Notes from D A T Reid

• C-Plan/M-Plan Analysis
• Transfers from C to M plan
• Comments on IBM Pension Plan

C-Plan/M-Plan Analysis

Dated: 15 September 2000

IBM's position is that there is only ONE plan with TWO sections, the C and M plan. This assertion in my view is inconsistent with natural justice because of:

• the differing contributions by employer and employee
• the different benefits
• the widely different membership age and active/inactive ratio
• the difference in the size of the C fund and the M fund.

Contributions

Benefits

There are differences between C and M Plan:

• one is a final salary scheme with a single investment (no options)
• the other is a money purchase scheme with a choice by members amongst an Index Fund, Equity Tracker, Gilts or Cash.

In practice the protection of pensions against inflation is very different.

• C Plan No guarantee. So far has protected at about 70% of RPI
• M Plan Since most M plan members are new the bulk of their contributions will be guaranteed to rise at RPI rate or 5%.

Sizes of Funds

Member Active/Inactive ratio

See the 1999 report for graphs of age and membership. My notes are based on the 1999 report and on the UK Pension plan record - see Pension Plan Record notes below.

• The C Plan has 8409 active, 8136 retired and 6610 deferred members giving a total of 23155.
• The M Plan has 8526 active members and 363 deferred - total 8889.

Member Age Distribution

The age Distribution of C and M Plans is:

Comparison

Conclusions

M plan members are mainly active, only 4% being in the deferred class. Since on average the active members have 30 years to serve before retirement their pensions will be protected against inflation by entitlement to RPI increases.

C plan members have 64% inactive, ie retired or deferred, their average age is higher than in M plan and they have no entitlement to cost of living increases. So far some increases have been given but threatening noises have been made about this being stopped.

It is unreasonable to maintain the fiction that this is ONE plan. The membership of the M plan is totally different in age and in active/inactive ratio to that of the C plan and the benefits promised to each class are also different.

Notes from IBM UK Pension Plan Record

These are my notes taken from the IBM UK Pension Plan Record

Note that I have used 'C' to indicate the 'Defined Benefit' (C-Plan) and 'M' to indicate the 'Define Contribution' (M-Plan).

	1995	1996	1997	1998	1999
Fund Size	2212.8	2755.8	3259	3629.6	4306
Fund Growth	18.80%	13%	16.30%	14.20%	21.30%
Fund Growth		543	503	371	676
Members Total	22097	22527	27365	30020	32044
Members Total(C)	22097	22527	27365	23355	23155
Members(C) active	9064	9388	9510	8881	8409
Members(C) retired	6876	7142	7583	7903	8136
Members(C) deferred	6157	5997	6314	6571	6610
Members(M) active	0	0	3912	6577	8526
Members(M) retired	0	0	0	0	0
Members(M) deferred	0	0	46	88	363
Company Contribution	9.9	2.6	0	0	0
Augmentation	10.9	2.4	2.7	1	3.7
Employee (C)	9.2	9.7	10.2	11.2	11.5
Employee (M)			1.2	4.2	6.3
Transfers In	3.4	5.9	68	5.8	4.7
Benefits Paid	110.6	95.3	96.6	100	103.8
Pensions	73.8	78.7	87.4	93.3	94.8
Retirement Lump Sums	13.6	7	9.2	6.7	9
Transfers Out	23.2	9.6	5.3	14.8	13.3
Pension Increase % *	2.6	0.0	2.1	3	2.4
RPI %	3.2	2.5	3.6
AVC's			11.6	15.2	19
Transfer from C to M	0	0	2.7	9.2	12.1

* Pension increases are not made annually but RPI is annual.

Notes:

• growth of 10,000 of which 9000 in Defined Contribution (M Plan) section
• increasing transfers from C plan to M plan
• zero contributions being made by IBM since 1997

Transfers from C to M plan

The recorded transfers from C to M plan are so far:

      Year     £Million
      1997        2.7
      1998        9.2
      1999       12.1

So 1997 is the first year and the transfers have increased in value. This is likely to continue since C plan assets are £4,250M versus £54M for the M plan.

Comments on IBM Pension Plan

8 August 2000
(written before sight of the Trust Deeds and proper analysis of report)

These comments are probably old hat to those of you who have been engaged in this debate for some time. I have used the abbreviations C and M plan instead of DB and DC.

1. The growth of M plan members who now equal the C active members while their net contributions are less (6.3M versus 12M) is a concern.
2. The increase in transfers from C to M plan.
3. While the growth in the overall fund is greater than the demands of pension payments now, what is the future going to be like, and what in any case are the relative sizes of the C and M Plan funds: a subject on which the members report says nothing.
4. Surely the company should produce two reports, one for the C plan and another for the M plan which show the assets of both plans, how they are separately invested and how each has performed and the payments in and out. This would include an actuarial report on each plan.
5. The full report for 1999 has a note on page 18 showing administration costs of 2.5M for the 'mixed benefit structure' charged to the C plan.
6. The full report for 1999 also shows C plan assets as £4.25B compared with £54M for the M plan. Note that 25% of members are M plan and this ratio is growing.

I received the full 1999 report this morning and it needs further study. It does separate the C and M plans.

I strongly believe that the member's report should clearly show the C and M plans separately.

IBM has no doubt received legal advice on this, but the morality of taking money out of the C plan to fund a different group of employees in the M plan is open to question, especially as in effect M plan employees are being promised increases at RPI rate.

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