IBM Draws Flak for Changes to 401(k) Savings Plan

International Business Machines Corp. (IBM), the largest computer-services provider, drew fire from a worker organization for a change to its 401(k) retirement plan that cuts the frequency of company contributions to once a year.

The company will switch from matching employee contributions to their 401(k) plans twice a month to every Dec. 15, a move that “shortchanges IBM employees,” Alliance@IBM said on its website. While the amount that employees receive isn’t changing, workers who leave or are fired before Dec. 15 won’t get their payment for the year.

IBM said the change was made to help keep the company competitive. The move may set a precedent for companies looking for savings in employee benefits, said Dan Kravitz, president of Kravitz Inc., which administers about 1,000 retirement plans.

“I wouldn’t be surprised if other employers started to look at this for their plan,” Kravitz said in an interview. “Requiring employees to stay through the end of the year to get a match would be pretty significant cost savings for such a large employer.”

U.S. workers have increasingly relied on 401(k) plans since the 1980s, when defined-benefit plans became less common. The name refers to a section of Internal Revenue Code enacted in 1978 that lets workers contribute to their retirement accounts on a tax-deferred basis. Americans held $3.3 trillion in 401(k) plans as of June 30, according to the Washington-based Investment Company Institute, a trade group for the mutual fund industry.

IBM will match employee contributions to their plans dollar-for-dollar as much as 6 percent of pay for those hired before Jan. 1, 2005, and as much as 5 percent for those hired after, IBM said in a statement e-mailed by Doug Shelton, a spokesman.

Less Common

While IBM isn’t the first company to move to matching contributions once a year, the practice is less common than including 401(k) deposits with each pay period, Kravitz said. The company doesn’t disclose how many U.S. employees it has. Alliance@IBM estimates there are 84,500, out of a total of more than 400,000 worldwide.

Alliance@IBM, which is affiliated with the Communications Workers of America, has asked IBM management to reinstate the semi-monthly plan. The group is trying to organize workers at the company with the goal of forcing IBM to engage in collective bargaining.

“This change reflects our continuing commitment to invest in our employee 401(k) plans while maintaining business competitiveness in a challenging economic environment,” IBM said in the statement.

IBM, based in Armonk, New York, gained 1.2 percent to $191.95 at the close in New York. The shares have climbed 4.4 percent this year.

To contact the reporter on this story: Sarah Frier in New York at sfrier1@bloomberg.net

To contact the editor responsible for this story: Nick Turner at nturner7@bloomberg.net

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IBM Draws Criticism From Employee Group for Change to 401(k)

Scott Eells/Bloomberg

International Business Machines Corp., the largest computer-services provider, drew fire from a worker organization for a change to its 401(k) retirement plan that cuts the frequency of company contributions to once a year.

International Business Machines Corp., the largest computer-services provider, drew fire from a worker organization for a change to its 401(k) retirement plan that cuts the frequency of company contributions to once a year. Photographer: Scott Eells/Bloomberg