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IBM switches 401k match to annual lump sum
Old 12-07-2012, 01:27 PM   #1
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IBM switches 401k match to annual lump sum

IBMers will have to wait a whole year to receive their 401k match, and if they quit or get laid off before Dec 15, they'll lose their entire year's match. I hope this doesn't spread to other companies.

IBM shakes up its 401(k) benefits - Encore - MarketWatch
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Old 12-07-2012, 01:57 PM   #2
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Doesn't surprise me at all. I used to work there. In the last 25 years or so, IBM has gone from being a great place to work (and retire from) to one of the worst places you can work (from a financial perspective).

The talk around the water cooler was "how will IBM screw us out of our bonus this year"? They always came up with these very detailed bonus plans, but when the bonus goals were met (almost every year), they'd come back with some excuse and tell you "didn't you read that all bonuses are descretionary? CEO Sam always got his bonus though.

Starting next year, I guess employees will have to wait until Dec 16th to quit. I can imagine some lawsuits if they layoff a bunch of people on Dec 10th (which they probably will).
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Old 12-07-2012, 02:13 PM   #3
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IBMers will have to wait a whole year to receive their 401k match, and if they quit or get laid off before Dec 15, they'll lose their entire year's match. I hope this doesn't spread to other companies.

IBM shakes up its 401(k) benefits - Encore - MarketWatch
My wife's company went that route 3 years ago. The match is now paid as a lump sum at the end of the year.

They also took advantage of the switch to cut the match.
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Old 12-07-2012, 02:19 PM   #4
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Doesn't surprise me at all.
Me neither. They've reduced costs and probably expect to discourage turnover - except within a narrow window in time. All companies, not just IBM, are always trying to balance what's good for the company's financial health with what employees value, much as we'd like them to favor the latter...
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Old 12-07-2012, 02:22 PM   #5
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Would kind of dent DW's plan to retire in July.
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Old 12-07-2012, 02:28 PM   #6
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Looks like they did manage to include an exception for retirements.
"...employees who leave the company before Dec. 15 will get no match for the year, unless it’s the year they’re retiring."
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Old 12-07-2012, 04:43 PM   #7
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The window isn't really that narrow. If you leave in the first quarter you won't have lost too much in matching benefits. Some, but probably not enough to discourage leaving.
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Old 12-07-2012, 05:39 PM   #8
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Just another form of golden handcuffs.

*scratches IBM off my list of possible future employment prospects*
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Old 12-07-2012, 08:46 PM   #9
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This is not a good trend. You could argue that well-matched and well-managed 401K plans are better than traditional pension plans for an increasingly mobile workforce. But doing this immediately reduces the corporation's future liability, so you can say it's an even trade. This seems to push it way over onto the side of the employer. Bad on IBM. And sad.
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Old 12-07-2012, 09:02 PM   #10
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If you go to the WSJ article which is linked from the initial link, it shows in a graph that 9% of plans already hold the match for a yearly "dump" to the employee. I can understand that smaller companies would need to do that. In this case IBM may set off a rash of similar action by other megacorp.

Hopefully there will be a really close look at this soon. At current rate of progress that may mean five years or more.
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Old 12-07-2012, 11:14 PM   #11
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I appreciate IBM's desire to reduce costs, but this seems like a poor way to do it. It's likely to encourage a lump of departures at one time each year (tougher to maintain continuity on projects). The randomness and uncertainty of who gets pinched will increase angst, it's probably better just to reduce the match amount rather than start the lotto. Finally, if a person is really ready to go, does IBM want them hanging around another few months to get the match?
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Old 12-08-2012, 07:27 AM   #12
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IBM certainly must have expected a poor reaction to this, yet they went ahead. This shows how difficult it is to find cost reduction elsewhere but how important it is.

It also shows IBM management is confident it can still attract the best new hires despite this. Not the picture of a vibrant, competitive labor market for college grads.
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Old 12-08-2012, 07:57 AM   #13
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I'm actually surprised this isn't the way it's always done for the match, from the company's perspective.
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Old 12-08-2012, 08:28 AM   #14
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I'm actually surprised this isn't the way it's always done for the match, from the company's perspective.
My first job out of school had a 401K but no match. Instead, they offered a profit sharing component that came out to about 10-12% of salary regardless of any contributions I made. It was put into a deferred account at year end and vested over 5 years. It had the same effect as IBM's year end matching plan. If you left at any point during the year you lost your profit sharing contribution for that year.

Given the economic crunch we have seen and will continue to see, I suspect more employers will move in this direction.
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Old 12-08-2012, 08:48 AM   #15
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My former Megacorp did something similar with bonuses (all employees got bonuses). They used to pay bonuses quarterly, but a few years before I left they started withholding 25% from each quarterly payout, and you didn't receive it until 2-1/2 months after year end. If you left even a day before the payout date, you did not get the withheld bonus.

Then in 2010, a few years into the recession, they "froze all base salary increases" - but then gave everyone an "increase" by reducing bonus on the first $XM of company earnings and adding 1/24th of that amount to each paycheck. If you left, including retiring, before year end and after the company reached the initial $XM threshold, you lost money. I basically lost 25% of bonus on the first $XM of company earnings by leaving 3 months before FY end. That was not apparent as I read the policy, but the suits interpreted the policy differently.

I had a local office retirement party, but I "politely declined" the bigger Corp retirement party when I left...

IOW, it's not unusual.
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Old 12-08-2012, 09:12 AM   #16
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There are two things happening here. One is the cash flow, the other is accounting. From a cash flow perspective the employee contributes monthly and the employer contribution is earned at that moment, even if it is paid less frequently, so who gets the "float" is the issue.

By changing the contract terms to "must be employed on 12/15" to earn the contribution the employer gets to reduce the accrual from monthly to yearly. This will generate a substantial one time saving and then slightly reduce the ongoing accrual cost.

IBM US 401k costs for 2011 were $875M. This move could earn an additional $4M per year in float. The ongoing benefit cost reduction should be much greater, at least twice that, and the current accrual could be reduced by at least 5x. So, in total, $12M in ongoing expense reduction and around $40M in a one time reduction. All cash, so it improves the cash generation by >$50M in one shot. Not a bad days work.
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Old 12-08-2012, 09:15 AM   #17
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Does this mean that folks who front load their 401k contributions will end up getting their expected match on the amount they put in, so they no longer have to carefully spread the contributions over the entire year to allow for paycheck by paycheck matching? For people with uneven compensation, the adjustment game needed to make sure there was still space available in the 401k cap for the last few paychecks of the year was annoying.
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Old 12-08-2012, 11:25 AM   #18
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This won't be the end of IBM's game of playing with employess retirement. IBM used to have a great pension. Then (as others have done) they converted to a cash value pension plan and contributed a certain percentage monthly into the pension. Then, they stopped contributing at all to the pension and moved some (but not all) of the former pension contributions into an increased match into the 401K. Now, you have to wait until the end of the year to get any match. My next guess in a couple of years they will reduce the match to the point where the original "pension" part is gone completely.

You know if a company is in bad shape financially, I can see these kind of moves as being needed. But for IBM, they make these moves even though they have been doing well. It's all about the next quarters conference call and how revenues can be increased and costs reduced.

No longer is IBM a place where new college grads gravitate to in order to get the name on a resume. It's an average (at best) place to work anymore.
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Old 12-08-2012, 11:37 AM   #19
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This won't be the end of IBM's game of playing with employess retirement. IBM used to have a great pension. Then (as others have done) they converted to a cash value pension plan and contributed a certain percentage monthly into the pension. Then, they stopped contributing at all to the pension and moved some (but not all) of the former pension contributions into an increased match into the 401K. Now, you have to wait until the end of the year to get any match. My next guess in a couple of years they will reduce the match to the point where the original "pension" part is gone completely.

You know if a company is in bad shape financially, I can see these kind of moves as being needed. But for IBM, they make these moves even though they have been doing well. It's all about the next quarters conference call and how revenues can be increased and costs reduced.

No longer is IBM a place where new college grads gravitate to in order to get the name on a resume. It's an average (at best) place to work anymore.
All may be true, but not sure it's fair to paint IBM alone with this brush. According to this source, private DB pensions like many of our parents had are down to less than 5% of companies in the private sector. Companies simply cannot afford to continue pensions once competitors start dropping them (and global competitors who never had them). Sad but...

FWIW, % of companies with a combination on DB + DC plans seems to held steady. Having spent a career faced with competitive pressure, cost control, future liabilities, etc. - it's not as easy as some people would like to think. And the decisions are rarely taken lightly or without understanding the impact.
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Old 12-10-2012, 11:36 PM   #20
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All may be true, but not sure it's fair to paint IBM alone with this brush. According to this source, private DB pensions like many of our parents had are down to less than 5% of companies in the private sector.
And, notice that DB plans were never the norm, either. Fewer than 30% of private employers offered them. There were others offered through labor unions, and that number has also declined as the percentage of unionized workers dropped, but I doubt there was ever a time when 50% of private sector workers were covered by DB plans.
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