New IBM Hires Lose DB, Gain Enhanced 401(k)

December 8, 2004 ( - The future of cash-balance plans literally hangs in the balance, as International Business Machines pursues an appeal of the landmark court ruling that its 1999 traditional defined benefit plan conversion to the nearly 20-year-old CB hybrid savings concept discriminates against older workers.

So it may not come as much of a surprise that starting on January 1, 2005, all new U.S. hires at IBM will be enrolled in a newly designed “401(k) pension” rather than the controversial cash-balance plan. Randy MacDonald, senior vice president of human resources for IBM in Armonk, N.Y., explains the change to contributing editor Bruce Shutan while also lamenting the industry’s restrictive legislative and regulatory climate.


Ultimately, our new plan offers one of the highest matches in the industry, both installment and annuity payment options in addition to lump sum, pre-mixed investment portfolios, automatic portfolio re-balancing, optional disability protection insurance – the only plan in the country to offer this so far – plus a wide range of investment options for the investor who wants to customize their own portfolio. In 2005 this will include access to commercially available mutual funds, which is a feature for the truly savvy investor.

U.S. employees. All we really have done is change the delivery mechanism. The fact that vesting is immediate means every employee who stays with IBM for at least a year and contributes to this new program will leave the company with some form of pension benefit, which we think is an appropriate statement around people's responsibility to save for their future, and we're contributing into that. I think the second thing it says is that we have a lot of comfort that our employees really can manage their own investments. IBM makes available a variety of investment-education services to employees that include informational material, small-group seminars, preferred rates for financial planning services and online modeling tools. Employees also have access to one of the country's best-known online financial education services, Financial Engines. We believe we have the largest professional workforce in the world and perhaps that could apply to the United States. We already have more than 90% participation in our existing 401(k), which is considered one of the best in the country with one of the lowest cost-basis points, and feel that new hires will feel exactly the same way.

United States in general. And we can't wait to file that appeal in another court and make the argument on the basis of why we think that plan is right. This is all about what we think is the future, and I do think some level of legislative and regulatory uncertainty has hurt DB plans unequivocally - taking down the number of plans to 31,135 last year from 97,683 in 1980. We think having the ability to protect yourself while you're at work in the event of an untimely disability, and having an option of having an annuity stream in your retirement years all set the right tone for going forward.

- Bruce Shutan