IBM could have run down the surplus entirely unconvincing. The 1997 Actuarial Valuation by Aon Consulting says that the surplus at 31^st December 1997 was certainly sufficient to allow a contribution holiday of at least 5 years (see Section 9.1) even after allowing for M Plan funding and funding for statutory LPI increases. Second, while IBM might have considered making employees pay for the LPI increases, it's hard to believe that employees would not have raised a storm of protest at this given the large surplus in the fund. IBM would surely have predicted such a response and therefore dismissed the idea as impractical.

Mr Newman also says that the Trustee received professional advice that the amendment was a valid exercise of its powers. This may be so, but I note that he does not attempt to refute the legal argument I advanced in Appendix A of my original complaint. I restate it.

2. that IBM deliberately concealed its intentions from employees

Mr Newman's answer to this is to deny that there was any deliberate concealment. I am not satisfied with this response because it flies in the face of the evidence.

It is undeniable that IBM and the Trustee agreed to the use of the surplus and that neither has publicly acknowledged this. It may be possible to argue that members had no right to know of the agreement though Mr Newman does not suggest this. Since they were kept in the dark, he seems to be saying that this was accidental and not deliberate.

What is also undeniable is that since members have become aware of the agreement many have complained vehemently about it and its concealment. This supports my contention that concealment was deliberate - both sides were perfectly aware of the outcry publication would create.

3. that this concealment meant that employee members of the C Plan in 1997, such as myself, who were faced with a decision about whether to leave the C Plan and join the M Plan or not, had to make their decision on the basis of incomplete and misleading information. Members of the N Plan were similarly disadvantaged.

Mr Newman's answer to this is to deny that the transfer would have any effect on members' benefits. I am not satisfied with this response for the reasons I give below under section 1(d)..

4. that the implication of IBM's intention was that future ex-gratia increases in C and N Plan pensions were likely to become less and less generous as the surplus diminished. Knowing this I might well have decided to switch to the M Plan rather than stay in the C Plan.

Mr Newman's answer to this is to deny that the transfer would have any effect on ex-gratia increases. I am not satisfied with this response because there has been a general trend for IBM to become less generous, not to say mean, to its employees in recent years and to use any excuse to reduce employee benefits.

In the past IBM made a point of explaining to employees that C Plan pension increases are ex-gratia but regularly provided extensive tables to indicate what increases had been given in the past, together with a comment that such increases had averaged 70-75%. Those tables, often covering 15 years or more, as well as the accompanying comment, led employees to expect a similar pattern of payments in the future. Although information about increases over the preceding 5 years is published in the Annual Members Report, since 1997 there has been no comment about the pattern of increases, nor has a more extensive table been published. This seems to me prima facie evidence that IBM is trying to forget, if not rewrite, its history and may well choose to be less 'generous' with ex-gratia increases.

It's also worth noting that IBM has become far less generous in recent years over such matters as 25 year club benefits, leaving benefits, health insurance benefits (which used to continue up to normal retirement age for early retirees) and company car and fuel benefits. It has also removed the London Allowance and annual bonuses from pensionable earnings.

Since the transfers have the effect of reducing the surplus, it seems plain to me that if at any time the surplus were to disappear, and IBM was therefore forced to contribute to the fund, it would use this to justify giving ex-gratia increases that were smaller or less frequent, or both.

Finally, I dispute Mr Newman's point that 'Discretionary increases have continued to be granted since 1997 on the same basis as before the introduction of the M Plan'. This is false. In the past, ex-gratia increases have averaged well over 75% of RPI. Lately they have averaged 70% of RPI. Further, there is reason to believe that in future they may well be limited to 3.5% (i.e. 70% of LPI) while in the past IBM has several times granted increases of over 10%. If the interval between increases is taken into account, the ex-gratia increases have become markedly less generous even though the fund is in surplus and inflation is low. As a result IBM has fallen from near the top of the league down to the bottom 10%, a point Mr Newman acknowledged at the recent AGM of the London Branch of the IBM Retirees Club.

I would also like to point out that in the 1997 Actuarial Valuation by Aon Consulting, the assumption is that ex-gratia increases will be 74.67% of RPI (2.8% vs. an RPI increase of 3.75%) - see section 5.4 of the report. Thus the increases of 70% of RPI that IBM is currently giving are already less generous than the allowance made by the Actuary.

5. that this concealment also affected my decision about what to do with my T Plan contributions. On retiring I could have removed these from the fund, rather than using them to enhance my C Plan pension. If I had known that IBM was also planning to use these contributions to fund the M Plan I might well have reached a different decision. Members of other AVC Plans (such as the A Plan) were similarly disadvantaged.

As Mr Newman rightly surmises, my complaint here is about discretionary increases, and since I still believe that these are threatened (see 1(d) above), my complaint stands.

6. that one reason for the concealment was that IBM wanted to ensure that members of the C and N Plans did not transfer en-masse, since if they had done so this would of course have reduced or even removed the surplus.

Mr Newman's answer to this is that such a transfer of membership would most likely have led to an increase in the surplus. Mr Newman gives no justification for his answer. This is a complex matter to determine, but I have set out in Appendix B below my reasons for disagreeing with his response.

7. that the Trustee, since it certainly knew of this intention at the point when IBM failed to make its promised contributions to the M Plan, should have informed members but failed to do so.

1. that IBM failed to meet its obligations to the M Plan.
2. that the Trustee failed to complain about this.
3. that the Auditors, PricewaterhouseCoopers, failed to draw attention to this.

1. that the way in which several of the IBM-nominated directors are remunerated gives rise to a conflict of interest when considering decisions, such as the decision to fund IBM's M Plan Contributions from the C and N Plan surplus, which directly affect IBM's profits.

Mr Newman does not deny that conflicts of interest may arise, but claims that all the trustees are aware of their duties and are able to distinguish their roles when exercising their powers.

2. that in particular Messrs Serkes and Cadigan, IBM-nominated directors during the period 1995-1999 who hold very senior positions in the parent US Corporation, were specifically charged to cut costs and improve returns for IBM pension plans world-wide. Their remuneration by IBM was directly affected by their success in achieving these aims.

Mr Newman claims that I raised no specific allegations and that my charges are not supported by any evidence. I had thought that my reference to Plan Sponsor magazine, February 1998 made clear one source of my information about the roles of TF Cadigan and JD Serkes in reducing IBM's global pension costs.

I might add that J D Serkes ranks 14th amongst the top IBM executives for pretax gain on stock sales from October 1997 to October 1998. This is public information based on Vickers Insider Trading reports.

It's also worth pointing out that the issue of senior IBM executives benefiting from pension fund management is a matter that has been raised several times at IBM Stockholder Meetings. For a recent article on the subject see the Poughkeepsie Journal of February 21^st 2001, which can be found at:

http://www.poughkeepsiejournal.com/projects/ibm/bu022101s1.shtml

The first paragraph of that story reads:

A group of IBM Corp. employee shareholders says executives collect millions in extra pay because of a pension fund surplus management fattened by cutting benefits.

I therefore reiterate this complaint, which I believe to be well supported by public documents.

3. that trustees have failed to declare such conflicts of interest properly and to abstain from voting on issues where these conflicts arose.

Mr Newman again claims that I raised no specific allegations and that my charges are not supported by any evidence.

Let me rephrase my complaint in the form of questions that you, the Chairman of the Trustee Board throughout the period, can answer. Did Messrs Serkes or Cadigan declare the conflict of interest between their duties as Trustee Directors and their IBM roles in reducing IBM pension plan costs world-wide? Did they always abstain from voting on issues (such as the decision to allow IBM a pension holiday from M Plan contributions by using the C/N Plan surplus) which directly effected IBM's bottom line and hence their remuneration and the value of their stock options?

If the answers to these two questions are 'Yes' and 'Yes', I withdraw the complaint. If however either answer is 'No', I repeat my charge.

4. that the chairman of the board of directors from 1997 until the present, Mr Morgans, failed to ensure that such interests were declared or that those with such interests abstained from voting where necessary.

Again, Mr Newman claims that I raised no specific allegations and that my charges are not supported by any evidence.

Here I refer back to the preceding complaint. If the answer to my two questions are 'Yes' and 'Yes', I accept that you did not fail in your duty. If however either answer is 'No', I repeat my charge.

5. that the record of decision-making by the trustee directors shows them to have put IBM's interests before those of the members. Examples include approving the April 1997 amendment to the Trust Deeds, approving the periodic transfer of funds mentioned earlier and approving the February 2000 amendment to the Trust Deeds.

Mr Newman ignores this complaint. I repeat it. I claim that all of these decisions benefited IBM and were of no benefit or indeed were detrimental to the interests of members. I am under the impression that a trustee director resigned in 1999 largely because he also believed this.

6. that IBM has, by its choice of nominated directors, tried to ensure that the Trustee puts IBM's interests before those of the members.

1. that Rule 1(2) has been incorrectly misused and construed by IBM and the Trustee to justify the transfer of the Defined Benefits scheme surplus

Mr Newman argues that this rule 'adequately documents' the agreement reached between IBM and the Trustee that the IBM's liability to contribute to the M Plan be met from the 'surplus'. This is surely nonsense. The rule in question states:

"If the Principal Employer, having obtained the advice of the Actuary, consider it appropriate, contributions to be made by an Employer under (1)(a) above may be made by way of an acceptable alternative method."

Nothing in the rule suggests the use of a surplus, nor do the words imply that Employer contributions (that is contributions by the employer) need not be made. Contributions from the C/N Plan surplus are not Employer Contributions. The only 'alternative method' that I can imagine is the one I mentioned in the first paragraph of section 3 of my complaint. That is, that IBM takes money out of the C/N Plan surplus (so it's now IBM money) and then puts that IBM money in to the M Plan. The snag is that this is completely illegal - breaching the rule in the Trust Deed forbidding any payment to the Employer out of the funds as well as breaching the 1995 Pension Act. My complaint stands.

Mr Newman claims that IBM determines whether an 'acceptable alternative method' is 'appropriate'. That may be so, but the question I asked was '"who decides if an alternative method is acceptable'?". Mr Newman does not say. I repeat the question.

If the words of Rule 1(2) do indeed mean, or can be taken to mean, what Kevin Waller wrote in his letter to David Reid on the 20^th of December, then I made the following complaint:

2. the Trustee should not have agreed to Rule 1(2), for similar reasons to those I gave in Appendix A of my complaint. That is, it allows a transfer which is not in the interests of any of the beneficiaries of the Defined Benefits scheme.

In my complaint 1(f) I stated that one reason for the concealment of the agreement to allow use of the surplus to fund the M Plan was that IBM wanted to ensure that employee members of the C and N Plans did not transfer en-masse. I claimed that if they had done so this would reduced or even removed the surplus. Mr Newman's response to this was to assert that 'in all probability this would have given rise to a larger surplus'.

I accept that this is a complex matter that requires an actuary to give precision to an answer, but here is a basic argument to support my belief. If it has flaws I would like to know what they are.

When an employee member of the C Plan transfers to the M Plan, a sum is transferred from the C Plan to his M Plan account. The amount transferred is determined by matters such as his current salary, years of service and contribution history. Exactly what calculation is performed I do not know, but let us assume that as a starting pointing we take the amount needed to give him the pension to which he would be entitled were he to retire at that point.

Now at first sight this amount will not of itself reduce the surplus at all because the surplus is just that - an excess over what is required to meet the funds liabilities. It would seem therefore that since the membership has decreased by one and the surplus has remained constant that what be might call 'surplus per member' will have increased. However things are not that simple.

The first point is that in calculating the surplus, the actuary makes the assumption that employees will retire at or near the normal retirement age. In the 1997 Actuarial valuation it is assumed that the average outstanding service per iod is just over 13 years (see Appendix II (a) page 25). Thus we have to take into account the effects of the transfer over such a period. These are made up of:

1. Employee contributions of 4% of the employee's salary
2. Employer's contributions of 8% of the employee's salary. This amount will be taken from C Plan funds since IBM seems to have no intention of paying it!
3. Employee AVC contributions to the A or T Plans. In 1997 these amounted to approximately 4.5% of salary, though in 1999 the figure was over 6.5% (see the Annual Reports to Members).

All of these will now go into the employee's M Plan account rather than into the general C Plan Fund. As a rough figure, we can say that these amount to 17% of salary.

It also loses any future investment gains generated by all these funds. The 1997 Actuarial Valuation assumes that investment growth will be 8.25% (see section 5.4).

There is of course one important effect acting in the opposite direction. The C Plan has lost a member, so its funding requirement has decreased. However the effect of this over time depends on the assumed rate of salary growth. The 1997 Actuarial Valuation assumes that this will increase at 5.5% (see section 5.4).

The question is therefore which is greater, the fund and investment losses or the funding requirement reduction. It seems to me, largely because of the transfer of AVC contributions and the positive difference (2.75% compounded) between the expected rate of return on investments and salary growth, that over time the former must win and hence the surplus must decrease. Since the average expected service period in 1997 was over 13 years, there is plenty of time.