Cooper vs. IBM Subclass 1 and 2 Settlement Frequently Asked Questions

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1 The following Qs&As have been jointly prepared by the Plan and Class Counsel to provide summary information about the 46-page Settlement Agreement. This summary information does not discuss a number of details and exceptions that may have a significant impact on class members. This summary does not in any way alter the Settlement Agreement. It also does not provide a basis for interpreting the Settlement Agreement itself or the Notice sent to the class at the direction of the Court. The Settlement Agreement and only the Settlement Agreement governs the terms of the Settlement. Readers of this information are cautioned to rely solely on the Settlement Agreement and the Notice, and not on the information below, in determining whether and how to object to the Settlement or for any other purpose. 1. What is this lawsuit about? This lawsuit was filed against IBM and the IBM Personal Pension Plan in federal court in Illinois in November The lawsuit alleges that the Plan violates the federal law governing pension plans, known as the Employee Retirement Income Security Act of 1974, or ERISA. The action was certified as a class action, with three subclasses of plaintiffs. The Settlement Notice, a copy of which is available on this Web site, describes in more detail the claims asserted on behalf of Subclasses 1 and 2. This Settlement applies only to members of Subclasses 1 and 2. A separate settlement, which has already been approved by the court, applies to members of Subclass How do I know if I am part of Subclass 1 or 2? To determine whether you are a member of Subclass 1 or 2, please refer to Part 3 of the Settlement Notice, which describes the criteria for membership in Subclasses 1 and 2. A copy of the Notice can be found on this Web site. 3. What should I do if I did not receive a copy of the Settlement Notice? IBM sent Settlement Notices in early June 2005 to all persons it identified as potential members of Subclasses 1 and 2. The notices were sent to the last known address listed in IBM s records. If you did not receive a notice due to an outdated address, you should call to provide your new address, as well as your phone number and Social Security number. If you prefer to provide a new address in writing, you may send it to: Cooper Settlement Office P.O. Box Cincinnati, OH If your address has not changed recently, and you did not receive a copy of the Settlement Notice but you believe you are part of the Settlement Class, please write (but do not call) Class Counsel Douglas R. Sprong at the address provided in item 7 below. 4. What action is required of me as a member of Subclass 1 or 2? None. If you are eligible to receive benefits under the Settlement, you are not required to take any action at this time. If you have moved since you left IBM and you are not sure that IBM has your current address, please either call to provide your new address, as well as your phone number and Social Security number or send written notice of your new address, along with your phone number and Social Security number, to: Cooper Settlement Office P.O. Box Cincinnati, OH If you wish to object to the Settlement or to the request by Class Counsel for attorneys fees and costs, you must comply with the procedures for filing objections set forth in the Notice. A copy of the Notice is available on this Web site. June, 2005 Page 1

2 5. When is the Fairness Hearing? The District Court will conduct a Fairness Hearing to determine whether to approve the settlement of the claims of Subclasses 1 and 2 as fair and reasonable, and to consider the request by Class Counsel for attorneys fees and costs on August 8, 2005 at 2:00 p.m. Central time. You are not required to attend the hearing. Please refer to the Notice, a copy of which can be found on this Web site, for more information on the Hearing, including the location and how to object to this Settlement or to the request by Class Counsel for attorneys fees and costs. 6. What will I receive from the Settlement? It is impossible at this time to determine exactly what each class member will receive from the Settlement. However, the Settlement Agreement, a copy of which is available on this Web site, describes the formulas used to calculate individual settlement benefits, and sample preliminary estimates of settlement benefits are shown below, under Question 8. Following the Fairness Hearing, IBM will appeal two issues the trial court s ruling regarding the Always Cash Balance Claim and the Cash Balance Claim. The amount of the benefits for each class member depends in significant part on the decision by the appellate courts on the two issues that will be appealed. In general, the amount of the settlement benefit for individual class members will depend on the employee s earnings, Years of Service, dates of employment, and age. Employees who are older and have more Years of Service will generally receive greater benefits than similarly situated employees who are younger and have fewer years of service. The Settlement permits the parties to make additional adjustments to the settlement benefit formulas to ensure that they distribute benefits worth, in total, the agreed-upon amounts. 7. How will my settlement benefit be calculated? Settlement benefits will be determined based on three formulas approved by the Court, and will depend on the outcome of IBM s appeal. If IBM is successful on the two claims (the Always Cash Balance Claim and the Cash Balance Claim) that are being appealed, settlement benefits will only be payable under the formula for the Base. If Plaintiffs are successful on the appeal of the Always Cash Balance Claim, settlement benefits will also be payable under the formula for the Always Cash Balance. Similarly, if Plaintiffs are successful on the appeal of the Cash Balance Claim, settlement benefits will also be payable under the formula for the Cash Balance. These formulas are described in items below. Please refer to the Settlement Agreement for complete descriptions and definitions of the terms used in the formulas. You may direct further inquiries by writing (but do not call) Class Counsel at the address below. Douglas R. Sprong Korein Tillery, LLC P.O. Box 4310 Fairview Heights, IL What is the amount of the benefit that I can expect to receive? Individual settlement benefit amounts will differ, based on the employee s age, earnings, Years of Service, applicable formula (e.g., Base Formula), Group Factor, and other factors as defined in the Settlement Agreement. Preliminary estimates of sample potential benefit amounts expressed as an annual single life annuity payable at age 65 are shown below for hypothetical representative participants. June, 2005 Page 2

3 Group Representative participant (assumes earnings of $80,000) Base Annual Single Life Payable at Age 65 Payable only if plaintiffs prevail on appeal Base + ACB Base + ACB + CB 1 55 with 30 years of service $300 $1,109 $1, with 15 years of service $92 $277 $1, with 20 years of service, terminated in with 10 years of service, terminated in with 30 years of service, terminated in 1998 $224 $1,171 $1,236 $38 $242 $299 $136 $142 $ with 5 years of service $0 $0 $707 7(a) 7(b) 40 with 5 years of service, terminated in with 3 years of service, terminated in 2003 $0 $0 $568 $0 $0 $259 The sample amounts shown above are intended to illustrate the approximate settlement benefit that various hypothetical participants might receive. Please keep in mind that these amounts are only preliminary approximations and may not precisely reflect the benefit payment the hypothetical participants would receive. Note that the benefit payable is not additive across columns and that the amounts in the second and third columns are payable only if plaintiffs were to be successful on the Always Cash Balance Claim, the Cash Balance Claim, or both on appeal. 9. When will settlement benefits be paid? Settlement benefits will not begin to be paid until after the appeals process concludes. Furthermore, if you are employed by IBM when the appeal process concludes, your settlement benefit will not be paid until you leave IBM. 10. How do I know whether I am eligible for settlement benefits under any of these formulas? This will depend on which group the employee is in. There are eight groups of participants within Subclasses 1 and 2. These groups determine whether you are covered by any of these three formulas and, if so, what portion of the benefit you receive, which is determined by the Group Factor. (See Question 11 below for a general summary of the group definitions, and Question 13 for a schedule of Group Factors. Additional detail can be found in the Settlement Agreement.) Be aware that even if you are a member of the Class and covered by a formula, you may not receive benefits under the settlement. For example, if an employee never had a vested benefit under the Plan and has not worked for IBM within the past five years, the employee generally will not vest in his or her settlement benefit. Furthermore, if you are an alternate payee, whether you receive a benefit depends on the terms of the applicable court order. If you are a beneficiary, whether you receive a benefit depends on a number of factors, such as (1) the form of benefit the employee elects, if the employee begins receiving the settlement before he or she dies, and (2) the employee s beneficiary designation and marital status at the time of death, if the employee does not begin receiving the settlement before he or she dies. June, 2005 Page 3

4 11. How do I know what group I m in? The following is a general summary of the group definitions in the Settlement Agreement, but this general summary does not attempt to reproduce all of the detail and precision of the Settlement Agreement, and is not a substitute, modification, or amendment of the definitions in the Settlement Agreement. Only the Settlement Agreement will determine each Class member's group. Eight groups make up Subclass 1 and Subclass 2. They are generally defined based on: o Whether you participated in the IBM Personal Pension Plan (the Plan) prior to 07/01/1999. o Whether you had the choice to remain in the Pension Credit Formula (PCF) in o Whether you participated in the Plan after 06/30/1999. o Whether you were an Active Employee at IBM on 12/31/2004. o Whether you are vested in your pension benefit on or before 12/31/2004. If you are a derivative claimant (such as a beneficiary or alternate payee), the group factor applicable to your settlement benefit is determined based on the employee with respect to whom you are a derivative claimant. Group 1 Those who were Active Employees at IBM as of 12/31/2004 and o Had the choice to remain in the Pension Credit Formula (PCF) after June 30, Group 2 Those who were Active Employees at IBM as of 12/31/2004 and o Did not have the choice to remain in the Pension Credit Formula (PCF). o Were converted to the Personal Pension Account (Cash Balance Formula) as of July 1, Group 3 Those who were not Active Employees at IBM as of 12/31/2004 who: o Participated the Plan before July 1, o Had the choice to remain in the Pension Credit Formula (PCF) after June 30, Group 4 Those who were not Active Employees at IBM as of 12/31/2004 who: o Did not have the choice to remain in the Pension Credit Formula (PCF). o Were converted to the Personal Pension Account (Cash Balance Formula), as of July 1, Group 5 Those who were not Active Employees at IBM as of 12/31/2004 who: o Has not been a Regular Employee since before July 1, 1999, when the transition to the Personal Pension Account (Cash Balance Formula) occurred. Group 6 Those who were Active Employees at IBM as of 12/31/2004 who: o Became a Regular Employee on or after July 1, 1999, when the transition to the Personal Pension Account (Cash Balance Formula) occurred. Group 7(a) Those who were not Active Employees at IBM as of 12/31/2004 who: o Became a Regular Employee on or after July 1, 1999, when the transition to the Personal Pension Account (Cash Balance Formula) occurred, and before January 1, o Were vested in a Plan benefit on or before December 31, June, 2005 Page 4

5 Group 7(b) Those who were not Active Employees at IBM as of 12/31/2004 who: o Became a Regular Employee on or after July 1, 1999, when the transition to the Personal Pension Account (Cash Balance Formula) occurred, and before January 1, o Were not vested in a Plan benefit on or before December 31, The Group Definitions use the term Active Employee. What is an Active Employee? The Settlement Agreement defines the term Active Employee as an individual who, on December 31, 2004, was a Grandfathered Individual as defined by the Plan. With certain limited exceptions, this refers to any employee who may be eligible to accrue benefits under the Plan after December 31, The term Active Employee includes employees who are Regular Employees on December 31, (Approximately 200 IBM Vanity Fair employees are also included in the definition of Active Employee. ) 13. How do I know what my Group Factor is? To determine your Group Factor, you first need to know what Group you are in. You can then look up your Group Factor for each formula in the table below. Group Base Group Factor Always Cash Balance Group Factor Cash Balance Group Factor (a) (b) Does the amount of the settlement grow with interest while the lawsuit proceeds? The value of the additional benefits and attorneys fees and costs to be provided under the settlement is described in the Notice. The approximate value intended to be provided with respect to the Base, $314,293,000, includes a fixed sum of $14,293,000 in interest, which is an agreed upon amount of interest calculated at the federal post-judgment interest rate through November 1, Settlement benefits paid thereafter will generally be adjusted to preserve their value as of November 1, What happens if a member of Subclass 1 or 2 is deceased? If a member of Subclasses 1 and 2 who is otherwise entitled to a benefit under the Settlement Agreement is now deceased or dies before beginning to receive the benefit, the benefit will be paid to the participant s beneficiary or beneficiaries as described in the Settlement Agreement. If a beneficiary is due a benefit, that person will be notified. See the Settlement Agreement for more details on the benefits paid to deceased subclass members. If you believe you are the beneficiary of a member of Subclasses 1 and 2 who is now deceased and you are not sure that IBM has your current address or you have not received a Notice, you should write (but do not call) Class Counsel at the address in item 16 below, explaining why you believe you are the beneficiary of an eligible class member and enclosing your address and phone number and the deceased class member s Social Security number. If you are providing only a new address, you may, instead, call You will need to provide, in addition to your new address, your phone number and Social Security number. June, 2005 Page 5

6 16. How do I obtain additional information regarding the Settlement? You may address written inquiries to (but do not call) Class Counsel, Douglas R. Sprong, at the address listed below: Douglas R. Sprong Korein Tillery, LLC P.O. Box 4310 Fairview Heights, IL You may review the Settlement Notice and the Settlement Agreement, copies of which are available on this Web site, and you may, at your own expense, consult with your own lawyer. 17. When will the appeals process be completed? The length of the appeals process cannot be accurately predicted because it depends in significant part on the court system. It is anticipated that the appeals process is unlikely to be completed sooner than 12 to 18 months, and it may continue for a longer period of time. 18. Will I get to make a new choice election? No. The settlement benefit will be separate from any other benefit that you earn under the Plan. 19. What is the formula for the Base? The formula for the Base is: Years of Service x Average Compensation x Base Group Factor x Age Factor x True-up Factor for the Base benefit x %. If Plaintiffs prevail with respect to the Always Cash Balance Claim but not the Cash Balance Claim, the Base formula above will be multiplied by If Plaintiffs prevail with respect to the Always Cash Balance Claim and the Cash Balance Claim, the Base formula above will be multiplied by For purposes of determining the Base, Years of Service cannot exceed 20 plus any service credited for 2005 and Please refer to the Settlement Agreement for complete definitions of the terms used in the above formula. Additional questions may be directed in writing to Class Counsel Douglas R. Sprong at the address provided in item 16, above. 20. What is the formula for the Always Cash Balance? The formula for the Always Cash Balance is equal to: Always Cash Balance Multiplier x Years of Service as of June 30, 1999 x Final Average Compensation x Always Cash Balance Group Factor x Age Factor x True-up Factor for the Always Cash Balance benefit If IBM is successful with respect to the Always Cash Balance Claim, the Always Cash Balance Multiplier is 0. If Plaintiffs prevail with respect to the Always Cash Balance Claim, the Always Cash Balance Multiplier is %. If Plaintiffs prevail with respect to the Always Cash Balance Claim and the Cash Balance Claim, the Always Cash Balance Multiplier is % ( x ). For purposes of determining the Always Cash Balance, Years of Service as of June 30, 1999, cannot exceed 20, and Final Average Compensation is determined as of June 30, Please refer to the Settlement Agreement for complete definitions of the terms used in the above formula. Additional questions may be directed in writing to Class Counsel Douglas R. Sprong at the address provided in item 16, above. June, 2005 Page 6

7 21. What is the formula for the Cash Balance? The formula for the Cash Balance is equal to: Cash Balance Multiplier x Years of Service x Average Compensation x Cash Balance Group Factor x Age Factor x True-up Factor for the Cash Balance benefit If IBM is successful with respect to the Cash Balance Claim, the Cash Balance Multiplier is 0. If Plaintiffs prevail with respect to the Cash Balance Claim, the Cash Balance Multiplier is %. For purposes of determining the Cash Balance, Years of Service cannot exceed 7.5 years, and consists only of Years of Service after June 30, 1999, including any service credited for 2005 and Please refer to the Settlement Agreement for complete definitions of the terms used in the above formula. Additional questions may be directed in writing to Class Counsel Douglas R. Sprong at the address provided in item 16, above. June, 2005 Page 7