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January 06, 2006
IBM Freezes Pension

IBM has announced that it is freezing its pension plans effective January 2008 and will contribute more to employee 401(k) savings plans.

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The company's pension plans will stop accruing new benefits effective December 31, 2007. All benefits earned through year-end 2007 by participants in its pension equity and cash balance plans will be preserved as of that date.

The company will redesign its 401(k) savings plan by giving current pension plan participants an annual company-funded contribution of as much as 10 percent of their pay.

To provide this benefit through its new 401(k) plan, IBM plans to double the current company match to dollar-for-dollar on up to 6 percent of salary deferrals, and to make additional automatic contributions of 1 to 4 percent of employees' pay into their 401(k) account.

The company says it will also assist nonexempt pension equity plan participants to save more by providing an annual special savings award of 5 percent of pay to their 401(k) savings plan, in addition to the company-funded contribution of up to 10 percent of pay.

IBM says it will open accounts for employees who do not contribute to the plan 401(k), and annually deposit the automatic company contribution of 1 to 4 percent of their pay directly into these employees' accounts.

The changes do not affect IBM's 125,000 current U.S. retirees, former employees with vested benefits or employees who retire prior to January 1, 2008.

"We're taking these actions to better control retirement plan expenses, position the company for business growth and competitive strength, and preserve employees' earned retirement benefits, while instituting a leading-edge 401(k) plan that will be one of the richest in the country and a standard in the United States ," says Randy MacDonald, IBM senior vice president, human resources

IBM expects the U.S. plan changes, along with 2006 retirement plan changes under consideration in several other countries, will result in worldwide retirement-related expense savings of $450 to $500 million for 2006, and $2.5 to $3 billion for the period 2006 through 2010.

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