IBM Makes Changes to 401(k) (WSJ)

Company could save millions by paying employee match in a lump sum at year-end.

IBM will alter its 401(k) plan next year by making its contribution to employee accounts in a lump sum once a year, on Dec. 31, in a move the Wall Street Journal estimates could save the company millions of dollars a year. IBM contributes from 6% to 10% of employees’ pay, but under the new system, workers who leave the company before Dec. 15 won’t qualify for the match unless they are retiring.

The Journal notes that for employees, the change eliminates the advantage of “dollar-cost averaging” which is the concept that multiple investments made over time average out risks and return.

According to Aon, about 9% of companies contribute their match just once a year, but Aon’s Allison Borland tells the Journal that such companies are generally those with older plans.

In 2008, IBM eliminated its pension plan and replaced it with a 401(k) that won praise for its low fees and generous company contribution.

 

 

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