The company and its subsidiaries have defined benefit and defined contribution retirement plans that cover substantially all regular employees, and a supplemental retirement plan that covers certain executives. Under the PPA, retirement benefits are credited to each employee's cash balance account monthly based on a percentage of the employee's pensionable compensation.
Benefits become vested on the completion of five years of service under either formula.
Most subsidiaries and branches outside the U.S. have retirement plans that cover substantially all regular employees, under which the company deposits funds under various fiduciary-type arrangements, purchases annuities under group contracts or provides reserves. Retirement benefits are based on years of service and the employee's compensation, generally during a fixed number of years immediately before retirement. The ranges of assumptions that are used for the non-U.S. plans reflect the different economic environments within various countries. The SERP, which is unfunded, provides defined pension benefits outside the IBM Retirement Plan to eligible executives based on average earnings, years of service and age at retirement. Some participants of the pre-existing SERP still will be eligible for benefits under that plan, but will not be eligible for the new plan.