IBM surprised everyone by restarting its frozen pension plan after 15 years.
The company also halted contributions to employee 401(k) accounts.
This seems like a reversal of the trend where companies moved away from traditional pension plans.
Why it’s surprising:
Traditional pension plans were costly, so companies shifted focus to 401(k)s.
IBM, a leader in employee benefits, is making a significant shift.
The new plan is less generous for long-term employees.
IBM saves hundreds of millions by stopping 401(k) contributions.
The company doesn’t need to invest in the pension plan for now.
This move improves IBM’s cash flow and bottom line.
For companies with fully funded frozen plans, IBM’s move could be a trend.
IBM uses the surplus to change benefits and boost its finances.
IBM calls it a “retirement benefit account” within the old pension plan.
Backed by the government’s Pension Benefit Guaranty Corporation for security.
Employees immediately vested can make money when leaving.
IBM stops 401(k) contributions, impacting long-term employees.
New accounts offer 5% salary credit, lower than the old 401(k).
Employees get a 6% interest guarantee for the first three years.
From 2027, returns may decrease, relying on 10-year Treasury yields.
IBM workers can keep their 401(k)s but without a company match.
Employees in new accounts receive fixed-income investments only.
In the 1970s, 62% of private-sector workers had defined benefit plans.
By 2022, only 1% had defined benefit plans, and 41% had 401(k)s.
Companies shifted due to underfunding and poured money into 401(k)s.
Strong stock returns and increased interest rates changed pension funding.
Corporate pension plans are now well-funded, with S&P 500 at 102.7% funding.
IBM’s pension plan surplus was $3.5 billion last year.
The company credits retirement innovation for improved finances.
The CFO mentions lower cash requirements due to retirement plan changes.
IBM’s move might influence other companies with frozen plans.
Not a return to rich benefits, but a potential trend.
Companies need to balance generosity with responsibility.
IBM’s decision to revive its frozen pension plan is a surprising move.
While it benefits the company financially, it raises questions about the future of retirement benefits in the corporate world.
This shift might set a precedent for other well-funded companies with frozen plans.