Anderson Law Offices

IBM bales out of pension plans; focuses on 401(k) plans instead

03/23/06

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.