IBM 401(k) plan changes coming in 2024. The technological behemoth recently announced a significant change to its employee retirement benefits that has sent ripples through its workforce.
Effective January 1, 2024, the company plans to bid farewell to its longstanding 5% matching contributions and 1% automatic contributions to employees’ 401(k) accounts.
Instead, IBM will usher in a new era of retirement benefits with an automatic 5% contribution into a “Retirement Benefit Account” (RBA) for all employees.
The company touts this shift as a means to diversify retirement portfolios and enhance financial well-being. But there are substantial concerns and negative sentiments among employees and financial experts.
See Wealth45’s IBM 401(K) Plus Plan page for additional details on current plan.
Understanding the Transition
IBM 401(k) plan changes. The shift from the existing 401(k) Plus Plan to the Retirement Benefit Account involves redirecting 5% of each employee’s salary into this new account. This move comes with a set of changes to the traditional retirement plan structure that has been in place at IBM.
Currently, IBM enrolls new employees automatically into the 401(k) plan. Directing 5% of their eligible salary into their 401(k) unless the employees opt otherwise. The existing plan offers both matching and automatic contributions. Eligibility kicks in after completing the applicable service requirement, usually set at one year.
Key features of the Retirement Benefit Account, including a guaranteed 6% annual interest rate. But only for the first three years. Plus, tax-deferred growth, market decline protection, no required enrollment or investment decisions, and immediate vesting and portability.
Concerns Surrounding the IBM 401(k) Plan Changes
Lower Company Contribution:
Currently, employees can get up to a 6% company contribution (1% automatic and 5% match). New plan only provides 5% company contribution. A net 17% reduction.
IBM promises a one-time salary increase to offset the difference between the current 401(k) contribution rate and the new credit. But the lack of recurring support may leave employees with a diminished retirement savings over the long term. Plus, the salary increase is taxable income.
Lower Returns:
Critics argue that the guaranteed 6% annual interest rate offered by the RBA falls short of the historical, inflation-adjusted returns of the stock market. Concerns about potentially lower returns could impact the long-term growth of employees’ retirement savings.
Less Flexibility:
Employees will no longer have the autonomy to decide how their retirement funds are invested. This lack of control, especially in comparison to the flexibility offered by a traditional 401(k), could be a significant drawback for individuals who value making their own investment decisions or utilizing their savings for loans when needed.
No More Match:
The elimination of the 401(k) match, removes a strong incentive for employees to contribute to their 401(k) plan. Almost certainly resulting in a reduction in employee 401(k) contributions in future years. Without this financial incentive, some fear that the motivation to save for the future may dwindle.
IBM’s Perspective and Rationale
IBM defends the 401(k) plan changes, stating that the RBA is designed to help U.S. employees “save for retirement automatically, with no contribution required from the employee.” The company emphasizes the RBA as a stable and predictable benefit that diversifies retirement portfolios, providing employees with greater flexibility and options.
The company justifies (per Reddit post) the move by stating that the introduction of the retirement benefit within IBM’s Personal Pension Plan, which is stable and well-funded, allows IBM to provide a benefit to employees while maintaining financial stability.
IBM asserts that periodic benchmarking against industry peers justifies the 5% contribution rate as aligned with market standards. The RBA offers a unique advantage: employees are not required to make contributions.
IBM Benefits Guide (2024 for U.S. Employees) – click to see document
Retirement
(For Regular Full-Time and Regular Part-Time Employees Only)
IBM Retirement Benefit Account (RBA)
IBM helps you to meet your financial and retirement goals through the Retirement Benefit Account (RBA). All regular employees begin participating in the RBA after one year of service.
You will receive a monthly pay credit that is 5% of your eligible pay, and your balance will grow with interest, which is applied monthly. The interest rate will be 6% per year through 2026. Then, starting in 2027, the RBA will earn the 10-year U.S. Treasury Yield, with a 3% per year minimum through 2033.
You do not need to do anything to earn an RBA pay credit from IBM. This means, unlike a matching contribution plan, you are not required to contribute your own money to receive the RBA credit.
Once eligible, you’re 100% vested in your RBA, so you have a permanent right to the RBA as soon as you begin to earn benefits and can take it with you if you leave IBM. When you choose to collect your RBA benefit, you can generally elect to have your RBA paid as a lump sum, take it as an annuity, or you can roll it over into another qualified plan (including the IBM 401(k) Plan, another employer plan or an Individual Retirement Account (IRA)).
For more information, visit the RBA Hub (w3id Single Sign-On required).
IBM 401(k) Plan
You can save through the IBM 401(k) Plan on a before-tax, Roth 401(k) or after-tax basis, or any combination of the three. Each option has advantages for you and different tax implications. Savings are automatically deducted from your paycheck, and you determine how to invest them.
For more information about your 401(k), please visit the w3 401(k) page.
IBM 401(k) Plan Changes Conclusion
IBM’s shift from a traditional 401(k) match to the Retirement Benefit Account is undoubtedly a significant change. The change has ignited both skepticism and concern.
While the company positions this transition as a move towards stability and flexibility. Employees and financial experts are grappling with the potential downsides, including disincentives to save, loss of control, lower returns, tax implications, and limited compensation for lost matches.
As IBM’s workforce navigates this transformative period in retirement benefits, the broader conversation around the role of corporations in managing employee retirement funds gains prominence.
The ultimate impact of this change on individual financial well-being remains to be seen. But it underscores the importance of informed decision-making and ongoing dialogue between employers and employees in shaping retirement policies.
