IBM freezes pension plans

IBM freezes pension plans

KEY POINTS
The Pension Protection Act of 2006 further tightened rules for funding pensions, requiring that companies fund their pensions at 100 percent of obligations, up from 90 percent.

It also encourages 401(k) participation by raising the maximum contribution and allowing companies to automatically enroll employees without running afoul of state laws governing wage garnishment.

Monday, February 4, 2008

By JULIE MORAN ALTERIO
Gannett News Service

Last month might mark the moment when workers in America finally accepted the idea that pensions are on their way out.

IBM Corp., a large and profitable American company whose reputation for providing blue-chip benefits was once legend, froze all of its pension plans as of Jan. 1, saying the change would save the company $3 billion by 2010.

Benefits accrued as of Dec. 31 won't be touched, but the 107,000 U.S. workers enrolled in one of IBM's pensions plans won't garner any more years of service toward their final benefit even if they spend another 20 years inventing microchips or selling services.

While it was no surprise when General Motors, an ailing enterprise that lost $8.6 billion in 2005, decided to freeze its pensions, the new wave of freezes among healthy companies like IBM, Verizon and Lockheed-Martin has retirement experts predicting the era of the pension will soon be over for up to three-quarters of the roughly 21 million workers enrolled in such plans.

"These companies that traditionally did right by workers have given a green light to other companies," said Karen Friedman, a policy director at the Pension Rights Center, which has compiled a list of more than 75 companies freezing pensions in the wake of the IBM and Verizon moves.

"Companies are getting out of the pension business," Friedman said. "They are backing out of promises to workers."

David L. Wray, president of the Profit Sharing/401(k) Council of America, said corporations can no longer bear the entire burden of their employees' retirement.

"If you are going to live 30 or 40 years after you retire, you have to be a partner in providing the financial resources for that," he said.

As IBM freezes its pension plans, it is enrolling its workers in a beefed-up 401(k) plan that includes automatic contributions from IBM of 1 percent to 4 percent of salary.

That's on top of a dollar-for-dollar match of up to 6 percent of an employee's own contribution.

IBM stopped enrolling new hires in pensions in 2005.

The changes don't affect IBM's 125,000 retirees.

While retirement experts are calling the terms among the most generous in corporate America, they also caution that middle-aged workers are unlikely to save enough in their 401(k) plans to close the gap between their new benefits and the pension they would have enjoyed under IBM's old plan.

The new trend of pension freezes has its roots in legal and accounting changes that go back decades, a study by the Center for Retirement Research at Boston College shows.