IBM changes 401k benefits

This post comes from Helaine Olen at partner site Forbes.

When it comes to pensions and 401k plans, IBM has long been a trendsetter. That's a worrisome fact in view of the company's recent controversial change to its employee retirement plan.

As of Jan. 1, IBM will no longer give employees their 401k match with each pay cycle. Instead, the technology behemoth will make one large lump-sum payment to employee accounts on Dec. 31 of each year.

What's the motivation? Most independent observers say we should follow the money -- IBM's money, that is.

According to The Wall Street Journal, IBM paid out $875 million in employee 401k contributions in 2011, a number that will likely decrease as a result of the planned change in 2013.

First, any employee who leaves IBM's employment prior to Dec. 15 for any reason other than formal retirement will not receive any company match to his or her own 401k contributions for the entire year. Nada. If IBM executives fired someone on Dec. 14, the company would not have to pay out.

Second, all employees lose an entire year of the IBM match working for them in the investment sense. To be fair, that could be considered a lucky break if the year is 2008, when the S&P 500 fell by 37%. But in 2012, the advantage would go to IBM. As of today, the S&P 500 is up by 12.6% for the year.

All in all, this points to one of the main problems in the United States' private retirement planning system: Companies can change the structure of their plans with little or no notice, throwing years of employee financial planning for their golden years into chaos.

IBM is as good a place to see this in action as any.

In 1999, IBM jettisoned its traditional pension plan in favor of a cash balance plan. Pension amounts were frozen in place, with all future benefits coming in the form of a cash credit. Many employees -- especially older workers who had been with IBM for more than a decade -- lost tens of thousands of dollars in future retirement benefits in the switch.

Anger, recriminations, charges of age discrimination and lawsuits resulted -- an ongoing legal and public relations mess that was not fully resolved until 2007, when the U.S. Supreme Court ruled in IBM's favor. But by then, IBM was already making other changes to its retirement benefits package. In the cash balance plan, IBM was still responsible for investment risk. That would soon end.

Beginning in 2005, the company ceased offering new employees the cash balance plan at all, instead granting them access to a 401k plan. Then in 2008, IBM ceased offering the cash balance plan to all employees, freezing those plans as well. All future contributions would come in the form of the 401k.

While concerned about how the most recent 401k payment scheme will impact IBM employees, retirement activists and benefit plan consultants are equally concerned that other companies will make similar changes to their retirement plans. Given how far behind most Americans are in saving for retirement, any change that would add more uncertainty to the process, or cause them to lose even a few dollars in future savings, is not a good thing.

More on Forbes and MSN Money:

• 10 steps to boost your 401k balance
• The 25 best places to retire in 2012
• How to fix your lousy 401k retirement plan: Pool it, like a pension fund
• A bigger Social Security check?
• When should you tap your IRAs?
• For a better retirement, work longer