IBM Excess 401(k) Plus Plan — U.S.
General Description and Purpose
- Effective January 1, 2008, the IBM Executive Deferred Compensation Plan (EDCP) was amended and renamed the IBM Excess 401(k) Plus Plan. IBM employees, including the named executive officers, who are eligible to participate in the IBM 401(k) Plus Plan and whose eligible pay is expected to exceed the Internal Revenue Code compensation limit for the applicable plan year are eligible to participate in the Excess 401(k) Plus Plan. The purpose of the Excess 401(k) Plus Plan is to provide employees with the opportunity to save for retirement on a tax-deferred basis and provide benefits that would be provided under the qualified IBM 401(k) Plus Plan if the compensation limits did not apply.
- The 2016 Nonqualified Deferred Compensation Table shows the employee deferrals (executive contributions), IBM match (registrant contributions), automatic contributions (registrant contributions), discretionary awards (registrant contributions) and investment gain or loss (aggregate earnings) for each named executive officer during 2016.
- The table also shows the total balance that each named executive officer has accumulated over all the years he or she has participated in the plan.
- Account balances in the Excess 401(k) Plus Plan are comprised of cash amounts that were deferred by the participant or contributed by IBM (Basic Account), and all deferred shares, comprised of shares that were deferred by the participant (Deferred IBM Shares). Generally, amounts deferred and vested prior to January 1, 2005 are not subject to Section 409A of the Internal Revenue Code, while amounts deferred and vested on and after January 1, 2005 are subject to Section 409A of the Internal Revenue Code.
- The Excess 401(k) Plus Plan balance is not paid to, and cannot be accessed by, the participants until after a separation from service from IBM.
- The Excess 401(k) Plus Plan allows the clawback of IBM matching and automatic contributions made to a participant’s account after March 31, 2010, if a participant engages in activity that is detrimental to IBM (including but not limited to competitive business activity, disclosure of confidential IBM information and solicitation of IBM clients or employees).
Compensation Eligible for Deferral under Excess 401(k) Plus Plan
- An eligible employee may elect to defer up to 80% of salary and eligible performance pay, which includes annual incentive program payments.
- In both cases, the Internal Revenue Code requires the deferral elections to be made before the calendar year in which the compensation is earned.
Deferred IBM Shares
- Prior to January 1, 2008, under the EDCP, any executive, including non-U.S. executives, could have elected to defer receipt of shares of IBM stock that otherwise would be paid as a result of the vesting of certain restricted stock unit awards granted on or before December 31, 2007 under IBM’s Long-Term Performance Plan (LTPP). Such deferral occurred when the awards vested.
- In addition, in accordance with Internal Revenue Service rules, an executive could have also elected to defer receipt of shares of IBM stock that otherwise would be paid on or before February 1, 2008 as a result of the vesting of Performance Share Unit (PSU) awards under IBM’s LTPP.
- There are no outstanding deferral elections that would result in the deferral of stock in 2016, or thereafter.
- Dividend equivalents on Deferred IBM Shares are paid in cash at the same rate and on the same date as the dividends paid to IBM stockholders.
Excess 401(k) Plus Plan Funding
- The Excess 401(k) Plus Plan is unfunded and maintained as a book reserve (notional) account.
- No funds are set aside in a trust or otherwise; participants in the plan are general unsecured creditors of IBM for payment of their Excess 401(k) Plus Plan accounts.
IBM Matching Contributions
- IBM credits matching contributions to the Basic Account of each eligible participant who defers salary or eligible performance pay under the Excess 401(k) Plus Plan.
- The matching contributions equal the percentage of the sum of (i) the amount the participant elects to defer under the Excess 401(k) Plus Plan, and (ii) the participant’s eligible compensation after reaching the Internal Revenue Code compensation limits. The maximum matching contribution percentage for a participant is the same as the participant’s percentage under the IBM 401(k) Plus Plan. Generally, participants hired or rehired by IBM U.S. before January 1, 2005, are eligible for up to 6% matching contributions; generally, participants hired or rehired by IBM U.S. on or after January 1, 2005 and who complete one year of service, are eligible for up to 5% matching contributions. Mrs. Rometty and Dr. Kelly are eligible for a 6% matching contribution and Messrs. Schroeter, Jetter and Clementi are eligible for a 5% matching contribution. Effective January 1, 2016, the matching contributions equal the sum of (i) a participant’s match rate times the amount the participant elects to defer under the Excess 401(k) Plus Plan, and (ii) the participant’s match rate times the eligible compensation after reaching the Internal Revenue Code compensation limits.
IBM Automatic Contributions
- Effective January 1, 2008, IBM credits automatic contributions to the Basic Account of each eligible participant.
- The automatic contributions equal a percentage of the sum of (i) the amount the participant elects to defer under the Excess 401(k) Plus Plan, and (ii) the participant’s eligible compensation after reaching the Internal Revenue Code compensation limits. The automatic contribution percentage for a participant is the participant’s automatic contribution percentage under the IBM 401(k) Plus Plan. Generally, the percentage is 2% or 4% if the participant was hired or rehired by IBM U.S. before January 1, 2005 (depending on the participant’s pension plan eligibility on December 31, 2007), or 1% if the participant was hired or rehired by IBM U.S. on or after January 1, 2005 and completes one year of service. For purposes of calculating the automatic contributions under the IBM 401(k) Plus Plan, the participant’s eligible pay excludes the amount the participant elects to defer under the Excess 401(k) Plus Plan. The automatic contribution percentage is 4% for Mrs. Rometty; 2% for Dr. Kelly; and 1% for each of Messrs. Schroeter, Jetter and Clementi.
- Matching contributions and automatic contributions are made once annually at the end of the year. In order to receive such IBM contributions each year, a participant must have completed the service requirement, and must be employed on December 15 of the plan year. However, if a participant separates from service (including going on long-term disability) prior to December 15, and the participant has:
– At least 30 years of service;
– At least 15 years of service and is at least age 55;
– At least 5 years of service and is at least age 62; or
– At least 1 year of service and is at least age 65; or, effective July 1, 2016, if a participant dies prior to December 15 in a given year, then the participant will be eligible to receive such IBM contributions as soon as practicable following separation from service.
IBM Transition Credits
- Effective for the period of January 1, 2008 through June 30, 2009, IBM credited transition credits to an eligible participant’s Basic Account for those employees who were receiving transition credits in their Personal Pension Account under the Qualified Plan as of December 31, 2007. According to the terms of the IBM 401(k) Plus Plan, Dr. Kelly was eligible to receive transition credits.
- A participant’s contributions to the Basic Account are adjusted for earnings and losses, until it has been completely distributed, based on investment choices selected by the participant.
- IBM does not pay guaranteed, above-market or preferential earnings in the Excess 401(k) Plus Plan.
- The available investment choices are the same as the primary investment choices available under the IBM 401(k) Plus Plan, which are as follows (with 2016 annual rates of return indicated for each):
– Target Date 2010 Fund (6.50%)
– Target Date 2015 Fund (7.35%)
– Target Date 2020 Fund (8.08%)
– Target Date 2025 Fund (8.82%)
– Target Date 2030 Fund (9.53%)
– Target Date 2035 Fund (9.93%)
– Target Date 2040 Fund (10.00%)
– Target Date 2045 Fund (9.99%)
– Target Date 2050 Fund (10.00%)
– Target Date 2055 Fund (10.02%)*
– Income Plus Life Strategy Fund (5.89%)
– Conservative Life Strategy Fund (7.51%)
– Moderate Life Strategy Fund (8.40%)
– Aggressive Life Strategy Fund (9.99%)
– Interest Income Fund (3.08%)
– Inflation Protected Bond Fund (4.69%)
– Total Bond Market Fund (2.58%)
– High Yield & Emerging Markets Bond Fund (12.10%)
– Total Stock Market Index Fund (12.66%)
– Total International Stock Market Index Fund (5.08%)
– Real Estate Investment Trust Index Fund (8.50%)
– International Real Estate Index Fund (2.33%)
– Long-Term Corporate Bond Fund (9.79%)
– Large Company Index Fund (11.96%)
– Large-Cap Value Index Fund (17.31%)
– Large-Cap Growth Index Fund (7.08%)
– Small/Mid-Cap Stock Index Fund (16.69%)
– Small-Cap Value Index Fund (31.82%)
– Small-Cap Growth Index Fund (11.53%)
– European Stock Index Fund (-.24%)
– Pacific Stock Index Fund (4.89%)
– Emerging Markets Stock Index Fund (11.78%)
– IBM Stock Fund (24.82%)**
* Performance is calculated from the fund’s inception date, July 1, 2015
** Performance includes dividend equivalent reinvestment
- A participant may change the investment selections for new payroll deferrals as frequently as each semi-monthly pay cycle and may change investment selections for existing account balances daily, subject to excessive trading restrictions.
- Effective January 1, 2008, the IBM match under the Excess 401(k) Plus Plan is notionally invested in the investment options in the same manner participant contributions are notionally invested.
- Because Deferred IBM Shares are credited, maintained and ultimately distributed only as shares of IBM’s common stock, they may not be transferred to any other investment choice at any time.
- On a quarterly basis, dividend equivalents are credited to a participant’s account with respect to all or a portion of such account that is deemed to be invested in the IBM Stock Fund at the same rate as dividends to IBM stockholders.
- Aggregate earnings on Deferred IBM Shares during the last fiscal year, as reported in column (d) of the 2016 Nonqualified Deferred Compensation Table, are calculated as the change in the price of IBM’s common stock between December 31, 2015 and December 31, 2016 for all Deferred IBM Shares that were contributed prior to 2016.
Payouts, Withdrawals and Other Distributions
- No payouts, withdrawals or other distributions from the Basic Account are permitted prior to a separation from service from IBM.
- At termination, the balance in an eligible executive’s Basic Account that was deferred prior to January 1, 2005 is paid to the executive in an immediate lump sum unless: (a) the balance exceeds $25,000 and (b) the executive satisfies the following age and service criteria:
– At least age 55 with 15 years of service;
– At least age 62 with 5 years of service;
– At least age 65 with 1 year of service;
– Any age with at least 30 years of service, provided that, as of June 30, 1999, the executive had at least 25 years of service or was at least age 40 with 10 years of service; or
– Commencing benefits under the IBM Long-Term Disability Plan.
- As of December 31, 2016, Mrs. Rometty and Dr. Kelly had satisfied the age and service criteria. Although Messrs. Jetter and Clementi also satisfied the age and service criteria, neither of them have a pre-2005 account balance under the Excess 401(k) Plus Plan.
- If the participant has satisfied the age, service and account balance criteria at termination, but has not made a valid advance election of another form of distribution, the amount of the participant’s Basic Account that was deferred prior to January 1, 2005 is paid in a lump sum in February of the year following separation.
- If the participant has satisfied the age, service and account balance criteria at termination and has made a valid advance election, the amount of the participant’s Basic Account that was deferred prior to January 1, 2005 is paid as elected by the participant from among the following choices:
- Lump sum upon termination;
- Lump sum in February of the year following termination; or
- Annual installments (beginning February 1 of the year following termination) for a number of years (between two and ten) elected by the participant.
- The participant’s Basic Account with respect to amounts deferred on or after January 1, 2005 may be distributed in the following forms as elected by the participant:
- Lump sum upon separation;
- Lump sum in February of the year following separation; or
- Annual installments (beginning February 1 of the year following separation) for a number of years (between two and ten) elected by the participant.
However, if the participant has elected annual installments and the total balance of the participant’s Basic Account upon a separation from service from IBM is less than 50% of the applicable Internal Revenue Code compensation limit (in 2016, 50% of this limit was $132,500), the amounts deferred on or after January 1, 2005 are distributed in a lump sum on the date installments would have otherwise begun.
- Distribution elections may be changed in advance of separation, in accordance with Internal Revenue Code rules.
- Distribution elections apply to both the Basic Account and the Deferred Shares Account. Further, within the Basic Account and the Deferred Shares Account, different distribution elections are permitted to be made for the amounts that were deferred before January 1, 2005 and the amounts that were deferred on or after January 1, 2005.
- At December 31, 2016, the named executive officers had the following distribution elections on file:
– Mrs. Rometty — 10 annual installments for all amounts
– Mr. Schroeter — lump sum in February of the year following separation for all amounts
– Mr. Jetter — immediate lump sum for all amounts
– Dr. Kelly — lump sum in February of the year following separation for pre-2005 amounts, and 10 annual installments for post-2004 amounts
– Mr. Clementi — 10 annual installments for all amounts
- Deferred IBM Shares are distributed only in the form of shares of IBM’s common stock.
- These distribution rules are subject to Section 409A of the Internal Revenue Code, including, for example, the rule that a “specified employee” may not receive a distribution of post-2004 deferrals until at least six months following a separation from service from IBM. All named executive officers, were “specified employees” under Section 409A at the end of the last fiscal year.
IBM Italy Pension Fund
- Mr. Clementi was an employee of IBM Italy prior to his U.S. employment, which commenced January 1, 2009. While an employee of IBM Italy and an Italian citizen, Mr. Clementi is eligible for a pension under the social security system as required by law, and sponsored by the Italian government. IBM made legally required contributions to the social security system (INPS) on behalf of Mr. Clementi through December 31, 2008.
- In addition to contributions to INPS, IBM Italy offers a supplementary plan, “Fondo Pensione Dirigenti IBM” (the “Supplementary Plan”) to its executive population, which provides additional pension benefits that exceed those provided by the social security system. The Supplementary Plan is a separate qualified legal entity under Italian law and is a defined contribution plan.
- Generally, all executives employed by IBM Italy are eligible to participate in the Supplementary Plan. Participation is voluntary, and an executive must elect to participate in the Supplementary Plan.
Compensation Eligible for Deferral into the Supplementary Plan
- Eligible executives can choose to participate in the Supplementary Plan in two ways: (i) by irrevocably transferring severance pay legally required to be set aside; or (ii) making contributions that are based on the participant’s pay (ranges from 2.5% for pay up to €46,123 to 7.3% for pay over €87,633).
- Participants may also elect to make further voluntary monthly contributions to the Supplementary Plan.
- For all participants, IBM Italy makes contributions to the Supplementary Plan on a monthly basis equal to a set amount that varies based on salary (2.5% to 5.48% of salary); provided that the employer contribution does not exceed 5.5% of the entire gross pay and that it is not less than the amount established under the applicable collective agreement (€4,800).
- Participants choose to invest their account in one of three investment alternatives: the Insurance Fund, the Bond Securities Fund or the Share Fund. The default alternative is the Insurance Fund, which guarantees a minimum percentage return on capital depending on operating results (currently 2.0% annually calculated on the paid, consolidated capital as of January 1, 2013).
- Participants may change their investment election for new contributions at any time, and may change their allocations among the investment alternatives once each year.
- The Bond Securities Fund and the Share Fund do not provide any guaranteed return.
- The 2016 annual rates of return for the three investment options are as follows:
– Insurance Fund (2.79%)
– Bond Securities Fund (2.35%)
– Share Fund (2.34%)
Payouts, Withdrawals and Other Distributions
- Participants are eligible (but are not required) to take a distribution after reaching pensionable age as set forth under law and have participated in the Supplementary Plan for at least five years.
- Participants may receive their benefit as an annuity or as a combination of an annuity and partial lump sum payment — which lump sum payment shall not exceed 50%. Due to his hire date, Mr. Clementi may choose to take his entire benefit in a lump sum payment. Distribution elections are made at the time of retirement.
- Any annuities paid from the Supplementary Plan are calculated in accordance with the Supplementary Plan regulations for converting plan accounts to annuities.
- If the participant dies before accessing the benefits, the individual’s heirs or designated beneficiaries shall receive his account.
- A participant can request an advance of his account under the following circumstances: (i) at any time, up to 75%, to cover health care costs in the event of a serious illness affecting the participant or his spouse or dependents; (ii) up to 75% for the purchase of his, or his children’s, primary residence or for maintenance to the residence, once a participant has participated for at least eight years; and (iii) up to a maximum of 30% for other purposes, once a participant has participated for at least eight years.
2016 Nonqualified deferred compensation table
|Plan||Executive Contributions in Last FY(1)
in last FY(2)
|Aggregate Earnings in Last FY(3)
|Aggregate Withdrawals/ Distributions
|Aggregate Balance at Last FYE(4)
|V.M. Rometty||Basic Account||$350,100||Match||$350,100||$875,593||$0||$11,531,781|
|Deferred IBM Shares||0||0||791,636||0||4,631,785|
|M.J. Schroeter||Basic Account||$84,856||Match||$68,505||$318,689||$0||$2,017,687|
|Deferred IBM Shares||0||0||0||0||0|
|M. Jetter||Basic Account||$25,750||Match||$25,750||$370||$0||$63,706|
|Deferred IBM Shares||0||0||268,352||0||1,570,099|
|J.E. Kelly III||Basic Account||$709,770||Match||$80,400||$943,012||$0||$10,711,170|
|Deferred IBM Shares||0||0||91,919||0||537,808|
|E. Clementi||Basic Account||$762,771||Match||$63,831||$495,421||$0||$3,819,066|
|Deferred IBM Shares||0||0||0||0||0|
(1) A portion of the amount reported in this column (b) for each named executive officer’s Basic Account, is included within the amount reported as salary for that officer in column (c) of the 2016 Summary Compensation Table. These amounts are: $80,100 for Mrs. Rometty; $31,990 for Mr. Schroeter; $25,750 for Mr. Jetter; $29,370 for Dr. Kelly; and $92,275 for Mr. Clementi.
(2) For each of the named executive officers, the entire amount reported in this column (c) is included within the amount reported in column (i) of the 2016 Summary Compensation Table. The amounts reported as IBM contributions to defined contribution plans in footnote 6 to the 2016 Summary Compensation Table are larger because the amounts reported in that footnote also include IBM’s contributions to the IBM 401(k) Plus Plan.
(3) None of the amounts reported in this column (d) are reported in column (h) of the 2016 Summary Compensation Table because IBM does not pay above-market or preferential earnings on deferred compensation.
(4) Amounts reported in this column (f) for each named executive officer include amounts previously reported in IBM’s Summary Compensation Table in previous years when earned if that officer’s compensation was required to be disclosed in a previous year. Amounts previously reported in such years include previously earned, but deferred, salary and incentive and IBM matching and automatic contributions. This total reflects the cumulative value of each named executive officer’s deferrals, IBM contributions and investment experience, including an $8 quarterly administrative fee.
(5) Amounts disclosed as of December 31,2016 were €41,782 and €1,539,389, respectively, and the exchange rate from euros to U.S. dollars was 1.0517.