IBM bales out of pension plans; focuses on 401(k) plans instead
A few weeks ago IBM announced that effective December of next year it was going to cease
the accrual of all benefits in its pension plans. When a blue-chip corporation of IBM's stature
goes pension free, this is front page news.
But the rest of the story is even more notable. To compensate for turning its
back on traditional defined benefit retirement plans, IBM (historically known for
a progressive approach to employee benefits) also announced that its redesigned
401(k) plan was going to be the "richest in U.S. business."
Specifically, the enhanced plan will double the current matching rate to
dollar for dollar on the first 6% of salary deferrals and will add a discretionary
contribution from 1% to 4%. The plan will also make special employer accounts
of nonexempt workers and use automatic enrollment to encourage all eligible
employees to join the plan.
Meanwhile, 401(k) participation in employer sponsored plans nationwide has
steadily declined since 1999 (when it was 80%) to 70% in 2005. And from 1999 to
2005 the average rate of salary deferral for all 401(k) plans dropped from 8.6% to 6.9%.
According to the Secretary of Labor the national pension savings rate has fallen to its
lowest level in over seventy years.