Big Changes Coming in IBM's Retirement Plan
Yesterday, IBM announced a major program change to its retirement plan. It will begin freezing its pension plans 12/31/2007 and move all retirement contributions to its 401k plan.
In today's plan I get an automatic 5% pay match to IBM's cash balance retirement plan which sits in an account and earns an annually fixed yield equivalent to 1-yr Treasury bills (currently 5%). I also get a 50% match on contributions up to 6% of my salary in IBM's 401k plan. If I maximize these benefits (through my own contributions) I will receive an equivalent 8% of my salary in retirement plans.
In the new plan which begins January 1, 2008, I will receive an automatic 2% contribution to my 401k plan regardless of what I contribute. I will also receive a 100% match on contribution up to 6% of my salary in IBM's 401k plan. If I maximize these benefits (through my own contributions) I will also receive an equivalent 8% of my salary in retirement plans.
So is this a good or bad change? Initial review says this is a good change - the total contribution stays the same, but I now will have more control of my retirement money and what it is invested in.
However there are other things to consider:
- As was the case with me 401k contributions this year, I overshot the 401k limit towards the end of the year and wasn't able to make additional contributions in my last paycheck. In the new plan if you overshoot the 401k contribution limit the impact will be twice as severe as in today's plan (missing out on a 6% match, instead of a 3% match).
- What if something unexpected happens in the future and I need to stop contributing money to my 401k plan for periods of time for medical bills or unplanned emergency expenses? While I don't think its necessarily a good idea, I do think that there could be instances in the future where I would want to stop contributing to raise cash in emergencies for periods of time. Under this new plan my retirement plan is impacted more and I would be forced to loose an additional 3% of my match in this case.
Overall I think the change is a good step to make. I think it helps the company better position itself to manage current pension obligations for the future and as long as workers are savings themselves, they shouldn't notice a big difference. However my biggest concern is if a huge company in good financial shape, such as IBM, is realizing how expensive and big of a liability it is to save for the retirement of its workers, how are all the individuals going to be able to do it?
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