IBM 401(k) match ends in 2024, replacement raises eyebrows

Tech giant IBM will replace its 401(k)-matching program with a different kind of benefit that many employees and financial advisors worry will dampen retirement savings and become the norm. 

In a memo to U.S. employees last week, IBM said it s switching its 5% 401(k) match and 1% automatic contribution to an automatic tax-deferred 5% retirement benefit into a new “Retirement Benefit Account” (RBA) starting Jan. 1.

Each employee who s served at least a year will receive a monthly account credit up to IRS limits and a one-time salary increase, separate from the company s annual pay plan, to offset the difference between the current company 401(k) contribution rate and the new credit.

IBM said it s guaranteeing a 6% return on that money through 2026. From 2027-2033, it guarantees the 10-year Treasury yield with a 3% floor and in 2034 and beyond, employees will receive whatever the 10-year Treasury yield is. The 10-year Treasury yield is currently hovering around 4.5%. 

Not only does the plan look less lucrative for employees, but financial advisers fear that if a Fortune 500 company like IBM can pull this off, other companies will follow. 

Probably the most concerning thing is how the risk is getting shifted to employees, said Phillip Hulme, founder of Atlanta-based Stars & Stripes Financial Advisors and adviser to some IBM employees.  

via www.usatoday.com

If this becomes widespread, it is a very big deal for the middle class. 401(k)’s (and 402(b)’s) are where most middle class wealth comes from, after home ownership. For example, I just put all of my retirement funds in the stock market and left it there through the Great Financial Crisis, and that turned out well for me. You couldn’t do that with IBM’s arrangement. If IBM went broke, you’d be even worse off.

H/t Glenn Reynolds on instapundit.

The history of 401(k) is fascinating. I’ll try to find a podcast about it. Basically, it was supposed to be just for top executives, but then got out of control, and by the time the IRS decided they were losing too much money, it was too late. Stock ownership had already been discovered by the middle class. It’s one of the reasons we’re different from Germany, France, UK, and other countries. We have a stake in our country’s economic success.