By Michael Malpass
IBM announced that it would be overhauling its retirement program so that it contributes to employee 401(k) accounts in lump-sum payments once a year, rather than every pay-period. Beginning 2013, IBM’s contributions, which generally range from 6 to 9 percent of pay, will be made on Dec. 31. Employees who leave IBM before Dec. 15 will not qualify for the match, unless they are retiring.
The change in IBM’s retirement program is meant to save the company millions of dollars in compensation expenses, and give valued employees who want to receive the match a reason to stick with their jobs – at least until Jan. 1, 2014. According to the Wall Street Journal, IBM’s retirement revamp is part of a larger trend among big companies. Earlier this year, Ford, General Motors, and many other companies started offering their retirees lump-sum payments instead of periodic matches over time. These efforts are part of a greater movement since the financial crisis to rein in retirement-plan expenses. Since 2009, many companies cut their 401(k) match, and only some of them have even partially restored it. In 2011, 7 percent of companies did not even make contributions to their plans, up from 2 percent of companies in 2001.
According to Fox Business News, IBM last year paid $875 million in matching and automatic contributions. As soft demand continues to affect its bottom line, IBM is looking to lower these contributions. IBM spokesman, Douglas Shelton, said in a statement that the change to annual lump-sum payments “reflects our continuing commitment to invest in our employee 401(k) plans while maintaining business competitiveness in a challenging economic environment.” Some employees, however, are unhappy with the change. Unlike contributions made every pay period, the size of annual matches often fluctuates depending on company profit. When company is doing well, employees get a larger percentage. When business slumps, employees get a smaller percentage. Brigitte Madrian, professor of public policy and corporate management at Harvard University’s Kennedy School of Government, said that Labor Department and U.S. Treasury officials “could be very interested in [IBM’s move] and if they’re concerned about it, they could say, ‘You can’t do that.’”