Retirement-Related Benefits:

9 Months Ended

Sep. 30, 2013

8. Retirement-Related Benefits: The company offers defined benefit pension plans, defined contribution pension plans, as well as nonpension postretirement plans primarily consisting of retiree medical benefits. The following table provides the total retirement-related benefit plans’ impact on income before income taxes:

						Yr. to Yr.
(Dollars in millions)						Percent
For the three months ended September 30:		2013		2012		Change
Retirement-related plans – cost
	Defined benefit and contribution pension plans – cost	$	631	$	612		3.1	%
	Nonpension postretirement plans – cost		74		86		(14.0)
	Total	$	705	$	698		1.0	%


						Yr. to Yr.
(Dollars in millions)						Percent
For the nine months ended September 30:		2013		2012		Change
Retirement-related plans – cost
	Defined benefit and contribution pension plans – cost	$	1,941	$	1,602		21.1	%
	Nonpension postretirement plans – cost		224		260		(13.6)
	Total	$	2,165	$	1,862		16.3	%

The following tables provide the components of the cost/(income) for the company’s pension plans:

Cost/(Income) of Pension Plans

(Dollars in millions)		U.S. Plans				Non-U.S. Plans
For the three months ended September 30:		2013		2012		2013		2012
Service cost		$	—	$	—	$	124	$	109
Interest cost			495		549		379		439
Expected return on plan assets			(995)		(1,011)		(546)		(570)
Amortization of prior service costs/(credits)			2		2		(29)		(39)
Recognized actuarial losses			448		333		397		255
Curtailments and settlements			—		—		0		0
Multi-employer plans/other costs			—		—		16		188	*
Total net periodic pension (income)/cost of defined
	benefit plans		(50)		(127)		341		381
Cost of defined contribution plans			204		209		137		148
Total defined benefit and contribution plans cost recognized
	in the Consolidated Statement of Earnings	$	154	$	82	$	478	$	530

* Includes a $162 million charge related to litigation involving one of IBM UK’s defined benefit plans.

(Dollars in millions)		U.S. Plans				Non-U.S. Plans
For the nine months ended September 30:		2013		2012		2013		2012
Service cost		$	—	$	—	$	375	$	332
Interest cost			1,485		1,647		1,137		1,332
Expected return on plan assets			(2,986)		(3,033)		(1,636)		(1,723)
Amortization of prior service costs/(credits)			7		7		(90)		(116)
Recognized actuarial losses			1,343		998		1,195		770
Curtailments and settlements			—		—		—		1
Multi-employer plan/other costs			—		—		71		234	*
Total net periodic pension (income)/cost of defined
	benefit plans		(151)		(381)		1,052		831
Cost of defined contribution plans			603		686		437		467
Total defined benefit and contribution plans cost recognized
	in the Consolidated Statement of Earnings	$	452	$	305	$	1,489	$	1,297

* Includes a $162 million charge related to litigation involving one of IBM UK’s defined benefit plans.

In 2013, the company expects to contribute to its non-U.S. defined benefit and multi-employer plans approximately $500 million, which will be mainly contributed to the defined benefit pension plans in Japan, the UK and Switzerland. This amount represents the legally mandated minimum contribution. Total net contributions to the non-U.S. plans in the first nine months of 2013 were $397 million.

The following table provides the components of the cost/(income) for the company's nonpension postretirement plans:

Cost of Nonpension Postretirement Plans
		U.S. Plan				Non-U.S. Plans
(Dollars in millions)		2013		2012		2013		2012
For the three months ended September 30:
Service cost		$	9	$	9	$	2	$	2
Interest cost			41		50		14		16
Expected return on plan assets			0		—		(2)		(2)
Amortization of prior service costs/(credits)			—		—		(1)		(1)
Recognized actuarial losses			5		8		6		4
Total nonpension postretirement plan cost recognized in
	Consolidated Statement of Earnings	$	55	$	67	$	19	$	19


(Dollars in millions)		U.S. Plan				Non-U.S. Plans
For the nine months ended September 30:		2013		2012		2013		2012
Service cost		$	26	$	28	$	7	$	7
Interest cost			123		150		46		48
Expected return on plan assets			(1)		—		(7)		(7)
Amortization of prior service credits			—		—		(4)		(3)
Recognized actuarial losses			16		24		18		13
Curtailments and settlements			—		—		0		—
Total nonpension postretirement plan cost recognized in
	Consolidated Statement of Earnings	$	164	$	201	$	60	$	58

The company received a $8.2 million subsidy in the third quarter of 2013 and a $24.4 million subsidy for the first nine months of 2013 in connection with the Medicare Prescription Drug Improvement and Modernization Act of 2003. A portion of this subsidy is used by the company to reduce its obligation and expense related to the plan, and the remainder is contributed to the plan to reduce contributions required by the participants.