IBM cancels 401k matching, replaces with proprietary pension fund RBA (opens in new tab)

Yes, the RBA seems an incredibly bad long term investment strategy.

You are essentially switching to your retirement strategy being loaning your money to IBM at the lowest possible interest rate, vs investing with and growing with the American economy as a whole. The difference in compound interest between the two is going to epic over twenty to forty years.

The SP500 has more than 50x since 1970. If you had your money in 10 year treasury bonds, that would be less than 12x. So you'd have 1/4 as much, and IBM would have 3/4 of what you would have had.

They are doing this because it's better financially for IBM the corporation ... period ... full stop.

Speculation is that it’s beneficial to IBM because the money will be under their management rather than Fidelity’s. What exactly they’re allowed to do with that money, I’m unsure.

> Anyone know what is prompting this change?

A lot of the free money that was flying around has dried up and it's easier to cryptically "rework our retirement benefits program" than it is to openly cut the unsustainable salaries that were offered during flush times.

It's the same reason that everything's finally being monetized, massive layoffs washed through, and prices are being increased. At best, it'll be the soft deflation of an egregious 5-10 year bubble and we'll remember that you can't get paid $300k out of college to write glue code nor expect to get all your online services for free.

Am I reading it right that you are just getting IBM defined X% rate of return? So even if the market does gang busters, you might get none of that upside?

Do these have any tax advantages to speak of like an IRA or 401k? Are they bankruptcy shielded?

Yeah it's not good. Once the matching contribution is vested, the money is yours to do with as you please -- including potentially loaning the money out to yourself.

Having you private pension fund be owned by the company you work for is TERRIBLE

My father had almost all of his savings in a pension fund by a bank (he worked at that bank) that was later acquired by Santander. They completely screwed him over with his pension, lawsuits are ongoing for almost 20 years now. My father passed away last year still dreaming about all the money he was "about to get" from the lawsuits

the 3 years of 6% interest sounds good, though. But after that it sounds like it could be a lot lower.

Yes, I’m not sure why but the link got swapped out when I posted the story

Yes this is true, "the conversions did not generally work in their (employee) favor, although the old old timers were allowed to stay on the pension".

Once caveat was that the IBM older pension plan was more valuable than a 401k plan because IBM investment strategy was far better than the average 401k investor options.

"Conversions did not generally work in their favor" for these reasons: 1) IBM originally announced (around 1999) that all active employees were converted to the less desirable 401k plan. After a lawsuit, IBM had a formula for who got the more valuable older pension. Two people have 18 years of service for IBM. The younger one (say 45 years old) had no choice but to switch. The older one (say 50 years) was allowed a choice.

2) IBM was able to control the amount for the 401k payout. Their pension value (easily calculated future value based on salary and years of service) was converted into present value based on IBM's estimation of the amount you could make in free market investments. So essentially they said "Your $2M pension is worth $36k today because we calculated you can make 20% per year in investing. Here's your $36k for 18 years of service." (By the way, IBM salaries were usually lower than most other companies because they always touted their great pension plan that no others could match.)

Both these points were argued in courts. The first point was won by some employees, not all, only IBM knows. The second point was won by IBM.

And when I was at IBM (left ten years ago), they had just put in a change to the 401k match where they didn’t contribute the match every pay period but rather all at once on December 31st... assuming you were still employed on December 15th of that year. Quit or get fired before that, kiss your 6% (some of the older folks had 8% I think) goodbye!

Most people overweight in stocks, which considering bond returns over the past 30 years is probably a good idea despite the risks.

The shareholders are poorer than they were 10 years ago. This company is an employment program for incompetent executives.

Well, at IBM, maybe they do.

Revenue is heading steadily down. Profit is down 50% over the past five years. All during a massive tech-fueled economic boom. What are they doing over there?! [valustox.com/IBM]

Ideally, all workers should be invested in their own company and a diversified set of other public companies. Most already are.

Exactly finally someone thinking of the poor executives and shareholders. These lazy workers I remember back in the days of my youth when a man would work for 23 hours a day with the only break being the 3 minutes you'd have to fish the bodies out of the molten steel before it set.

Those were the days. remembers in Mr. Burns

Looking at the stock chart for IBM, I think someone should start thinking of them... But this is not likely move the needle.

Don't forget your </sarcasm> tag. A percent will always think this is serious. :)

This was covered well in a PBS Frontline documentary, "The Pension Gamble":

https://www.pbs.org/wgbh/frontline/documentary/the-pension-g...

And also in their followup, "The Retirement Gamble":

https://www.pbs.org/wgbh/frontline/documentary/retirement-ga...

Both can also be found on YouTube.

I rewatched both just a few months ago, to understand the history a bit better. The short answer is that eliminating pensions was part of a larger restructuring in corporate America, wherein major companies that became megacaps in the 20th century used the Chapter 11 bankruptcy rules as a shield to eliminate employee pensions, while the burgeoning consumer finance industry of the 1980s and 1990s was all too eager to create a new fee-generating monster in the form of 401ks.

These days, employer-matched 401ks with low-fee index funds are the only sane retirement tool available to middle-class workers, but much like US employer-sponsored healthcare, the system is about 10x more complex and 10x more precarious than it otherwise could be, and it benefits all sorts of ridiculous middleman paper-pushing rent-seeking corporations along the way. The news from IBM is ironic because employees will rightly revolt against this "pension" because now that Vanguard-style low fee funds have become ascendant in 401k accounts, a number of new unscrupulous financial actors are pitching "pension plans" to companies which are really opaque fee- and cash-grabs for employee retirement accounts.

My wife worked at Boeing for seven years in the 1980s, in management. We tracked down her pension recently, hoping for a huge payout after it had been invested for 35 years. It turns out that she will get $96/month. We are very disappointed in the Boeing pension managers.

Pensions went away because for most they were worse. If you stay at the same company from 25 to 65 and live to 105 they are better than a 401k. However if you found a different job (including because you got laid off) the amount you got was severely reduced (not to zero, but my dad could have got $.75 month starting at 65, if he had joined a pension at 22 when he started in 1975 until 1985 when the nearly bankrupt company finally laid him off. In 1985 he got a job with a company that instead offered a 401k, and there got a small nest egg. If he had stayed at that company until 65 he would have got something like 1000/month, which sounded great in 1973, but there was a lot of inflation in the next decade.

I don't remember exact years or numbers above, but they are close enough for discussion.

Republican political philosophy.

Company-administered pensions offered little to no opportunity for a financial services middleman to collect a percentage, and involved employers promising their employees things that might (might) cause some pain to the employer to deliver.

So a story was made up that "you can do better on your own investing in the market", thus allowing Fidelity et al. to collect their cut, and to let employers off the hook.

And of course, like all other Republican political policy that asserts that you are responsible for yourself and nobody else is, it has all turned out swimmingly, don't you agree\?

Changing from defined benefit plans (pensions) to defined contribution (401k/403b) plans shifts the risk of poor investment performance from the employer to the employee.

Really? You would want your retirement tied to your employer? You would want to have to stay committed to one employer your entire career?

You don’t have to be an expert. Most 401K plans have index funds and target date funds.

Pensions are expensive and susceptible to interest rate swings. Defined contribution plans like 401ks are easier (for companies) to budget for.

The American experience is not designed for people like us, workers, to succeed. It is designed for a capitalist to extract more capital from us.

Our 401k (and health insurance, etc.) is completely separate from IBM so I doubt it.

Are you a shareholder?

Propping up, probably not. Enriching IBM directly and indirectly, probably yes.

Crypto.

Unlikely. I haven't head anything about it and our 401k plan, health insurance and so forth has remained separate from IBM with no (public, at least) plan for that to change.

I wish I could specify which financial provider I wanted to use for managing my accoiunt, provide info similar to ACH info for direct deposit, and go from there (ditto with HSA). Instead, I have to remember to roll-over 401k account assets after I change jobs, something I cannot do immediately and easily forget about.

The fund is based on 10Y treasury bonds which have significantly underperformed the S&P historically. First 3 years, you get a 6% guaranteed return. The remainder, you get only 3% guaranteed. For reference, my HYSA yields 4% a year.

I wish there weren't as many tax law distortions that make employer-sponsored healthcare and retirement a thing at all.

And you’re comfortable with being tied to your company in retirement? Are you comfortable with not being able to easily transfer your money when you change jobs?

I agree with you but this isn’t a true pension. It’s just an investment strategy that offers yields that barely cover inflation. If it were a true pension with x% of your take home monthly after you retire till death I would be on board with your comment. In this case the 401k is the lesser of the two evils.

The investment fees on a 401k are very low. My index funds are at 0.03% right now. Fancier bond or emerging market funds are even then only at 0.40%

But look at Calpers. They have $500 billion in management and an annual budget of $2.5 billion. That's a huge amount just to run the damn thing.

And then they go and invest in private equity, hedge funds, and VC funds, all charging their variation of 2/20 on top of everything.

401ks and pensions are ultimately invested in the same thing. The equity and debt of businesses. But 401ks have much lower fees.