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IBM changes 401k benefits

Next year IBM will pay its 401k match in one year-end lump sum. Will other companies follow?

By MSN Money Partner Dec 10, 2012 12:59PM

This post comes from Helaine Olen at partner site Forbes.


Forbes logoWhen 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.


Image: 401k © Don Farrall, Photodisc, Getty ImagesFirst, 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:

Jan 15, 2013 1:59AM
I was looking for some information about 401k employer matching contribution and its benefits and i really found it here. A great article having very informative topic.
You can also get more information about 401k matching contribution from

Dec 10, 2012 9:59PM
Everyone should appreciate that IBM has now taken the equivalent of $100/year out of the 401K's of their employees (based on a salary of $100K/year and 3% matching).   How many exec's, do you think, will have some of that saving applied directly to their bonuses?   This is why people hate corporations.    I have served on the executive staff of a billion dollar corporation and one of the dominant themes of staff meetings were how to screw the employees out of more money.    Of course, I voice my negative opinion on doing this to our most valuable resource.     And, of course again, I am no longer a member of that corporation.  At that level, they don't fire you.    They just marginalize you, and begin excluding you from their meetings until you realize you're now powerless so you might as well leave.
Dec 10, 2012 7:22PM
The answer is simple - corporate America is telling us to go F ourselves so in turn stop consuming so much ......first stop buying plastic things made in China and go from there - cut your spending by 20% and put that money in a credit union savings account.

We don't need most of the sh*t we purchase but we are driven to consume by a constant barrage of advertising.

Secondly try and consume products that are grown or manufactured close to where you live. Good for the local economy and the environment.
Dec 10, 2012 3:01PM
Anyone who is depending upon their company pension plan for retirement is an idiot.  You had better make investments on your own than trust your company.   Of course if you are top management, there is no problem.
Dec 10, 2012 2:57PM
Shameful, another way to cheat employees their employer match when they leave mid year. Another example of corporate GREED!
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