IBM switches 401k match to annual lump sum

[Alan]

From your graph about 17% of private sector companies have DB plans.
4-5% of companies have ONLY DB plans...
but another 12-13% have BOTH DB and DC plans.

Unless I'm misinterpreting the black line as being companies that have both types of plans.

The company I retired from 3 years ago had a traditional DB pension plan and a 401k with a 50% match for the first 5% of employee contributions. It also still has a retiree HI plan. (so far so good)

 

[Midpack]

From your graph about 17% of private sector companies have DB plans. I assume you meant DC here.
4-5% of companies have ONLY DB plans...
but another 12-13% have BOTH DB and DC plans.

Unless I'm misinterpreting the black line as being companies that have both types of plans.

I haven't figured out your numbers. In 2008:

• Turquoise: About 31% had defined contribution plans - 401K et al
• Black: About 12% had a combination of DC & DB - though DB/pensions are typically some fraction of DB only companies
• Green: About 3% still have DB only plans - pensions or annuities

Here's that chart again.

 

[marko]

Then again, there is no requirement for IBM (or any other company) to do ANY match at all.

Isn't this another form of entitlement expectation? Somehow they're the bad guys for trying to get some wiggle room in a benefit they don't even have to provide.

 

[azphx1972]

Then again, there is no requirement for IBM (or any other company) to do ANY match at all.

Isn't this another form of entitlement expectation? Somehow they're the bad guys for trying to get some wiggle room in a benefit they don't even have to provide.

They don't have to provide it, but if they want to attract talent then they'd want to make sure their benefits package match those of their competitors, at least on the surface.

 

[PatrickA5]

Then again, there is no requirement for IBM (or any other company) to do ANY match at all.

Isn't this another form of entitlement expectation? Somehow they're the bad guys for trying to get some wiggle room in a benefit they don't even have to provide.

They don't HAVE to provide any benefits (at least not yet). I expect the match to come down over the next several years as they look for more ways to cut expenses (or to offset new upcoming benefit expenses).

 

[Lazarus]

I only have a problem if they promise it and don't deliver it.

 

[marko]

They don't have to provide it, but if they want to attract talent then they'd want to make sure their benefits package match those of their competitors, at least on the surface.

I agree. Except I can imagine a lot of people would be happy just to get a job at this point.

"...a job that pays $70K with HCI?....no 401K?.......OK!"

 

[Retch The Grate]

My current and previous employers both had no matching on the 401k, which is painful. Higher salary than I had at the employer before that, but when you add in the benefits the lower salary position ended up being somewhat better remuneration than my previous job. I'm not actually expecting to see 401k matches anywhere in the future, at this point I'm glad just to get the tax benefit...

 

[Huston55]

I haven't figured out your numbers. In 2008:

• Turquoise: About 31% had defined contribution plans - 401K et al
• Black: About 12% had a combination of DC & DB - though DB/pensions are typically some fraction of DB only companies
• Green: About 3% still have DB only plans - pensions or annuities

Here's that chart again.

So, it seems to always (since early 80s) have been the case that a minority of employers offered any type of retirement plan. Add union pension plans on top of that (~20% Of work force in early 1980s and ~12% now), and there are still lots of folks without anything except their own savings. This is certainly a major factor in the meager average retirement savings in this country.

 

[foxfirev5]

My perspective certainly isn't that of a normal employee. But this gradual decline in benefits has been going on for at least the last 25 years. First the DB plan went, max vacation weeks dropped, increases in health insurance passed on to employees, 401k matches decreased etc. All the more reason to LBYM and save, invest and save some more. Even with the thousands of mistakes I've made over the years I like most here reached FI. Nothing fancy just play the hand your delt and make adjustments as required. Certainly this is not easy but it is possible.

 

[PatrickA5]

My perspective certainly isn't that of a normal employee. But this gradual decline in benefits has been going on for at least the last 25 years. First the DB plan went, max vacation weeks dropped, increases in health insurance passed on to employees, 401k matches decreased etc. All the more reason to LBYM and save, invest and save some more. Even with the thousands of mistakes I've made over the years I like most here reached FI. Nothing fancy just play the hand your delt and make adjustments as required. Certainly this is not easy but it is possible.

I feel sorry for my kids generation (around 30). If they can find a job, the benefits aren't that great (depending on the industry). I look for a gradual decline in benefits over the next 2-3 decades with 401K matches to be a thing of the past. When you add in much less employer help and probably much lower SS - it won't be pretty when the next generation retires.

 

[samclem]

So, it seems to always (since early 80s) have been the case that a minority of employers offered any type of retirement plan. . . . This is certainly a major factor in the meager average retirement savings in this country.

Yeah, how does that work? "My employer hasn't set up a pension plan for me and doesn't contribute to a 401K match. No sense in me maxing out my IRA, letting it accumulate, and putting away after tax retirement savings. If my company doesn't think it's a good idea for me to have retirement savings, why should I do it myself?"
Another reason for the low level of savings even within retirement savings vehicles is the fact that employees frequently spend the money on other stuff.

 

[travelover]

Yeah, how does that work? "My employer hasn't set up a pension plan for me and doesn't contribute to a 401K match. No sense in me maxing out my IRA, letting it accumulate, and putting away after tax retirement savings. If my company doesn't think it's a good idea for me to have retirement savings, why should I do it myself?"
Another reason for the low level of savings even within retirement savings vehicles is the fact that employees frequently spend the money on other stuff.

Good point. Think how well it would work to move Social Security to a 401(k) style of retirement scheme.

 

[Midpack]

I feel sorry for my kids generation (around 30). If they can find a job, the benefits aren't that great (depending on the industry). I look for a gradual decline in benefits over the next 2-3 decades with 401K matches to be a thing of the past. When you add in much less employer help and probably much lower SS - it won't be pretty when the next generation retires.

IOW, most of us here should consider ourselves fortunate for the times we worked/lived in, to some extent. I know my 90 yo parents have come to realize their timing was nearly ideal...they retired with full COLAd pensions and retiree health care for life.

 

[l2ridehd]

This trend will continue as long as US companies are managed quarter to quarter by Wall Street reporting. I worked 30 years for IBM and retired on December 31, 1996 because they were eliminating the free retirement medical on January 1, 1997. So yes I still get a free medical plan, but oh how it has changed. Now it is still free, but with a VERY high deductible. Still good to have though. Also still have the life time pension. Went to work for another company in the same field and earned a lot more salary, but much less in benefits.

This change may not be so bad if you think about how you contribute. Used to be I adjusted my contribution % so as to max the matching over the entire year. Now you can max out your contribution early on and gain the increase time your part is invested. Based on most company match amounts this may actually work in your favor. I know I used to get the "catch up amount in as fast as possible for that reason. Lets say I maxed out each year and put 20K in my 401K spread over 12 months to maximize the match. That would be on average 10K invested over the 12 months. If I was able to put the 20K in during the first 3 months, my average invested amount now becomes 17.5K for 12 months. So does a 8% return on 7.5K for 12 months or about $600 offset the spread out earnings on the 3% to 5% company match? For a 3% match it does, for 5% you lose a small amount. Just need to max out contributions and catch up amounts as fast as possible during the first few months of the year to help offset the delayed company match.

 

[rodi]

I haven't figured out your numbers. In 2008:

• Turquoise: About 31% had defined contribution plans - 401K et al
• Black: About 12% had a combination of DC & DB - though DB/pensions are typically some fraction of DB only companies
• Green: About 3% still have DB only plans - pensions or annuities

Here's that chart again.

My numbers are simple addition of Black and Green.
Black is a logical AND, not a logical OR. So black is for companies that have BOTH types of plans...
Green is for companies that just have DB plans.
Turquoise is for companies that don't have DB plans.

In a venn diagram - black is the overlap area, Green is the area outside the overlap, but containing DB plans.

At least that's the way I'm interpreting it based on the language on the diagram. I'll give you that your eyeball of the percents might be more accurate - we're within a percent of each other.

 

[samclem]

Think how well it would work to move Social Security to a 401(k) style of retirement scheme.

On an individual level, some folks would come out a lot better, others would come out worse. But, from a social perspective it wouldn't accomplish what SS now does (wealth transfer from young to old, wealth transfer from highly paid workers to less well paid workers, and a degree of social welfare/disability safety net for everyone).

 

[Sesq]

A substantial portion of my pay is bonus which vests on the last day of the year. Every January we wait and see who is quitting. Then, in March the stock vests (and the bonus that vested in December is paid) we look around again.

I think the shifts in voluntary attrition due to vest dates like this has the biggest impact on how the biz is actually run. In my department, the January departures were the worst because we were in the financial close. The stock plan has helped lessen this for which I am thankful.

 

[FUEGO]

What's the big deal? IBM wants to retain and reward long term employees because it is expensive and disruptive to have turnover. This plan change seems to favor long-term employees over those who are short timers. Maybe their candidate pool of job seekers will self select out (ever so slightly) the short timers.

DW's company recently did the exact opposite of the move to lump sum 1x a year. They used to have a 401k match and 401k retirement contribution on March 31 of each year, along with payment of the annual bonus and retroactive payment for the current year's raise from Jan 1 to March 31. So it was a huge payday for all on March 31. Now they spread out the employer's 401k contributions to be deposited in equal amounts each payday. I suppose it is nice to get those contributions an average of 9 months earlier, since we get to enjoy the fruits of the float for 9 months instead of the employer. Except I think the change in payment structure was all a pretext to conceal the lower the benefit amount they just instituted a couple months ago. No one is as up in arms when they see a couple hundred bucks disappear from their 401k deposits every 2 weeks, but losing thousands and thousands in contributions all at one time on March 31 would be very noticeable.

 

[travelover]

On an individual level, some folks would come out a lot better, others would come out worse. But, from a social perspective it wouldn't accomplish what SS now does (wealth transfer from young to old, wealth transfer from highly paid workers to less well paid workers, and a degree of social welfare/disability safety net for everyone).

That's true. I guess if we did go to a 401(k) style plan we would first have one generation rotting in the streets but the subsequent generations saving like crazy to avoid their parent's and grandparent's fate.

 

[youbet]

I feel sorry for my kids generation (around 30). If they can find a job, the benefits aren't that great (depending on the industry). I look for a gradual decline in benefits over the next 2-3 decades with 401K matches to be a thing of the past. When you add in much less employer help and probably much lower SS - it won't be pretty when the next generation retires.

And you're leaving out the fact that today's youth is being asked to pay higher taxes or accept lower future benefits for themselves to support entitlements for current geezers........ That's the problem with schemes like SS. The gov't promises big benefits while times are good. Sometimes the next generation has to pay for them while times are bad.

Today's young people should be rioting in the streets.

 

[FUEGO]

Today's young people should be rioting in the streets.

Or save as much as possible right now and then ER very early so our wages won't be confiscated any greater than they are today.

 

[azphx1972]

Will 401(k) plans keep getting worse? - CNN.com

 

[youbet]

Or save as much as possible right now and then ER very early so our wages won't be confiscated any greater than they are today.

Well, yes, not having wages is a good way to not have your wages taxed. They'll probably have to go after your wealth through a wealth tax, national sales tax or VAT....... Or just continue to print money and your savings will inflate away. Or, or, or...... whatever. It'll have to come from someplace! And the "taxers" can be very, very creative! Look at all the stuff they've created over the past few decades.

But I think the real lesson is that compensation plans need to pay in real time out of current income with zero promises that future generations have to pay for. Signing up tomorrow's workers to pay for stuff for today's geezers is a recipe for failure that we're just starting to have come crashing down on us now.

401k's, IRA's and other retirement saving plans funded with current income/earnings - Yes!
SS, pensions and other retirement vehicles requiring financial inputs decades into an uncertain future - No!

BTW, I admire your attitude, at least on this particular issue!

 

[ls99]

Another day at the camp. Loaded scrap metal in pickup truck. Weighed 900 lb.

Yup, a good workout.

After getting home and shower, DW graciously applied Blue Emu goop to several achy parts.