By Mark Miller
CHICAGO Dec 12IBM ads urge us all to follow its
lead and help "build a smarter planet." Let's hope other
companies don't follow Big Blue's latest move: an overhaul of
its 401(k) plan that shifts its matching contribution to a
Starting next year, IBM will shift its matching contribution
from semi-monthly to a lump sum paid each December 31. Leave the
company before December 15, and you'll get no match at all for
Retirement plan experts say it is a clever money-saving move
-- and one that allows Big Blue to focus its benefit resources
on workers who are sticking with the company.
For loyal workers, the shift means 11 lost months every year
of opportunity for dollar-cost averaged contributions and
potential investment growth. And it makes the 401(k) plan less
valuable to employees who leave IBM - either on their own or
through layoff or disability. They'll lose the entire match for
"This change reflects our continuing commitment to invest in
our employee 401(k) plans while maintaining business
competitiveness in a challenging economic environment," said an
IBM spokesman. "IBM's 401(k) plans remain among the best in the
In addition to employer contributions ranging from 6 percent
to 10 percent of salary, the spokesman noted that IBM makes
automatic contributions even for employees who do not contribute
to the plan themselves.
IBM is widely viewed as an employee benefits trend-setter.
The company last made retirement plan headlines in 2008 when it
replaced its defined benefit pension plan with a cutting-edge
401(k) plan featuring very generous matching contributions --
depending on hire date and years of service -- low fees and
access to free financial advice.
Today, IBM's 401(k) plan is the largest private sector
defined contribution plan in the country, with $37.6 billion in
assets. It is the 14th-best, according to the annual ranking of
top 30 plans released this week by Brightscope, which rates and
analyzes plans ().
"They're a major trend-setter, so a lot of other companies
will be looking very closely at this move," said Brooks Herman,
Brightscope's head of research.
A national trend toward annual matches would be bad news for
workers, especially middle- and lower-income households already
finding it very difficult to build significant nest eggs through
the 401(k) system.
IBM's shift to an annual contribution will save money on
matches to employees who leave.
"If plan sponsors want to cut spending, they're going to
look at the smartest way to use their resources," said Alison
Borland, vice president of retirement product strategy at Aon
Hewitt. "Do I want to focus on long or short service? Do I want
to focus on employees who stick around, or those who leave
during the year?"
The change also will give IBM a big cash flow advantage.
"They can time the plan contributions and invest the money
elsewhere," said Roger Wohlner, a financial planner who advises
small and medium-sized workplace retirement plans. "I'm sure IBM
has some extremely bright treasury and cash management people
who figured out this would be a nice windfall."
Aon Hewitt reports that just nine percent of plans make
annual lump sum contributions now. "These are plans that just
set it up this way years ago," Borland said. "IBM is the first
large company to make a change like this."
IBM's example could appeal to smaller plans looking to solve
a key administrative headache, said Jason Roberts, CEO of the
Pension Resource Institute, which provides consulting and
training services to retirement plan service providers.
"One of the most common Department of Labor rule violations
that gets plans in trouble is the burden of segregating matching
contributions from payroll," Roberts said. "That's not a problem
for big, sophisticated companies like IBM, but some small plan
sponsors might see an annual contribution as a way to simplify
the administrative burden."
Meanwhile, IBM workers have been lighting up the Internet
and social media with complaints about the changes, and
Alliance@IBM -- an employee group affiliated with the
Communications Workers of America that is trying to unionize IBM
workers -- is running a petition drive urging Big Blue to
rescind the move.
Although workers can continue to make regular payroll
contributions and allocate those contributions throughout the
year, the shift does mean 11 lost months of opportunity for
dollar-cost averaged contributions and potential investment
growth of the matching funds.
"One thing we are trying instill with plan participants is
the importance of staying consistent with your allocations,
maintaining the appropriate portfolio mix through rebalancing
and the benefit of smoothing volatility through contributions
over time," said Roberts. "This allocates a big chunk of your
contribution all at once."
IBM's 401(k) will be less valuable for any workers who leave
IBM, either on their own or through layoff or disability, since
they'll lose an entire year of matching contributions.
IBM's U.S. workforce has shrunk over the past ten years from
160,000 to just 92,000, according to Alliance@IBM, which tracks
workforce trends at the company. The workplace group worries the
401(k) changes could prompt the company to lay off workers late
in the year to save money on the match.
"IBM employees recognize how good the 401(k) plan is, but
the company has done a tremendous amount of job outsourcing to
places like China and the Philippines. We're worried this will
incentivize IBM to make even more job cuts in the U.S." said Lee
Conrad, Alliance@IBM's national coordinator.
"Would they do a mass layoff just before the date-of
record?" asks Wohlner. "I'm not saying IBM is anything but an
ethical employer, but if this trend took hold and layoffs occur
in early December, you'd have to wonder if that's part of the
reason. It raises a lot of questions."