8-KOther EventsExhibits & Filings

INTERNATIONAL BUSINESS MACHINES CORP 8-K Report, Corporate Update (Sep 13, 2022)

Filed September 13, 2022For Securities:IBM

Summary

International Business Machines Corp (IBM) announced on September 13, 2022, a significant pension de-risking transaction involving the IBM Personal Pension Plan. The company, through its independent fiduciary State Street Global Advisors Trust Company, entered into agreements with The Prudential Insurance Company of America and Metropolitan Life Insurance Company to transfer approximately $16 billion of defined benefit pension obligations related to benefits that began paying out before 2016. This transaction effectively outsources the payment of these pension benefits to the insurers, effective January 1, 2023, covering around 100,000 participants and beneficiaries. While the transaction will result in a one-time, non-cash pre-tax pension settlement charge of approximately $5.9 billion (or $4.4 billion net of tax) in the third quarter of 2022, IBM has emphasized that this charge will not impact its operating profit or free cash flow for the quarter or the full year. Crucially, the amount of benefits payable to the affected participants will remain unchanged. The funding for this annuity purchase came directly from the plan's assets, requiring no additional cash contributions from IBM.

Key Highlights

  • 1IBM is transferring approximately $16 billion of its defined benefit pension obligations to Prudential and Metropolitan Life.
  • 2The transaction covers pension benefits for approximately 100,000 participants and beneficiaries, related to benefits that began paying before 2016.
  • 3IBM will recognize a one-time, non-cash pre-tax pension settlement charge of approximately $5.9 billion ($4.4 billion net of tax) in Q3 2022.
  • 4The pension settlement charge is not expected to impact IBM's Q3 or full-year 2022 operating (non-GAAP) profit or free cash flow.
  • 5The amount of pension benefits payable to affected participants will not change.
  • 6The transaction was funded by the pension plan's assets, requiring no cash or asset contributions from IBM.
  • 7The transfer of obligations to the insurers will be effective starting January 1, 2023.

Frequently Asked Questions

IBM is announcing a significant pension de-risking transaction where it is transferring approximately $16 billion of its defined benefit pension obligations to two insurance companies, Prudential and Metropolitan Life. This aims to reduce IBM's exposure to long-term pension liabilities.

No, the company states that there will be no changes to the amount of benefits payable to the Transferred Participants. The insurance companies are now solely responsible for paying these benefits.

IBM expects to record a one-time, non-cash pre-tax pension settlement charge of approximately $5.9 billion ($4.4 billion net of tax) in the third quarter of 2022. However, this charge will not affect IBM's reported operating profit (non-GAAP) or free cash flow for the third quarter or the full year 2022.

No, the purchase of the group annuity contracts was funded directly by the assets of the IBM Personal Pension Plan, and IBM did not need to make any cash or asset contributions.