No-Act: IBM 2.16.00

Company Name: Int'l. Business Machines Corp.
Public Availability Date: February 16, 2000

Document Sections:

LETTER OF INQUIRY 1
LETTER OF INQUIRY 2
LETTER OF INQUIRY 3
LETTER OF INQUIRY 4
APPENDIX
LETTER OF INQUIRY 5
LETTER OF INQUIRY 6
STAFF REPLY LETTER

[LETTER OF INQUIRY 1]

November 22, 1999

Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549

Subject: IBM Stockholder Proposal on Pension and Retirement MedicalJames M. Leas et al.

Ladies and Gentlemen:

Pursuant to Rule 14a-8(j) under the Securities Exchange Act of 1934, I am enclosing six copies of this letter together with a stockholder proposal (the "Proposal"), attached as Exhibit A hereto, which was submitted to the International Business Machines Corporation (the "Company" or "IBM") by James Marc Leas, an IBM employee acting on behalf of himself and as Secretary for 329 IBM employees, retirees and other timely co-sponsors of the Proposal (collectively the "Proponents"), which Proposal requests: "that the IBM Board of Directors adopt the following policy: (1) all employees, regardless of age, will receive the same long-promised retirement medical insurance and pension choice as employees who are within five years of retirement. (2) the portable cash balance plan will provide a monthly annuity equal to that expected under the old pension plan or a lump sum that is actuarially equivalent."

IBM believes that the Proposal can be properly omitted from the proxy materials for IBM's Annual Meeting of stockholders scheduled to be held on April 25, 2000 (the "2000 Annual Meeting") for the reasons discussed below. To the extent that the reasons for omission stated in this letter are based on matters of law, these reasons are the opinion of the undersigned as an attorney licensed and admitted to practice in the State of New York.

%hI. THE PROPOSAL MAY BE OMITTED UNDER RULE 14a-8(i)(7) AS RELATING TO THE CONDUCT OF THE ORDINARY BUSINESS OPERATIONS OF IBM.%h

The Company believes that the Proposal may be omitted from the Company's proxy materials for the 2000 Annual Meeting pursuant to the provisions of Rule 14a-8(i)(7) because it deals with matters relating to the conduct of the ordinary business operations of the Company.

The design and administration by the Company of its employee benefit plans, such as the IBM retirement and medical plans, including the eligibility criteria for participation, as well as the form and amount of benefits to be accrued and payable thereunder, are all activities which are part of the ordinary business operations of the Company. The Commission has long recognized that proposals concerning pension, health and other benefits for a corporation's employee population relate to the ordinary business operations of a corporation, and the Commission staff has consistently concurred in the omission-both under Rule 14a-8(i)(7), and its predecessor, Rule 14a-8(c)(7)of proposals regarding employee retirement, health, medical and other welfare benefits.

The instant Proposal relates to IBM pension and retiree medical benefits coverage decisions which have been made by the Company's management, and with which the Proponents disagree. For many years, IBM has provided retirement, health and other plan benefits to its employees and retirees, and such benefits have been modified and supplemented many times over the years to meet the changing needs of the Company as well as its employees and retirees, all in the ordinary course of the Company's business. This year, the Company adopted certain changes to its pension and retiree medical plans in the United States. Recognizing the recent shifts in our industry, our competitors and the demographics of our workforce, IBM, like many other domestic companies, established a portable cash balance pension account. IBM employees age 40 or over with 10+ years of service as of June 30, 1999 can elect to participate in this new cash balance pension account, or remain covered by the prior pension plan formulas. Also, in order to change the way IBM delivers post-career medical coverage, the Company this year established a future health account for domestic employees not within 5 years of retirement eligibility on June 30, 1999, under which the Company will contribute $2,500 per year for a 10 year period beginning when an employee reaches age 40. The health account grows with interest, and if an employee retires from the Company, the account can be used post-retirement to pay for any combination of IBM medical, dental and vision plan premiums. These employee benefit plan design and coverage decisions were made by IBM in the ordinary course of our business operations, and all benefit plan changes were properly effected in accordance with the terms of such plans.

The Proponents disagree with these plan decisions made by the Company. In taking issue over various plan eligibility, coverage and payout criteria established by the Company, they view the latest plan changes effected by IBM as negatively affecting certain IBM employees who do not satisfy the criteria established by the Company. In disagreeing with the scope of the Company's plans as they now stand, the Proponents would like to expand the group of IBM employees who would be eligible to elect certain retirement and retiree medical plan benefits. In addition, the Proposal goes on to suggest a monthly annuity for cash balance pension account participants which would be equal to the amount expected under the old pension plan or a lump sum option which is "actuarially equivalent."

By seeking to submit the Proposal to our stockholders for vote, the Proponents would hope to have the Company's stockholders, rather than our management, determine all of these plan benefit criteria under our employee programs, and in so doing, get directly involved in a level of managerial detail that has always been the province of the Company's internal management. The instant Proposal, which establishes different eligibility, qualification and payout criteria under our IBM employee retirement and retiree medical plans from those established by the Company, would have all IBM stockholders "micro-manage" the details of our Company's general employee benefit plans in direct contravention of Rule 14a-8(i)(7). Since the determination and implementation of these day-to-day business matters is particularly within the province of the Company's management, Rule 14a-8(i)(7) was specifically designed to exclude such proposals from a Company's proxy materials. See SEC Release 34-40019, Amendments to Rules on Shareholder Proposals (as published in the Federal Register on May 28, 1998).

In this connection, the Commission staff has concluded that the determination of the type, amounts and eligibility for benefits available to employees, retirees and their families under registrants' employee benefits programs are properly excluded as part of their ordinary business operations. Bell Atlantic Corporation (October 18, 1999)(proposal to increase retirement benefits for retired management employees); Burlington Industries, Inc. (October 18, 1999)(proposal to adopt new retiree health insurance plan offering HMO's and covering retirees that were forced out and to reinstate dental benefits for certain retirees); Lucent Technologies, Inc. (October 4, 1999)(proposal to increase "vested pension" benefits); International Business Machines Corporation (January 15, 1999)(proposal seeking to change scope of Company's medical benefits plan coverage provisions); See also General Electric Company (January 28, 1997)(proposal to adjust the pension of retirees to reflect increase in inflation); Cincinnati Financial Corporation (February 20, 1996)(proposal to amend retirement plan to permit certain participants to roll out funds into investment instrument of their own choosing); International Business Machines Corporation (December 28, 1995)(proposal to amend IBM's Tax Deferred Savings Plan and Retirement Plan to ensure that certain employees within a specified service window were similarly to other employees); Allied Signal Inc. (November 22, 1995)(retirement benefits); American Telephone and Telegraph Company (December 15, 1992)(pension and medical benefits); PepsiCo (March 7, 1991) (health benefits); Minnesota Mining and Manufacturing Company (February 6, 1991)(employee health and welfare plan selection); General Motors Corporation (January 25, 1991)(scope of health care coverage); and Procter & Gamble Co. (June 13, 1990)(prescription drug plan).

Similar to each of the above-referenced letters, the instant IBM benefit plan changes were made by the Company in the ordinary course of our business operations. Since the determination of eligibility, coverage and payout criteria such as the ones raised by the instant proposal under our retirement and health plans have consistently been administered by the Company as part of our ordinary business operations, and since this proposal directly addresses such ordinary business operations, it should also be excluded under Rule 14a-8(i)(7). See International Business Machines Corporation (December 23, 1997)(proposal seeking to change the eligibility criteria for qualification under employee benefit programs); International Business Machines Corporation (December 22, 1997)(proposal to modify scope of existing benefit coverage); International Business Machines Corporation (December 19, 1997)(benefit coverage decision); Allied Signal, Inc. (November 22, 1995)(proposal to increase pension benefits for retired employees); Mobil Corporation (January 26, 1993)(policies with respect to downsizing activities); International Business Machines Corporation (February 19, 1992)(employee benefits relating to medical plans); Consolidated Edison Company (February 13, 1992) (general compensation issues relating to amendment of existing pension benefits); General Electric Company (February 13, 1992) (increase in pension benefits); and NYNEX (February 13, 1992)(standardization of medical and other benefits). Therefore, upon the basis of these consistent precedents by the Commission staff with regard to the subject matter of the Proposal, the Company requests that no enforcement action be recommended to the Commission if it excludes the Proposal on the basis of Rule 14a-8(i)(7).

II. THE PROPOSAL MAY BE OMITTED UNDER RULE 14a-8(i)(4) AS A PERSONAL GRIEVANCE DESIGNED TO RESULT IN A PERSONAL BENEFIT WHICH CANNOT BE SHARED WITH OTHER IBM STOCKHOLDERS AT LARGE.

In addition to Rule 14a-8(i)(7), Rule 14a-8(i)(4) independently permits exclusion of the instant Proposal. Such rule permits omission of a proposal that relates to the redress of a personal claim or grievance against the company or any other person, or if it is designed to result in a benefit to a proponent or to further a personal interest, which is not shared with the other shareholders at large.

As noted earlier, nearly all of the Proponents are IBM employees and their families. They seek to represent themselves as well as the interests of other IBM employees who are not currently receiving all of the retirement and retiree medical plan benefit choices certain other domestic IBM employees are receiving. The Proponents now seek for the Company to furnish such same choices to these affected IBM employees. By submitting this Proposal, it is clear that the Proponents hope to bring enough pressure to bear such that these same employee benefit choices will be made available to those domestic IBM employees who do not currently have them under the terms of our Company benefit plans. This Proposal is excludable under Rule 14a-8(i)(4), as the Proponents seek for the Company to provide personal benefits that will accrue only to a subset of IBM's current domestic employee population, not to all IBM employees, and certainly not to IBM stockholders at large.

The Commission long ago established that the purpose of a stockholder proposal process is "to place stockholders in a position to bring before their fellow stockholders matters of concern to them as stockholders in such corporation...." Release 34-3638 (January 3, 1945)(Exchange Act Regulation 241.3638). The purpose of Rule 14a-8(i)(4) is to allow registrants to exclude proposals that involve disputes that are not of interest to stockholders in general. The provision was developed "because the Commission does not believe that an issuer's proxy materials are a proper forum for airing personal claims or grievances." See Release 34-12999 (November 22, 1976).

It is clear the Proposal cannot benefit IBM stockholders at large. This is because the Proponents are requesting, for a group of similarly-situated domestic IBM employees not presently eligible to make various plan elections, choices in their employee benefits which cannot in any way be shared with the general IBM stockholder population. In this connection, IBM has over 1,600,000 stockholders. The instant proposal would affect approximately 75,000 IBM employees located in the United States, not all of whom are IBM stockholders. Even assuming, arguendo, that all of such employees were IBM stockholders, the Proposal would still affect less than 5% (75,000/1,600,000) of our total stockholder base. The Commission has consistently taken the position that Rule 14a-8 is intended to provide a means for shareholders to communicate on matters of interest to them as shareholders, and not to further personal interests. See Release No. 34-19135 (October 14, 1982). While paragraph (i)(7) of Rule 14a-8 provides an independent substantive basis for omission of this Proposal, paragraph (i)(4) of this rule, and its predecessor, Rule 14a-8(c)(4), have been cited by registrants, just as consistently, as an alternate basis for omitting proposals seeking to modify or otherwise adjust the type, amount or payout of employee benefits such as the ones requested here. In many of the cases that we have reviewed, the Commission staff concluded that such proposals related to the ordinary conduct of the registrant's business, and therefore did not find it necessary to address the personal benefit exclusion as an alternative basis. See e.g., International Business Machines Corporation (January 13, 1993); American Telephone and Telegraph Company (December 15, 1992). However, the Company believes that Rule 14a-8(i)(4) provides an equally adequate basis in this particular case for omitting this Proposal from our proxy materials and therefore requests that no enforcement action be recommended if the Proposal is excluded under Rule 14a-8(i)(4). See International Business Machines Corporation (January 20, 1998)(exclusion of proposal to increase the amount of retiree benefits); International Business Machines Corporation (January 6, 1995)(proposal seeking to reinstate certain health benefits); Lockheed Corporation (April 25, 1994 and March 10, 1994)(proposal to reinstate certain sick leave benefits); International Business Machines Corporation (January 25, 1994)(proposal to increase certain retirement plan benefits); and General Electric Company (January 25, 1994)(proposal to increase the amount of pension benefits).

In summary, for the reasons and on the basis of the authorities cited above, IBM respectfully requests your advice that the Division of Corporation Finance will not recommend any enforcement action to the Commission if the Proposal is omitted from IBM's proxy materials for the 2000 Annual Meeting. If there are any questions relating to this submission, please do not hesitate to contact the undersigned at 914-499-6148. Thank you for your attention and interest in this matter.

Very truly yours,

Stuart S. Moskowitz

Senior Counsel

Attachment

with copies to:

Mr. James Marc Leas, as acting Secretary

37 Butler Drive

South Burlington, VT 05403

and to each of the timely co-sponsors of the Proposal

[LETTER OF INQUIRY 2]

December 13, 1999

Ms. Carolyn Sherman

Securities and Exchange Commission

450 Fifth Street, NW

Washington, DC 20549

Subject: IBM Stockholder Proposal of James Marc Leas on Pension and

Retirement Medical

Dear Ms. Sherman:

Please let this serve as IBM's reply to the December 6 response of Mr. Leas to our pending request to exclude the Proposal on Pension and Retirement Medical under Rules 14a-8(i)(7) and (i)(4). The Company disagrees with Mr. Leas' characterization of the Proposal and continues to believe the Proposal raises nothing but matters within the scope of our ordinary business operations. Despite the recent focus on cash balance conversions noted by Mr. Leas, the relief sought by the Proposal itself addresses no more than the form and amount of benefits which he and the other co-filers believe should be payable to plan beneficiaries. The Proposal reads as follows:

Resolved: the shareholders request that the IBM Board of Directors adopt the following policy: (1) all employees, regardless of age, will receive the same long-promised retirement medical and pension choice as employees who are within five years of retirement. (2) the portable cash balance plan will provide a monthly annuity equal to that expected under the old pension plan or a lump sum which is actuarially equivalent.

The determination of the benefits specified in the instant Proposal have always been within the scope of a company's ordinary business operations.

A. Company Changes to Employee Benefit Plans Have Traditionally Been Characterized as Ordinary Business

Establishing portable cash balance pension accounts like ours are not new. In fact, the SEC has recently addressed a similar request relating thereto in the context of a stockholder proposal. In this connection, this past August, the staff concurred in a registrant's characterization of a proposal seeking to effect a cash balance type pension conversion as "ordinary business" under Rule 14a-8(i)(7). In Gyrodyne Company of America, Inc. (August 20, 1999) a proponent sought for the company to dissolve the company's defined benefit pension plan and adopt a successor 401(k) type pension plan. The staff concurred with the company that the decision making on the matter of whether or not to undertake such activity properly rested with management under Rule 14a-8(i)(7). If the benefit plan decision-making in Gyrodyne properly rested with that company's management, following the same reasoning, then certainly the instant Proposalwhich seeks to have this Company revisit and reset the individual employee eligibility criteria for participation and payout following our own establishment of our own portable cash balance pension accountsshould also be considered within the scope of our Company's internal management decision making under Rule 14a-8(i)(7). The fact that Mr. Leas takes issue with the Company's determinations with respect to eligibility criteria and related payout mattersand suggests revisions theretofalls even deeper into the realm of micro-management proscribed under Rule 14a-8(i)(7).

B. Controversy and Allegations of Unlawful Actions Are Not Enough to Turn Excludable Ordinary Business Benefit Plan Decisions into Substantial Public Policy or Social Issues

This is not the first time the Company has made changes to its benefit plans which have caused concern. A few years ago, the Company amended the terms of our benefit plans to add coverage for same gender domestic partners. As with the recent movement to cash balance pension plans, other companies preceded IBM in deciding to extend such benefit coverage for same gender domestic partners. This fact notwithstanding, once IBM did so, the national news media focused on our action, and as might be expected, we received a host of correspondence from the public, including a variety of stockholder proposals on the matter. Some stockholders thought our actions were immoral and sought for us to repeal such benefits; others applauded our actions; and still others sought for us to further extend the scope of our benefit coverage to opposite-sex domestic partners. Since this issue was, like the instant one, really no more than balancing a variety of competing interests on the question of the scope of our Company's plan benefits, notwithstanding the rash of publicity and nationwide public controversy on the issue of a company's providing benefits to same gender domestic partners, the staff of the SEC has concurred uniformly with our position that the Company's determinations as to the scope of our coverage decisions under our benefit plans were ordinary business matters and could be excluded under Rules 14a-8(c)(7) and its successor, Rule 14a-8(i)(7). See, e.g. International Business Machines Corporation (January 15, 1999) and letters cited therein. Further, the staff reached their conclusions as to the ordinary business nature of our benefit plan decisions for same-gender partners in rulings both before and after the reversal of the decision in Cracker Barrel Old Country Store, Inc, (October 13, 1992 and January 15, 1993).

We also do not believe alluding to the existence of social issues or unlawful activities can serve to create such issues with the instant Proposal. If this were to be the standard, then any proposal that touched on such matters could force a proposal to be placed in a proxy statement, notwithstanding the nature of the actual relief sought under the proposal. In the recent letters we have reviewed under Rule 14a-8(i)(7), the SEC has looked to the nature of the relief sought under the proposal and ruled accordingly. For example, in Allstate Corporation (February 16, 1999) a proposal was filed seeking to organize an independent stockholder committee to investigate and prepare a report on issues including, among other things, a variety of alleged illegal activities which had been undertaken by Allstate, whether management was aware of any such activities, other state legal actions against Allstate, the validity of those actions and recommendations on how costs relating to these actions could be controlled. Allstate argued, and the staff concurred, that the proposal related to Allstate's ordinary business operations, which in that matter was the general conduct of a legal compliance program. According to the proposal, in Allstate, multiple consent awards had already been entered into, and fines had been paid by the company for such unlawful activities. Moreover, the proposal alleged various other deceptive mail campaigns the company had been involved in, multiple fraud suits pending against the company, as well as other alleged improper denials by the company of insurance claims totaling billions of dollars. These facts notwithstanding, the company argued that it was impractical under Rule 14a-8(i)(7) for stockholders to be able to evaluate allegations of illegal activities and that management already did this on a day-to-day basis. There, even with a host of negative publicity in the press, and the fact that consent judgments had already been entered by the company for certain claims, the staff looked to the language of the proposal and the relief sought, and concluded that what was actually sought by the stockholder in the proposalcompliance with applicable lawswas excludable, as the conduct of a legal compliance program by Allstate properly fell within its ordinary business operations.

Similarly, in Associates First Capital Corporation (February 23, 1999) a group of stockholders filed a proposal to form an independent committee of outside directors to develop and enforce a policy of preventing predatory lending practices which violated federal and state laws and report on it to stockholders. The proponents sought such information from Associates, which was then alleged to be the largest sub-prime lender. The Proposal was also lodged in light of a then-recent investigation by the Senate Special Committee on Aging of predatory lending practices, simultaneous Department of Justice scrutiny of the sub-prime lending industry, and a claim of at least one Federal Trade Commission lawsuit. Notwithstanding the negative publicity about all of these activitieswhich allegedly violated a variety of federal and state lawsthe proposal was excluded under Rule 14a-8(i)(7), utilizing the same rationale as in Allstate.

Moreover, the staff has also continued to permit the exclusion of proposals implicating social issues where even a portion of the relief addressed ordinary business matters. In Wal-Mart Stores, Inc. (March 15, 1999), a proposal sought for a report to be prepared on that company's actions to ensure it did not purchase from suppliers who manufactured items using forced labor, convict labor, child labor or who failed to comply with laws protecting their employees' wages, benefits, working conditions, freedom of association and other rights. After review of the proposal, the staff noted that although the proposal appeared to address matters outside the scope of ordinary business, paragraph 3 of the description of matters to be included in the report related to ordinary business operations. In this connection, Paragraph 3 related to the registrant's policies to implement wage adjustments to ensure adequate purchasing power and a sustainable living wage. Further, the staff determined that the entire proposal could be excluded under Rule 14a-8(i)(7), reiterating the Division's practice not to permit revisions of a proposal under Rule 14a-8(i)(7).

The lessons of Allstate, Associates and Wal-Mart, as applied to the instant Proposal, are clear. Emotion aside, the Proposal on its face implicates only matters of ordinary business and should be excluded under Rule 14a-8(i)(7). Although the preamble to the Proposal asserts that the Company "broke its highly touted and unqualified promise to employees not to discriminate based on age", this is a legal conclusion with which we disagree.1 Moreover, a Company's proxy statement is the not the place to resolve such matters. In addition to the fact that the Company takes issue with the characterizations in the preamble, the actual relief sought by the Proposal itself addresses matters within the realm of the Company's ordinary business operations. The first item sought in the Proposalfor the Company's shareholders to give the same pension choice and retirement medical coverage to all employeesis excludable as it would serve to rescind all of management's actions and place such plan eligibility determinations with the stockholders in violation of Rule 14a-8(i)(7). International Business Machines Corporation (December 23, 1997, December 22, 1997, December 19, 1997, and December 12, 1996) (multiple staff rulings confirming IBM's no-action position relating to the extension of benefits to domestic partners under former Rule 14a-8(c)(7)); See also Ford Motor Company (March 4, 1996) (proposal that registrant not use religion, sex, ethnicity or national origin as a criterion for either discriminating against or granting preferential treatment to people in employment properly excluded under former Rule 14a-8(c)(7)); and General Motors Corporation (February 22, 1996) (to same effect).

Similarly, the second item sought in the Proposal is excludable because it describes specific types and amounts of benefits which must be payable to employees under the retirement plan. The Proposal dictates the specific amounts to be paid out under the Company's monthly annuity and lump sum options under the cash balance account. Not only is this type of micro-management improper under Rule 14a-8(i)(7), but the Proponents' demand for a lump-sum payout under the portable cash balance planwhich must be actuarially equivalent to the monthly annuity expected under the old pension plangoes beyond restoring the former plan provisions by providing a new payout formula, which is different from the Company's existing plan provisions, and which would be quite favorable to the Proponents.2 See Cincinnati Financial Corporation (February 20, 1996)(proposal to amend retirement plan to permit certain participants to roll out funds into investment instrument of their own choosing properly excludable under former Rule 14a-8(c)(7)).

In sum, the Company continues to believe it best to confine the resolution of ordinary business matters such as the instant one to our management and board of directors, as it is impractical for shareholders to decide how to solve such problems at an annual shareholders meeting. Further, since we do not believe the Proposal raises sufficiently significant policy issues to take it outside the realm of ordinary business, the Company respectfully renews its request for the Proposal to be excluded under Rule 14a-8(i)(7).

C. The Proposal relates to a Personal Grievance for all of the Proponents, including Mr. Leas

The Company also continues to adhere to its position that the Proposal relates to a personal grievance of the proponents under Rule 14a-8(i)(4), including Mr. Leas, as well as others who have timely co-filed with him in support of his efforts. The Proposal is part of a larger plan to put pressure on the Company on this matter, inasmuch as it has been publicized on the Internet by the Communications Workers of America (CWA) as part of its ongoing publicity efforts at IBM. See http://www.allianceibm.org/ with the specific proposal at http://www.allianceibm.org/issues/pension/sh_resolution.asp/. Persons are provided directions on that page to mail their sponsorship form into the PBC (the "Pension Benefits Committee") in care of a post office box in Colchester, Vermont. The PBC also maintains a website, located at http://members.xoom.com/btvpension/ which also posted the resolution, as well as other material related to their efforts on this matterincluding the letters to the SEC from the undersigned and Mr. Leas.

Upon review of these web pages, we believe that all of the Proponents have co-filed as part of a unitary and organized plan of the Pension Benefits Committee, which plan was specifically designed to put pressure on the Company on this matter. Moreover, we have determined that 301 of the original group of 330 sponsors are either active IBM employees (or spouses of IBM employees) who would be directly impacted by the implementation of the Proposal. Another 14 are retired or separated IBM employees sympathetic to this cause, with the remaining 15 being supporters without known IBM affiliations. In the Company's view, and as described below, where the lead proponent would be directly and personally affected by the implementation of his Proposal, and where over 91% of the others would be similarly personally impacted, the Proposal is and should be fully excludable, as the few others without known affiliations are clearly equally interested in the outcome and have co-filed in direct support of the Pension Benefit Committee and the overwhelming majority of their personally affected IBM employee co-filers. Furthermore, the 15 persons who are not affiliated with IBM are, through their filing, affiliated with the PBC and will derive benefit from the success of the PBC and their co-filers, if not the same actual pecuniary benefit, if the Proposal were implemented. In any event, it is equally clear that the interest shared by these Proponents are not and cannot be shared by IBM security-holders at large for the reasons set forth in my letter of November 22.

In this connection, Mr. Leas has claimed in his letter that he is not seeking any personal benefit from the Proposal. However, we disagree with any contention that he could not benefit from implementation of his Proposal. Indeed, the Proposal, as he has drafted it, is hardly neutral to him. Instead, it could result in a direct personal benefit to him and others were it ever to be implemented. As illustrated earlier, in addition to effectively seeking recission of the original plan benefit changes effected by management, the second part of the Proposal now describes a new portable cash balance plan which would provide a monthly annuity equal to that expected under the old pension plan, or a lump sum payout option which is actuarially equivalent. In the first place, IBM designed the current monthly payout option under the new cash balance account differently. It does not contemplate an annuity as Mr. Leas has described. The amount in such account payable at termination of employment depends upon a variety of other factors, but not the benefit under the prior plan, as Mr. Leas describes it.

Moreover, the lump sum payout requirement, as Mr. Leas has provided for under his Proposal, provides new and valuable benefits which were never contemplated by management in establishing the terms of the new cash balance account. It is first important to note there was no lump sum payout option under the so-called "old" defined benefit pension plan. Under Mr. Leas' Proposal, all employees, including Mr. Leas, would be able to choose the new cash balance account, and draw out money from their account in a lump sum. That is not new. However, what is new, and critically important, is the amount of that lump sum now dictated by Mr. Leas in his Proposal.

Mr. Leas' Proposal requires that the payout must be the actuarial equivalent of the monthly annuity expected under the old plan. This is radically different from the Company's plan. Were this to be the payout determinant, it would result in a wholly new and financially advantageous benefit for all employees covered by the Proposal, particularly for those persons as Mr. Leas, who did not previously have a lump-sum payout option under the old pension plan. This Proponent's new and favorable re-quantification of the lump sum payout alternative was obviously designed by him to improve upon what the Company had provided for when it established the cash balance account and the lump sum option payable thereunder. Since it is clear that the Proposal would provide valuable new benefits not contemplated by the Company, the Company continues to maintain that Rule 14a-8(i)(4) is fully applicable to the Proposal, and respectfully renews its request to exclude the Proposal on this basis. See generally Lockheed Corporation (March 10, 1994)(proposal for company to revoke its present sick leave policy and reinstate former sick leave policy excluded under former Rule 14a-8(c)(4) as a personal grievance).

Please feel free to contact me at 914-499-6148 with any questions you may have on this submission. Thank you for your attention and consideration of this matter.

Very truly yours,

Stuart S. Moskowitz

Senior Counsel

cc: Mr. James Marc Leas

-----FOOTNOTES-----

1 Contrary to Mr. Leas' unsupported assertions, the Company has always lawfully reserved the right to make changes in our benefit plans, and the latest changes complained about in the Proposal were effected by management in accordance with the terms of the plans in a lawful and nondiscriminatory manner. Despite the recent activities in Washington looking at the issue of cash balance pension conversions, in effecting our own cash balance accounts, the Company continues to believe it has complied fully with all applicable laws, and did nothing to eliminate or reduce any vested retirement benefit which accrued to plan participants.

2 For this same reason, the second portion of the Proposalrequiring either a monthly annuity under the cash balance account equal to the amount expected under the old pension plan or a lump sum payout thereunder which is "actuarially equivalent"establishes an entirely new and specific personal benefit which would accrue to all eligible U.S. employees covered by the IBM Retirement Plan, including Mr. Leas, thereby also making the Proposal excludable under Rule 14a-8(i)(4). See Point C, infra.

[LETTER OF INQUIRY 3]

January 4, 2000

Ms. Carolyn Sherman

Securities and Exchange Commission

450 Fifth Street, NW

Washington, DC 20549

Re: 14a-8(e) Argument with respect to Stockholder Proposal on Pension and

Retirement Medical

Dear Ms. Sherman:

Please let this letter serve to notify the Commission that IBM is no longer asserting 14a-8(e) as an additional basis to exclude the attached list of co-filers, but we will continue to rely on Rules 14a-8(i)(7) and 14a-8(i)(4), as set forth in our request for no-action relief to the staff in this matter dated November 22, copies of which have been sent to all co-filers.

Thank you for your continuing attention and interest in this matter.

Sincerely yours,

Stuart S. Moskowitz

Senior Counsel

Attachment

[LETTER OF INQUIRY 4]

December 14, 1999

Securities and Exchange Commission

450 Fifth Street, N.W., Judiciary Plaza

Washington, D.C. 20549

Subject: IBMUntimely Co-filer to Stockholder Proposal on Pension and Retirement Medical

Julie Tseng Acosta

Ladies and Gentlemen:

Pursuant to Rule 14a-8(j) under the Securities Exchange Act of 1934, I am enclosing six copies of this letter together with a signed document from Julie Tseng Acosta (the "Proponent") indicating an intention to co-sponsor the proposal on Pension and Retirement Medical (the "Proposal") which Proposal was originally submitted to the International Business Machines Corporation ("IBM" or the "Company") by Mr. James Marc Leas, and which Proposal was the subject of a separate no-action letter request to the Commission dated November 22, 1999. In addition to the substantive reasons articulated in the Company's letter to the Commission dated November 22, as applied to the instant putative co-sponsoring Proponent, IBM believes the Proposal may properly be omitted from the proxy materials for IBM's annual meeting of stockholders scheduled to be held on April 25, 2000 (the "2000 Annual Meeting") because of its untimely receipt. To the extent that the reasons for omission stated in this letter are based on matters of law, these reasons are the opinion of the undersigned as an attorney licensed and admitted to practice in the State of New York.

THE INSTANT SUBMISSION MAY BE OMITTED UNDER RULE 14a-8(e) BECAUSE OF ITS UNTIMELY RECEIPT BY THE COMPANY.

IBM's mail room in Armonk, NY received the instant request to co-sponsor the Proposal on November 23, 1999 and date-stamped the envelope for such Proposal promptly upon its receipt. The Proponent's letter transmitting such request to the Company was postmarked on November 17, 1999. A complete copy of the Proponent's materials, as submitted, together with a post-marked copy of the envelope is attached hereto as Exhibit A. However, the cut-off date for the receipt of stockholder proposals this year was November 17, 1999, and was so noted on page 28 of the Company's proxy statement for the 1999 Annual Meeting.

Accordingly, IBM respectfully requests your advice that the staff will not recommend any enforcement action to the Commission if the instant Proposal is omitted from IBM's proxy materials being prepared for the 2000 Annual Meeting pursuant to Rule 14a-8(e). By copy of this letter, we are so advising the Proponent. If there is any question relating to this submission, please contact the undersigned at 914-499-6148. Thank you for your interest and attention in this matter.

Very truly yours,

Stuart S. Moskowitz

Senior Counsel

Attachment

cc: Julie Tseng Acosta

2897 S.W. 22nd Circle #44B

Delray Beach, FL 33445

[APPENDIX]

In 1999 IBM announced new pension and retirement medical insurance plans and revoked long-promised plans for over 100,000 employees. Indignation swelled at packed town meetings organized by employees. Management was flooded with e-mail, and the Internet provided a vehicle for a massive outpouring of dissent. Just before a Senate hearing scheduled in response to the growing criticism, IBM doubled the number of employees eligible to choose the old, promised retirement plan. Three days after the hearing IBM quietly announced that these additional employees would not receive the old retirement medical. And those under 40 years old were locked into both the new medical and the new retirement. Employees were thus divided into three permanent groups based on age; IBM broke its highly touted and unqualified promise to employees not to discriminate based on age.

IBM openly acknowledged that the average employee would lose 20% of retirement pay under the new plan. But on September 20, the Wall Street Journal reported losses as high as 50%. Although the portability feature of the new plan is advantageous to employees who plan to leave the company, an IBM engineer showed that workers accrue retirement pay at only about 1/3 to 1/2 the rate they did under the old plan; further, their opening balances include only a fraction of the amount vested under the old plan. Thus, only those who leave the company derive any benefit from the new plan. Younger employees who stay with IBM throughout their career suffer the most loss.

IBM also acknowledged to some employees that their new individual medical insurance accounts would probably run out of money as they approach old age. The new plan's limited medical insurance is especially a problem for lower-paid workers.

Feeding the outrage was IBM's declaration that it planned to use the $200 million saved to fund stock options for executives and other targeted employees. Many of IBM's most talented employees do not feel comfortable with a deserved bonus being tied to reducing promised retirement pay and medical insurance for fellow employees.

IBM management argues that to compete for talented younger workers, it must offer a portable retirement plan. If so, why are younger workers the only ones not offered a choice? How will IBM attract new talent by outraging its loyal, talented, successful, and vocal workforce? How does IBM become more attractive by blowing away the trust it built up over generations? If IBM management succeeded, management would not have incited huge protest meetings, union organizing, adverse media coverage, and Senate hearings.

Resolved: the shareholders request that the IBM Board of Directors adopt the following policy: (1) all employees, regardless of age, will receive the same long-promised retirement medical insurance and pension choice as employees who are within five years of retirement. (2) the portable cash balance plan will provide a monthly annuity equal to that expected under the old pension plan or a lump sum that is actuarially equivalent.

As amended, November 11, 1999

[LETTER OF INQUIRY 5]

December 6, 1999

37 Butler Drive

S. Burlington, VT 05403

Office of the Chief Counsel, Division of Corporation Finance

Securities and Exchange Commission

450 Fifth Street, NW

Washington, DC 20549

Attention: Carolyn Sherman

Subject: IBM Stockholder Resolution on Pension and Retirement Medical

Dear Members of the Office of the Chief Counsel, Division of Corporation Finance:

This letter is in response to the November 22, 1999 letter from Stuart S. Moskowitz, Senior Counsel, IBM Corporation. IBM seeks to omit a proposal I wrote, entitled, "IBM Stockholder Resolution on Pension and Retirement Medical." In this letter I will respond to each of the points Mr. Moskowitz made. I will show that IBM has not met its burden under Rule 14a-8(g) to demonstrate that it is entitled to exclude the proposal under either Rule 14a-8(i)(7) or under Rule 14a-8(i)(4).

I. IBM asserts that the proposal may be omitted under Rule 14a-8(i)(7) as relating to the conduct of the ordinary business operations of IBM.

In its letter, IBM states:

"the design and administration of employee benefit plans, such as the IBM retirement and medical plans, including the eligibility criteria for participation, as well as the form and amount of benefits to be accrued and payable thereunder, are all activities which are part of the ordinary business operations of the company. The Commission has long recognized that proposals concerning pension, health and other benefits for a corporations employee population relate to the ordinary business operations of a corporation."

Public policy issue #1: age discrimination is illegal, immoral, and unjust

However, I would respectfully ask you to consider that the resolution is actually about a broad issue of public policy, age discrimination. The resolution does not micro-manage or seek to tweek the design, administration, eligibility criteria, the form, or the amount, as IBM asserts. As the resolution points out at the end of its first paragraph, "Employees were thus divided into three permanent groups based on age; IBM broke its highly touted and unqualified promise to employees not to discriminate based on age." The resolved clause, the last paragraph, seeks to end this age discrimination policy by providing (1) all employees, regardless of age, will receive the same long-promised retirement medical insurance and pension choice as employees who are within 5 years of retirement." The resolution is clearly aimed at repairing damage IBM did to its equal opportunity commitment and to avoiding the possibility that IBM will be found to be in violation of law concerning age discrimination.

The age discrimination issue was not at all considered in IBM's letter, but it is one of two main public policy points of the resolution and its supporting statement. Having failed to recognize or address the social policy issues described in the resolution, IBM could not possibly have met its burden.

Government investigations of IBM

The IRS, the Department of Labor, and the Equal Employment Opportunity Commission are all investigating the legality or lack of legality of IBM's cash balance conversion plan and retirement medical plan. The IRS decided to put "determination letters" on hold. The DOL said that it will investigate actuaries who may have violated their fiduciary responsibility. Finally, the EEOC announced that it was investigating the age discrimination issue in IBM's new retirement and retirement medical plans.

Where a company took action that placed it under investigation by a government agency for age discrimination, and where that investigation could lead to a finding that the company is violating the law concerning age discrimination, a proposal to end this problem by requesting that the board adopt as policy that all employees, regardless of age, will receive the same long-promised retirement medical insurance and pension choice as employees who are within five years of retirement cannot be considered the ordinary course of business.

The stockholders have a righta dutyto step in before the company finds itself faced with serious legal penalties. It cannot be considered either a matter of ordinary course of business or a matter of personal grievance to ask company management to stop discriminating on the basis of age where that discrimination may be illegal as well as being immoral and unjust, and where a finding of illegal, immoral, or unjust action by the company can jeopardise the rights of all stockholders.

Previous IBM actions within the ordinary course of business were not age discriminatory

IBM may be correct that "for many years, IBM has provided retirement, health and other plan benefits to its employees and retirees, and such benefits have been modified and supplemented many times over the years to meet the changing needs of the Company as well as retirees, all in the ordinary course of the Company's business. However, IBM's letter does not assert or show that any of its previous plans or changes to those plans implemented a policy of discrimination based on age. I would ask you to consider that implementing a policy of discrimination based on age has until now not been the ordinary course of the company's business. The policy implemented in 1999 is a risky and potentially illegal attack on fundamental rights or protected rights that the company itself promised and continues to promise to protect (see attached copy of IBM's presently in-force equal opportunity statement from its Web site). This attack on fundamental rights or protected rights is an extraordinary departure from the ordinary course of business.

Discrimination based on race or gender would not be considered the ordinary course

If IBM had implemented a retirement medical policy or a retirement pay policy that depended on the recipient's race or gender would it not be an obvious departure from the ordinary course of business? The same must be said for a newly implemented policy that discriminates based on age. The stockholders must have the right to vote for or against IBM's shameful policy.

IBM set up three age classes and discriminates based on age

As indicated in the resolution, and as admitted by IBM in its announcement concerning the plan and as also admitted in IBM's November 22, 1999 letter to the commission, the new limited retirement medical plan replaces the old lifetime medical plan for all employees who were under the age of 50 on June 30, 1999 and who had less than 25 years of service. That is all employees who were more than 5 years from retirement. Employees who were 50 or older on that date or who had completed 25 years of service got to keep their long-promised lifetime medical insurance. Thus, IBM implemented age discrimination in retirement medical insurance based on age being above or below 50 as of June 30, 1999.

Similarly, employees who were 40 or older on June 30, 1999 and who had at least 10 years of service, got the choice of the long-promised retirement pay or the cash balance retirement plan. But employees who were less than 40 and those who had less than 10 years of service on that date got no choice; they got the cash balance plan, as IBM described in its letter. Thus, IBM implemented age discrimination in retirement pay based on age being above or below 40 as of June 30, 1999.

Thus, as the resolution points out, there are now three classes of IBM employees, all of them forever defined by their age on June 30, 1999.

IBM's letter to the SEC ignores the social policy issue of age discriminatory in retirement pay and retirement medical insurance. Only by failing to recognize the age discrimination issue could IBM argue that the proposal deals with a matter relating to the company's ordinary business operations, under Rule 14a-8(i)(7). Having failed to recognize the age discrimination issue though, IBM could not have met its burden under Rule 14a-8(i)(7).

Proposals relating to social policy issues not excludable

Age discrimination, like race discrimination or gender discrimination, is a social issue. Such issues have torn apart the fabric of American society. A civil war raged over race. The civil rights movement, the women's rights movement, and the movements of gays and lesbians are not such distant memories.

The Securities and Exchange Commission explained the purpose of the ordinary business exception in Release 34-40018; IC-23200; File No. S7-25-97, "Amendments to Rules on Shareholder Proposals." Final Rule, under section III. "The Interpretation Of Rule 14a-8(c)(7): The "Ordinary Business" Exclusion:

"The policy underlying the ordinary business exclusion rests on two central considerations. The first relates to the subject matter of the proposal. Certain tasks are so fundamental to management's ability to run a company on a day-to-day basis that they could not, as a practical matter, be subject to direct shareholder oversight. Examples include the management of the workforce, such as the hiring, promotion, and termination of employees, decisions on production quality and quantity, and the retention of suppliers. However, proposals relating to such matters but focusing on sufficiently significant social policy issues (e.g., significant discrimination matters) generally would not be considered to be excludable, because the proposals would transccnd the day-to-day business matters and raise policy issues so significant that it would be appropriate for a shareholder vote.43

"The second consideration relates to the degree to which the proposal seeks to "micro-manage" the company by probing too deeply into matters of a complex nature upon which shareholders, as a group, would not be in a position to make an informed judgment.44 This consideration may come into play in a number of circumstances, such as where the proposal involves intricate detail, or seeks to impose specific time-frames or methods for implementing complex policies."

I would ask you to consider that the age discrimination program that IBM implemented on June 30, 1999, is a "significant discrimination matter." I would also ask you to consider that the stockholder proposal transcends day-to-day business matters and raises a policy issue-age discriminationso significant that it would be appropriate for a shareholder vote.

IBM charges micro-management

IBM asserts that the proposal seeks to "`micro-manage' the details of our Company's general employee benefit plans." IBM also asserts that my 53 word proposal "would hope to have the Company's stockholders, rather than our management, determine all of these plan benefit criteria under our employee programs, and in so doing, get directly involved in a level of managerial detail that has always been the province of the Company's internal management."

The resolution gives IBM flexibility

IBM's assertion requires much of those 53 words. However, the 53 word proposal does nothing more than request that the IBM Board of Directors adopt a policy of restoring the same retirement medical and pension to younger employees that continue to be in place for their older colleagues. The resolution does not even interfere with IBM management's ability to implement a cash balance retirement plan. The resolution merely requests that the Board implement the cash balance plan in a way that provides the same amount of retirement pay as the old pension plan would have provided (see public policy issue #2, below). Thus, IBM management may continue to provide or even require a cash balance plan. The resolution requests that the age discrimination feature of that cash balance plan be eliminated by providing that employees would suffer no loss of retirement pay under this cash balance plan, just as older employees are suffering no loss of retirement pay. The resolution thus provides IBM management with the fullest flexibility of what plan or plans to implement and how to implement them within the broad general framework of no invidious age discrimination. Not only is there no "micro-managing the details," the resolution is the very clearest embodiment of a program that gives IBM management the fullest freedom to manage the company and select from the broadest range of options it may choose, while clearly providing for an end to its new social policy of age discrimination.

IBM collaborated with discrimination in South Africa; IBM sponsors discrimination here

I would ask you to consider that I successfully submitted stockholder resolutions each year from 1987 to 1993 to fight against IBM's active collaboration with apartheid racism in South Africa. IBM included those proposals in its proxy booklet each year. This proposal is different because it is an employment-related shareholder proposal raising a social policy issue. But the underlying issue is similar or the same, discrimination.

The issue for the Commission is whether or not a stockholder resolution can be used to fight against IBM's implementation of an age discrimination system here just as it was used to fight against IBM's collaboration with discrimination in South Africa. This is particularly important since, if IBM successfully implements its age discrimination program, this regrettable policy of discriminating on the basis of age may spread across corporate America.

IBM never tried to omit the South Africa resolutions since it was well recognized that social policy issues unconnected with employment-related matters could not be omitted. Thus the stockholders were permitted to review the company's policy of being the largest supplier of high technology products to apartheid South Africa.

In reversing the Cracker Barrel decision, the SEC has agreed to consider on a case by case basis employment-related proposals that raise social policy issues. I would respectfully ask the Commission to permit the shareholders to consider this important social policy issue. The reasoning provided in Section III quoted above should permit a resolution to be placed before the shareholders urging the board to end IBM's recently enacted discriminatory employment practices here at home. This resolution seeks to fight for freedom from discrimination based on age, and restore IBM to its long-held equal-opportunity practices that made it one of the most successful and most copied companies in the world.

A major issue of public policy

Both IBM's ordinary course of business and personal grievance arguments are contradicted by the fact that the matter of retirement pay and retirement medical have become an issue of wide public concern and intense scrutiny by public officials. This concern and scrutiny was illustrated when IBM was taken before the Health, Education, Labor and Pension Committee of the United States Senate on September 21, 1999. The Senate Committee is headed by Senator James Jeffords, Republican of Vermont. The committee had invited IBM's Chairman of the Board, Lou Gerstner to present IBM's side on the issue of this stockholder resolution, but he declined the invitation. IBM sent Thomas Bouchard, Senior Vice President of IBM for Human Relations to testify and be questioned by this Senate Committee. IBM's letter to the SEC omits mention of the fact that this hearing took place just two months before IBM wrote its letter to the SEC saying the matter was the ordinary course of business and was a personal grievance. We know of no matter that was the ordinary course of business and merely a personal grievance that caused such a vast amount of public concern that a Senate hearing was held, the chairman of the board of a major corporation was invited to testify, and the Senior Vice President who testified was raked over the coals by the assembled Senators.

The issue was widely covered by the major media, and has repeatedly received front page and major network coverage. A few of the major articles are listed in the attachment. IBM ducks the question as to how a matter that has received massive media coverage over many months can be considered to be ordinary course of business or a matter of personal grievance.

Even more significantly than the Senate hearing and media coverage is the fact that tens of thousands of IBM employees all over the United States participated in town meetings or e-mailed their concerns to corporate executives. This major upsurge of activism by IBM employees helped propel cash balance pension conversions into a major public issue.

About 300 US corporations have already converted to cash balance plans and hundreds or thousands of other companies are considering making the switch. The issue is one affecting a large number of American companies and millions of workers and their families. Because this resolution concerns a matter that is central to a major public policy debate involving many hundreds of American companies and millions of American citizens, it cannot be considered either a matter of ordinary course of business or a matter of personal grievance.

No less than 8 bills have been introduced into the United States Congress to address various aspects of the matters in the stockholder resolution since IBM's announcement on May 3, 1999. And the Vice President of the United States issued a statement (attached) strongly supporting several of the ideas in the stockholder resolution. Where a matter has become the subject of intense public and legislative interest, where the issue affects hundreds of corporations and millions of workers, where it has produced mass mobilizations of employees at IBM, and where the SEC's rules provide that an employment related public policy issue may fall outside the ordinary course of business or the personal grievance exceptions, the stockholders should be allowed to vote.

II IBM asserts that the proposal may be omitted under Rule 14a-8(i)(4) as a personal grievance designed to result in a personal benefit which cannot be shared with other IBM stockholders at large.

In order to meet the terms of Rule 14a-8(i)(4), IBM has the burden of showing three items: (1) a personal grievance; (2) designed to result in a personal benefit; and (3) which cannot be shared with other IBM stockholders at large.

As to these three items, IBM asserts that:

"nearly all of the Proponents are IBM employees and their families... This proposal is excludable under Rule 14a-8(i)(4), as the Proponents seek for the Company to provide personal benefits that will accrue only to a subset of IBM's current domestic employee population, not to all employees, and certainly not to IBM stockholders at large."

For its personal grievance argument IBM lumps its three age groups into one

IBM appears to suggest that because nearly all the Proponents are IBM employees nearly all are seeking for the company to provide them with personal benefits that will not accruc to other employees and stockholders. However, IBM in this paragraph and elsewhere acknowledges that not all employees are personally affected. IBM points out in this paragraph that "certain other domestic IBM employees are receiving" all the benefits sought by the Proponents. These certain other domestic employees are those who were older than 50 or were within 5 years of retirement because they have more than 25 years of service as of June 30, 1999.

Under Rule 14a-8(g), IBM has the burden to demonstrate that it is entitled to exclude the proposal. However, IBM has not shown that any of the 330 Proponents is seeking to obtain personal benefits. For example, I am a Proponent of the resolution and I am a member of the class of IBM employees who is within 5 years of retirement age. I am one of those "certain other domestic IBM employees" who is receiving the old retirement medical and the choice to receive the old retirement pay. The resolution calls on IBM to provide all employees with what I already have. Thus, I am not and cannot be seeking any personal benefit from the stockholder resolution. With respect to me, IBM has failed to meet its burden to demonstrate items (1) and (2).

Since there are three categories of employees, IBM's assertion that nearly all the Proponents are employees does not provide any evidence concerning personal benefit to be derived from the resolution for any of the 330 Proponents. IBM would have to show that other employee Proponents are not old enough to already be receiving the benefits I am receiving. IBM has not made this showing. IBM has not met its burden of showing that any of the Proponents have a personal grievance or are seeking to personally benefit from adoption of the resolution.

For IBM to meet its burden, an age discrimination policy would have to be implemented by the SEC in the stockholder resolution process. IBM is essentially asking the SEC to provide that only older workers like me would be allowed to sponsor resolutions like this one to avoid having the company omit the resolution as a matter of personal grievance. IBM would also need to ask the SEC to provide that a new item of information be provided to the company when a stockholder seeks to sponsor a resolutionthe stockholder's age, so that the company can then determine whether it can exercise Rule 14a-8(i)(4) to omit that resolution.

Social issue proposals are not excludable as personal grievances

The absurdity of IBM's position is entirely avoided by the SEC's statement on Rule 14a-8(i)(4) contained in footnote 80 of its rules on stockholder proposals. That footnote states:

-80- Social issue proposals are generally not excludable under paragraph (4). In 1983, we amended the rule to clarify that it would not apply, without other factors, to exclude a proposal "relating to an issue in which a proponent was personally committed or intellectually and emotionally interested." Exchange Act Release No. 20091 (Aug. 16, 1983) (48 FR 38218).

Since the present proposal deals with the social issue of age discrimination, it is a social issue proposal, albeit one that is employment related. Therefore, the present resolution is not excludable under paragraph (4).

The proposal restores equal opportunity, under which stockholders thrived

As to the third item IBM must demonstrate, IBM goes on to claim, without any support, that the proposal cannot benefit the stockholders at large. But I would respectfully ask the Commission to consider that the proposal actually can benefit the stockholders at large.

The proposal seeks to restore a no-age-discrimination policy that existed at IBM for many years and still exists, if only on paper. IBM stock did very well during many years when IBM did not have an age-discriminatory policy in place and was in no danger of acting in violation of its pledge not to discriminate on the basis of age. During those years, this policy worked to benefit all stockholders whose shareholder value multiplied many times over. IBM would have to show that avoiding age discrimination during all those years somehow hurt the stockholders so that the new policy of discriminating on the basis of age now helps them. IBM baldly asserts, without support, that "it is clear the Proposal cannot benefit IBM stockholders at large." However, making a bald assertion is not enough to meet the burden of demonstrating. There is something that is clear, however: if observing IBM's commitment not to discriminate on the basis of age benefited stockholders until June 30, 1999, then it can benefit them after June 30, 1999. IBM's position not only lacks support, it is illogical and contrary to the facts.

Under Thomas Watson Sr. stockholders benefited from respect for employees

During more than 60 years since IBM was founded by Thomas Watson Sr., IBM acknowledged the importance of its employees in creating shareholder value. As reported in "Thomas Watson's Principles of Modern Management," by Peter F. Drucker, Esquire Magazine, December 1983:

"Watson built the company on the basis of employees who used their own minds and their own experience to improve their jobs, the product, the process, and the quality." If Watson's method of respecting employees benefited stockholders, then IBM's present method of angering tens of thousands of loyal and talented employees by revoking long-promised lifetime medical coverage and slashing retirement pay for younger workers could adversely affect stockholders.

But IBM's decision to change the retirement plan and retirement medical not only angered employees. It also hurt the company's image among customers, the public at large, and among stockholders. IBM's decision to attack its talented work force led to a huge amount of adverse publicity. The angry feelings and the decline in employee morale could lead to a decline in employee performance, and that would hurt 1,600,000 stockholders.

IBM acknowledges that there are Proponents who do not have a personal grievance

One further point countering IBM's personal grievance argument. IBM's letter highlights the fact that the resolution is sponsored by IBM employees. But IBM's letter acknowledges the fact that among the 330 cosponsors there are people who are not IBM employees or retirees. The letter calls these people "other timely cosponsors" on line 5 of page 1. The letter also points out on line 5 of section II on page 3, "as noted earlier, nearly all of the Proponents are IBM employees and their families." Again IBM implicitly acknowledges that among the proponents are stockholders who have no affiliation with IBM as employees or family members. Let us assume for the moment that IBM is correct that the employees and family members have a personal grievance designed to result in a personal benefit. What about the "other timely cosponsors" IBM mentions who are not employees or family members and who do not have a personal grievance designed to result in a personal benefit? Thus, IBM acknowledges that there are Proponents who do not have a personal grievance. IBM's letter appears to sweep them in with the employees so that all would be denied the right to sponsor the resolution. Can a resolution of such broad public interest as described above that has among its sponsors stockholders who have no connection with IBM and therefore can have no personal grievance, and who can gain no personal benefit, be omitted based on Rule 14a-8(i)(4)? I think not.

Public policy issue #2: deferred compensation belongs to the employees

The second public policy issue raised by the stockholder resolution is that an employer should not be able to take away compensation already earned by an employee. The retirement pay and lifetime medical had been substantially earned by workers who had completed 15 to 25 years of service, were continuing to work at IBM, and were planning to stay till retirement. Retirement pay and retirement medical are deferred compensation. The compensation is held by IBM and distributed gradually during retirement but it belongs to the employees because they did the work to earn it. Employees who finished 15 to 25 years under the promise that this was part of their compensation if they worked at IBM to retirement should be paid as promised. Since they had earned the money, and had devoted 15 to 25 years of their careers in anticipation of a secure retirement, it was not IBM's to take away, leaving them impoverished in their old age.

The public policy question is whether IBM can take for other use the money it is merely holding on behalf of employees who have already substantially earned the compensation. The public policy question is whether a worker who did the work should get the pay that was promised. This basic idea is a public policy issue that is important not just to IBM employees but to employees of every company. While IBM may be free to change the form from annuity to lump sum, for example, it should not decrease the actuarial magnitude of the compensation, as provided in the stockholder resolution. That fundamental bargain of the employee-employer relationship is what IBM revoked when it slashed the deferred compensation. This fundamental policy question goes to honesty, integrity and fair dealing. It is a fundamental matter of public policy, not a detailed matter of management discretion. It is appropriate for stockholder consideration.

Conclusion

In conclusion, the subject of this resolution is a national social issue. Please let the stockholders decide whether IBM was long correct in avoiding age discrimination, and in believing that being truthful and following through with its commitments is beneficial not just to the affected employees but to all the stockholders as well. The stockholders deserve a chance to tell the board how they feel about IBM implementing discriminatory practices here in the United States and to request that the Board restore IBM's long-held equal opportunity practices that made it one of the most successful and most copied companies in the world.

Sincerely,

James Marc Leas

[LETTER OF INQUIRY 6]

December 20, 1999

Ms. Carolyn Sherman

Securities and Exchange Commission

450 Fifth Street, NW

Washington, D.C. 20549

Subject: IBM Stockholder Proposal on Pension and Retirement Medical

Dear Ms. Sherman:

This is in response to new matter in IBM's second letter dated December 13, 1999. Although IBM asserts that the letter is a reply to my letter, the letter actually introduces substantially new arguments. The fact that IBM had to submit a second letter with new arguments is an implicit acknowledgment from IBM that its first letter fell short of meeting IBM's burden under Rule 14a-8(g). Even if IBM's arguments now meet the burden of demonstrating either ordinary-course-of-business or personal-grievance, which they do not, IBM should not be allowed this second crack at the apple with new arguments. I would ask the SEC to strike the new matter in IBM's second letter, accept IBM's implicit admission that its first letter failed to meet its burden under Rule 14a-8(g), and reject IBM's request to omit the resolution.

IBM continues to avoid responding to the key point, age discrimination

IBM's second letter acknowledges that the resolution addresses age discrimination, by quoting from the resolved clause on page 1 ("regardless of age") and by quoting from the first paragraph of the resolution at the top of page 4 (the Company "broke its highly touted and unqualified promise to employees not to discriminate based on age"). But IBM states that it "takes issue with [this] characterization," on page 4 of its letter. IBM further states "we do not believe the Proposal raises sufficiently significant policy issues to take it outside the realm of ordinary business," at the top of page 5. However, IBM does not explain why it takes issue. Nor does IBM show that the resolution does not raise a sufficiently significant policy issue.

IBM omitted mention of the age discrimination issue in its first letter to the SEC. Now, in its second letter, IBM acknowledges the issue but merely states its belief without explaining why it believes the issue of age discrimination is not sufficiently significant. In both of its letters to the SEC, IBM continues to fail to meet its burden under Rule 14a-8(g).

In particular, IBM did not deny that it divided employees into three permanent groups based on the age of the employee on June 30, 1999, and that it determined retirement pay and retirement medical based on the employee's age on that date. Having failed to answer in its reply letter, IBM must be deemed to have admitted that it discriminated on the basis of age.

In its footnote (1) IBM merely asserts without support that:

"Contrary to Mr. Leas' unsupported assertions, the Company has always lawfully reserved the right to make changes in our benefit plans, and the latest changes complained about in the Proposal were effected by management in accordance with the terms of the plans in a lawful and nondiscriminatory manner. Despite the recent activities in Washington looking at the issue of cash balance pension conversions, in effecting our own cash balance accounts, the Company continues to believe it has complied fully with all applicable laws, and did nothing to eliminate or reduce any vested retirement benefit which accrued to plan participants."

Even if were true that IBM complied fully with applicable laws this would not eliminate the significant social policy issue of age discrimination. For example, slavery was legal in southern states until the Emancipation Proclamation. If plantations had shareholders, would the slave owners have been able to obtain SEC approval to exclude a resolution calling for ending racial discrimination on the plantation based on the owner stating that he conformed to laws allowing slavery? Is conformance to existing law sufficient to omit a resolution concerning a significant social policy issue concerning discrimination? Even if the SEC adopts this standard, in the present case, the law is not clear since the IRS, the EEOC, and the Department of Labor are all presently investigating IBM's cash balance plan conversion for age discrimination.

New argument: IBM cites more cases

IBM describes Gyrodyne, (1999), IBM (1999), Allstate (1999), First Capital (1999), and Lockheed (1994), but none of these involved a stockholder resolution addressing a significant social policy issue, such as a company implementing discrimination against employees based on their age. The IBM (1997), Ford Motor (1996), and General Motors (1996) cases IBM cites appear to involve companies taking active steps against racial discrimination. However, in IBM's description of the Wall-Mart (1999) case IBM acknowledges that the SEC staff found that the proposal appeared to address matters outside the scope of ordinary business. IBM described the proposal as follows:

"In Wal-Mart Stores. Inc. (March 15, 1999), a proposal sought for a report to be prepared on that company's actions to ensure it did not purchase from suppliers who manufactured items using forced labor, convict labor, child labor or who failed to comply with laws protecting their employees' wages, benefits, working conditions, freedom of association and other rights. After review of the proposal, the staff noted that although the proposal appeared to address matters outside the scope of ordinary business, paragraph 3 of the description of matters to be included in the report related to ordinary business operations. In this connection, Paragraph 3 related to the registrant's policies to implement wage adjustments to ensure adequate purchasing power and a sustainable living wage."

Thus, IBM acknowledged with its new argument that a proposal addressing a social policy issue could not be excluded unless it also included some other matter related to the ordinary business operations. However, the present proposal is not merely one that raises a social policy issue. It is one that raises the specific type of employment related social policy issue expressly called out in the SEC rules, significant discrimination. And IBM has not demonstrated any way in which the present resolution falls into the Wal-Mart problem that led the SEC to agree to its exclusion. The resolved clause of the resolution seeks to address the age discrimination issue from two directions:

Point (1) of the resolved clause requests that the Board adopt a policy (not "demands" or "dictates" as Mr. Moskowitz incorrectly asserts on page 4 of his letter) that there be no age discrimination with regard to either retirement medical or pension. It requests that all employees get the same long promised plan or choice of plans as those, like me, who IBM deemed old enough to continue with those promised plans or choice.

Point (2) of the resolved clause does not dispute or interfere with the right of the company to continue to require a portable cash balance plan. Nor does this point dispute or interfere with the right of the company to provide an annuity or a lump sum payment. IBM's new portable cash balance plan provides a lump sum or an actuarially equivalent monthly annuity. Column 3 of the attachment shows my monthly annuity under the cash balance plan, as calculated by the "IBM Retirement Plan Benefit Estimation System" program. Column 2 shows the actuarially equivalent lump sum under the cash balance plan. Column 1 shows the monthly annuity under the old retirement plan, which is 31% more. The resolution merely requests that the board provide that the cash balance plan annuity be equal to that expected under the old pension plan and the cash balance plan lump sum continue to be actuarially equivalent to that now higher annuity. Thus, the proposal says, make column 3 equal to column 1 and continue to provide column 2 actuarially equivalent to column 3. The result under the second point would be that employees who are forced into the cash balance plan because of their age on June 30, 1999 would not suffer a loss of 20 to 50% as a result of the age discriminatory qualification IBM implemented to force them into a benefit-reduced plan.

Older employees, like me, can choose the old retirement plan and will suffer no loss. To avoid age discrimination, therefore, those required to participate in the cash balance plan should also suffer no loss. The second remedy does just that without interfering with management authority to provide the benefit as a lump sum or as an actuarially equivalent annuity, beyond ending the hurt from the age discriminatory selection criteria.

New argument: IBM gives a new grounds for its view that the proponents would personally benefit

In this "reply" letter, Mr. Moskowitz raises the new argument that I would personally benefit from point (2) since I would gain a right I do not now have. He acknowledges that I already enjoy the right to an annuity equal to that expected under the old pension plan since, unlike my younger colleagues, I can choose that old plan with its monthly annuity.

However, Mr. Moskowitz asserts that the resolution would grant me a new right, namely the right to a lump sum which is actuarially equivalent to the old-plan annuity if I choose the cash balance plan. There are five reasons Mr. Moskowitz's argument is incorrect;

(a) Like other IBM employees within five years of retirement I had to make my choice by December 30, 1999. I personally have already made my choice, and I chose the old retirement plan. That choice is irrevocable. I officially submitted that selection to IBM on December 17. Having officially made an irrevocable selection for the old plan, I therefore cannot benefit from any improvement of choices under the cash balance plan, as Mr. Moskowitz incorrectly alleges. Furthermore, IBM has presented no evidence of the choices the other proponents have already made or whether they have made their choices yet. Like me they may all have already chosen the old pension plan or they may be planning to choose the old pension plan by default on December 30. Therefore, IBM has not met its burden of showing that even a single one of the proponents would personally benefit from the proposal that provides equity for those forced to accept the cash balance plan.

(b) IBM has already granted those within five years of retirement, like me, the right to at least a partial lump sum payment under the old retirement plan, narrowing the alleged benefit to proponents.

(c) The intent of point (2) of the resolution was to provide for the elimination of age discrimination for those forced to accept the cash balance plan by making them whole. It was not to enhance rights for those choosing that plan although they were not forced to accept it. The supposed benefit Mr. Moskowitz points out is merely incidental to ending the serious age discrimination problem IBM created.

(d) Those who can choose the old retirement plan can get a lump sum by taking a loan based on the annuity or by selling the annuity for its actuarially equivalent lump sum through a financial institution. The theoretical incidental advantage to proponents who choose the cash balance plan in the hope that the resolution will be adopted by the shareholders and then IBM will grant the actuarially equivalent lump sum of their old retirement benefit duplicates what they already can do with the old retirement choice. The only genuine advantage is to those who do not presently enjoy that choice, those who are being discriminated against because of their age.

Mr. Moskowitz is both complaining of micro managing and criticizing the resolution for not being detailed enough to avoid incidentally providing a slender benefit to proponents, if any, who choose the cash balance plan. The point of the resolution is clear: end age discrimination directed against those forced into the cash balance plan. However, it would not have been appropriate to merely propose eliminating age discrimination; that would have opened the door to IBM bringing down the benefits of older employees. It was necessary to fashion a remedy that did not discriminate on the basis of age while not taking any rights from the oldest group. The resolution provided two such remedies that could be implemented as alternatives or in combination.

IBM created the problem by implementing age discrimination. It should not be allowed to exclude a resolution seeking to end that age discrimination by pointing out theoretical incidental benefits certain proponents may achieve from the proposed remedy if they choose the cash balance plan. That would open the door to companies implementing discriminatory practices for which there is no remedy that does not have incidental benefits to those favored by the discriminatory practice. No one from either the affected group or the non affected group could then propose a resolution seeking to end those discriminatory policies.

(e) Finally, the SEC has already decided that "Social issue proposals are generally not excludable under paragraph (4)." (Footnote 80 of the SEC rules). IBM has not even tried to demonstrate that the proposal which seeks to remedy IBM's implementation of age discrimination does not address a social issue. Since the SEC has already decided the personal grievance exception does not apply to stockholder resolutions raising social issues, IBM's line of attack is fundamentally wrong.

The stockholder resolution raises an employment related social policy issue. The resolution focuses on the specific kind of employment related social policy issue given as an example in the SEC rules, "significant discrimination matters." Those rules provide that these kinds of proposals "generally would not be considered to be excludable, because the proposals would transcend the day-to-day business matters and raise policy issues so significant that it would be appropriate for a shareholder vote."

Underlining the significance of the social policy issue raised by the resolution are investigations now being conducted by three government departments, IRS, EEOC, and Department of Labor, concerning the lawfulness of IBM's cash balance plan conversion in view of the age discrimination issue raised in the resolution. Also demonstrating the significance of the social policy issue was the Senate and Congressional hearings on the matter. Also demonstrating the significance is intense public scrutiny and vast media attention, as well as keen interest by government officials including Congressmen, Senators, and the Vice President of the United States.

The fundamental point highlighted by all this investigation, attention, and scrutiny is that the stockholder resolution raises a significant social policy issue of age discrimination. IBM's argument skips over that fundamental point and cites previous cases that did not address discrimination or even significant social policy issues, although they may have involved illegality, media attention, etc.

Since IBM continues to miss the main point of the resolution, age discrimination, it cannot possibly have met its burden under Rule 14a-8(g). The age discrimination issue was not at all considered in IBM's first letter. It is acknowledged but not addressed in IBM's second letter. Having failed to recognize or address the social policy issues described in the resolution and its supporting statement, IBM could not possibly have met its burden.

New argument: IBM asserts that the proponents are part of a unitary and organized plan of the Pension Benefits Committee. Based on this unsupported assertion, IBM concludes that all sponsors, employees, retirees, and those with no connection at all to IBM alike, will all personally benefit. However, for the five reasons described above, IBM failed to demonstrate that even a single one of the employees will personally benefit. IBM did not demonstrate how any of the retirees will benefit, other than from sympathy for their fellow employees being shafted by the company because of their age on June 30, 1999. And IBM fails to demonstrate why it can exclude the remaining 15 sponsors other than the fact that they sponsored the resolution along with the 301 employees and the 14 retirees. Here is what IBM said in its second letter:

"Another 14 are retired or separated IBM employees sympathetic to this cause, with the remaining 15 being supporters without known IBM affiliations. In the Company's view, and as described below, where the lead proponent would be directly and personally affected by the implementation of his Proposal, and where over 91% of the others would be similarly personally impacted, the Proposal is and should be fully excludable, as the few others without known affiliations are clearly equally interested in the outcome and have co-filed in direct support of the Pension Benefit Committee and the overwhelming majority of their personally affected IBM employee co-filers. Furthermore, the 15 persons who are not affiliated with IBM are, through their filing, affiliated with the PBC and will derive benefit from the success of the PBC and their co-filers, if not the same actual pecuniary benefit, if the Proposal were implemented."

Obviously proponents of a resolution support the resolution. One should not be excluded for sympathy or other wholesome feelings that might motivate support. One should not be excluded because the mere sponsoring of a resolution demonstrates the personal benefit required for exclusion. That would be a catch 22 basis, would it not?

Finally, as mentioned above the SEC has already decided that social issue proposals will not be excluded under the personal grievance exception. Therefore, IBM's argument in its second letter should be rejected. Thank you very much for your consideration of this matter.

I would like to state that I would be happy to amend the resolution in any way the Commission staff may suggest if that would facilitate an SEC staff decision to reject IBM's request for a no-action letter or to obtain a compromise agreement with IBM that would result in inclusion of the resolution.

Sincerely,

James Marc Leas

cc Mr. Stuart S. Moskowitz, Senior Counsel, IBM

[STAFF REPLY LETTER]

February 16, 2000

Response of the Office of Chief Counsel

Division of Corporation Finance

Re: International Business Machines Corporation

Incoming letter dated November 22, 1999

The proposal requests that the board adopt a policy: (1) that all employees, regardless of age, will receive the same retirement medical insurance and pension choice as employees who are within five years of retirement; and (2) that the portable cash-balance plan will provide a monthly annuity equal to that expected under the old pension plan or a lump sum that is actuarially equivalent.

We are unable to concur in your view that IBM may exclude the proposal under rule 14a-8(i)(4). Accordingly, we do not believe that IBM may omit the proposal from its proxy materials in reliance on rule 14a-8(i)(4).

We are unable to concur in your view that IBM may exclude the proposal under rule 14a-8(i)(7). That provision permits the omission of a proposal that deals with a matter relating to the ordinary business operations of a registrant. In view of the widespread public debate concerning the conversion from traditional defined benefit pension plans to cash-balance plans and the increasing recognition that this issue raises significant social and corporate policy issues, it is our view that proposals relating to the conversion from traditional defined benefit pension plans to cash-balance plans cannot be considered matters relating to a registrant's ordinary business operations. Accordingly, we do not believe that IBM may omit the proposal from its proxy materials in reliance on rule 14a-8(i)(7).

Sincerely,

Carolyn Sherman

Special Counsel

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Company Name: Int'l. Business Machines Corp. Public Availability Date: February 16, 2000

[LETTER OF INQUIRY 1]

[LETTER OF INQUIRY 2]

[LETTER OF INQUIRY 3]

[LETTER OF INQUIRY 4]

[APPENDIX]

[LETTER OF INQUIRY 5]

[LETTER OF INQUIRY 6]

Company Name: Int'l. Business Machines Corp.
Public Availability Date: February 16, 2000