Kevin Waller
Pension Services Manager
IBM United Kingdom Pensions Trust Limited
PO Box41, North Harbour
Portsmouth
PO6 3AU

4 July 2000

Dear Kevin

I thank you for your letter of 31st May and the disturbing information therein.

I have delayed replying to your letter until I had sight of the 1999 Members Report.

As a legal layman but one with many years of accounting and auditing experience before joining IBM it is my opinion that what you have described in your letter is the creation of a legal contrivance designed to by-pass the spirit of the original Trust Deed. Furthermore your statement that no company contribution was required to either the Defined Benefit Section or the Defined Contribution Section is in direct contradiction to the statement at the foot of page four of the 1999 Members Report which states that and I quote: "Company Contributions of £12.1m to the M Plan section were funded from the surplus of the Defined Benefits sections." It is therefore obvious that the M plan is not self funding from members contributions. What is even more disturbing is that this £12.1 m taken from the C Plan funds represents 73% of the £16.5m of Additional Voluntary Contributions (AVCs) made by C Plan members. They are therefore making voluntary contributions to a fund from which they can never benefit.

It is difficult to believe that the Defined Benefit Plan and the Defined Contribution Plan, whose funds are held separately, can legally be considered to be a single entity for the following reasons:

1. Members of the DB Plan can never benefit from the funds of the DC Plan, one being Final Salary based and the other Money Purchase. Members of the DC Plan could end up receiving greater pension increases than DB Plan members but with those increases being funded solely by contributions from DB Plan members if the two funds are considered to be one.

2. The DC Plan was set up under a different set of rules as it was set up after the 1995 Pensions Act.

3. The DB Plan ( C Plan) is, as you confirmed in your letter of 15th October 1999 a closed fund.

4. The DC (M Plan) member's contributions and the monies transferred from the DB fund surplus to set up the new plan are now held in a separate fund with different investment criteria and are managed by a different Investment Manager.

5. The rules as regards pensionable earnings are different for "M" plan members than the rules which applied to "C"plan members in that variable pay i.e. that portion of salary based on personal performance is now no longer pensionable. I also understand that this change was implemented with little or no notice being given to employees. It also makes the "M" plan different from the "C" plan in nearly all aspects.

I must state that I have never claimed that any monies had been repaid to the company. However when money contributed by and on behalf of "C" Plan members is utilised to set up a new money purchase plan for a completely different set of employees and from which the "C" plan members can never benefit then in my opinion this is one and the same as removing money from that plan. It would seem that whoever wrote the text of the 1999 Members' Report agrees with me. I refer you once again to page four of the 1999 Members Report under the Defined Contributions Section where it states that Company Contributions of £12.1m to the M Plan section were funded from the surplus of the Defined Benefits sections.

Your comment that the Scheme Actuary has advised the company that it was not necessary to make any contributions to the pension funds since 1997 is only surprising in the light of the poor record of the Trustee as regards pension increases to the "C" plan retirees over the past six years. The Scheme Actuary is supposed to protect the interests of Pension Plan members and surely the input and output from the Pension Plan should be complementary. If the company can take 100% contribution holidays then surely the members are entitled to 100% of RPI when the fund has a surplus of £700 million. The investment creating this surplus was after all sold to us during our employment as being part of our salary plan.

The comment in your last paragraph that the Trustees sought considerable legal advice on the setting up of the M Plan in 1997 and that both funds are legally seen as being part of the same trust is only part of the truth. It has been brought to my attention that earlier this year the rules of the Trust Deed were altered by Deed of Amendment to accommodate the above.. I am surprised that this can be done to what is a closed fund without consulting or even advising the members of the Pension Plan. It is surprising that there is no mention of such a Deed of Amendment in the booklet that I have just received entitled "It's your Pension - Keeping you informed." It is unfortunate that we as members are not well informed about the really important things that the Trustees and the company are implementing to change our Pension Plan.

I would be obliged if you would advise me of the details of the Deed of Amendment that has been implemented and how the changes affect the retirees. I would also be obliged if you would send me a copy of the full annual Report for 1999.

I have written to my Member of Parliament on this issue and she in turn has taken the matter up with the Pensions Ombudsman. At the request of his office I have prepared my case for what I consider to be the possible maladministration of the Pension Trust and certainly the poor communication between Trustee Directors and its members.

Yours sincerely

Tom Heneghan

Brian Belsey
OPAS Ltd.
11 Belgrave Road
London
SW1V 1RB

Reference: BB/JM/27430

4th July 2000

Dear Mr Belsey

I would like to thank you for your letter of 14 June and would apologise for the delay in sending this reply but I was awaiting the 1999 Members Report from the Directors of the Trustee Company which I have now received.

I should point out that I first became concerned regarding the administration of the Pension Trust last year when a Trustee Director, Mr Barrie Morley, resigned his position. This was surprising as he had been a Trustee Director for a number of years whilst being an IBM employee and on retiring had stood for election as a representative from the retiree community and was successful. His resignation letter and attachments are in the public domain as I received them from a fellow retiree over the internet. I enclose copies for your information.

I also enclose a copy of a letter that I have written today to Mr Kevin Waller, Pension Services Manager, which covers in some detail my complaints against both the company and the trustees and requests further information of the amendments that the trustees have recently implemented to the original Trust Deed. As back up to my case I am also enclosing copies of the correspondence between myself, Kevin Waller and David Newman, Pension Trust Manager.

In summary my complaints are threefold in number:

1. I understand that pension increases for those of us who retired prior to 5 April 1997 are covered by the scheme rules and I enclose a copy of the relevant paragraph from the 1994 update to "Handbook for Retirees " published by the then Director of Personnel for IBM United Kingdom Limited. The question that I raise here is that as I understand the rules the Actuary, in this case Aon Consulting, London are appointed to protect the interest of the members of the Trust. In your opinion are they honouring their responsibilities if they recommend that the company has not had to make any contributions to the Pension Plan since 1997 but at the same time give pension increases of only 70% of RPI and at ever increasing intervals as per Kevin Waller's letter of 12 November 1999. It is also relevant here that in a publication of August 1999 entitled "It's Your Pension" distributed to encourage members to come forward for election as Member Elected Directors it was stated that one of the main responsibilities of the Trustee was "To act fairly towards all the beneficiaries"

2. I believe that the trustees have been wrongly advised in assuming that they can consider the Defined Benefit Plan and the Defined Contribution Plan to be one legal entity for the reasons outlined in my letter of 4 July to Kevin Waller, a copy of which is attached. I also do not understand how the Trustee Directors can set up a Money Purchase plan for current employees using funds from a defined Benefit Plan without consulting or advising the members of that plan. There are twelve Directors of the Trustee Company but only two of them are not remunerated directly by the company so they can hardly be considered to be representative of the members on such an important issue. I look forward to your comments on this.

3. David Newman, Pension Trust Manager having failed to satisfy the members of the London Retiree Club on a number of issues at a meeting earlier this year wrote to the London Club on behalf of Barrie Morgans, Chairman of the Trustee Company and stated "The company has not removed any money from the fund, nor has it indicated in any way that it wishes to do so. The Trust Deed has specific safeguards built into it that cover this -exceptionally unlikely - eventuality, to ensure members benefits are fully protected, so that in any event the Company cannot unilaterally do this."

How can one reconcile this statement with the Statements in the 1998 Members Report and the 1999 Members Report that During the year Company Contributions of £9.2M and £12.1m respectively to the M Plan section were funded from the surplus of the Defined Benefit Plan (C Plan) Is this not the company taking money from the Pension Fund? Who authorised the use of Defined Benefit Surplus to fund this company contribution to the Defined Contribution Plan and why were the members of the Defined Benefit Plan not consulted as joint owners of the fund?

I enclose the signed Form of Authority and hope that I have given you enough information to allow you to comment on the above situation. I understand that a fellow retiree Mr Mike Cawley who is very experienced in pension matters has already been in touch with OPAS and that his adviser is a Mr P Trebilcock and his reference number is 26121. You may wish to share information before commenting but if you require more details please let me know what is required.

Yours sincerely

Tom Heneghan

Brian Belsey
Technical Specialist
OPAS Ltd.
11 Belgrave Road
London
SW1V 1RB

Reference: BB/JM/27430

18th July 2000

Dear Mr Belsey

IBM United Kingdom Pension Plan

Further to my letter to you of 4th July I now have additional points regarding the administration of the above Pension Plan on which I would like your opinion.

One of my colleagues who has written a letter of complaint to his Member of Parliament had his letter passed on to the Minister of State for the Department of Social Security. The minister whilst not wishing to comment on individual Pension Schemes did give his interpretation of the 1995 Pensions Act as regards an employers use of a Pension Plan surplus and I quote:

"An employer may have access to some of the funds of a pension plan provided that all current and future pensions in payment have been or will be increased annually in line with the Retail Prices Index up to a maximum of 5% (this requirement also applies to pensions accrued in the past). Also, the trustees have to have satisfied themselves that the use of the surplus in this way is in the best interests of the scheme members and the members have been notified of the proposal in the manner required by law."

Does the above interpretation agree with the views of OPAS and if so how can the trustees of the IBM Plan justify their policy with regard to increases to retirees? In addition is it satisfactory under the 1995 Act for the Trustees to advise the members that significant amounts have been transferred out of their Pension Plan after the fact.

In the 1999 members Report from the Trustees they stated that contributions of £16.5m had been made during the year by members of the Defined Benefit Section ( C Plan) as Additional Voluntary Contributions. The also state that Company Contributions to the Defined Contributions Section ( M Plan) of £12.1m had been funded from the Defined Benefit Section. Should the employee members not be made aware that an amount equal to 70% of their AVC contributions had been transferred into a plan from which they could never benefit? Even if they lost the tax relief they would be better to invest their voluntary contributions elsewhere.

I look forward to hearing your views on the above additional points.

Yours sincerely

Tom Heneghan