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IBM Reinstates DB Pension, Halts 401(k) Contributions

IBM Reinstates DB Pension, Halts 401(k) Contributions

"Reinstated Pension"

IBM has revealed a major shakeup of its retirement benefits with the reinnstatement of the Defined Benefit (DB) pension program and suspension of contributions to 401(k) accounts. This represents a stark departure from the norm, as DB plans have dwindled in popularity, with IBM itself suspending their DB plan in 2008 in favor of a 401(k)-focused approach.

The DB pension plan currently boasts $25.1 billion in assets as of 2022, positioning it to take precedence over the DC 401(k) Plus Plan which sits at $53.2 billion in assets. This indicates an interesting shift in IBM’s retirement strategy but will undoubtedly impact the company’s employee benefits structure.

IBM’s new payout plan consists of managing the investment of 5% of an employee’s income, pledging a 6% return during the first three years. Following this period, return rates will align with those of 10-year government bonds, promising a minimum of 3% until 2034, after which returns will depend solely on the bonds’ performances.

Statistics from the Bureau of Labor Statistics highlight a significant decrease in DB plan usage. In March 2022, a mere 7% of private non-unionized industry workers participated in DB plans. This marks a substantial drop from the 71% participation rate in 1975, indicating a broader trend towards individual retirement savings and investment.

Yet, IBM’s latest annual report points toward a $3.5 billion surplus in its DB scheme. Paired with cutting funding requirements for the overly-funded DC plan, this change could potentially support the new cash balance scheme for nearly 6-7 years and perhaps increase IBM’s annual profit by an estimated $550 million.

However, IBM will have to eventually channel corporate funds into the new plan. The level of investment performance may affect the timeline for these extra contributions. Although it might be financially advantageous for shareholders, the impact on employees will likely vary based on several factors including service duration and the strength of their retirement savings.

Consequently, while the new plan could be beneficial for IBM’s financial health, it is integral to align these corporate advantages with the needs and sentiments of employees to foster morale and productivity. The ultimate goal is to forge a financially tenable structure that caters to all stakeholders involved.

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