Comments on: IBM freezes pension, switches to 401(k)

To save billions of dollars, Big Blue is halting contributions to its pension fund and shifting workers to an expanded 401(k).

[lazura]

The current wave...

This is typical of most corporations; moving employees into much lower earning (but cost saving to the compnay) 401K plans and away from traditional pension plans. IBM's statement of 81% of their employees will get the same or greater pension amounts is a flat out lie since it's based on a employee-managed growth rate that can rarely be achieved. One of the little known secrets of this type of shift is that the employee is now paying the fund management fees in a 401K plan (even on their own contributions), where as the company pays them in a defined-benefit plan. The only way an employee will get more out of a 401K plan than a defined benefit plan at retirement is if a) the employee contributes a significant amount of their own money and b) they get lucky enough to pick the right funds. And don't forget, the top executives at IBM will still keep their own special defined benefit plans and not be impacted by this change. It's the rank-and-file that get impacted. The IBM spin on this supposed change benefiting the employees is quite despicable.

[dimonator]

Andy Lazur Is Correct !

I took early retirement last year from an employeer that had both defined benefit & 401 plans- dig it. The 401 is only optimized when you max or ge close to maxing your contributions AND take the PAIN to LEARN how to pick the "right funds"( you wont hit winners all the time). SO I'M a TELLIN YA - GET A FINANCIAL IQ!

This wont be easy to develop since most of us work for a living, and try to have a life, also. BUT IT IS YOUR MONEY!!!!! H.R. doesnt care what you make, and other people will resent you if you suddenly fall to the ceiling!!!!

So, figure out how much is enough - then read the free lit within your 401 offerings (8-10% is a base, not the max to expect out of 401 growth) Study terms and definations, read newsletters, try to find a financial mentor( BUT WATCH OUT WHO YOUR EXPERTS ARE)! There is a lotta crap out there also. Remember there is no free lunch. Hear of Dot.com?

Invest and save- dont touch that 401. Be vigilent,become educated. Most of all dont worry -be happy. Figure out what you want out of life and that 401, and OTHER savings, and go for it. I went form $1,900.00 to $248,000.00 in 15 years through my 401, yet when I started, I knew squat about investing. Now, I'm doin my own thing while trying to give back.
I encourage savers and investors to develop their financial I.Q.s NOW. It is your money and YOU can eliminate inertia, feel the fear and pull it off. Good "luck".

[fuzz_ball]

Middle class may one day disappear...

Be prepared for it. Unfortunately in our country we have let capitalism and "the Market" become the dominating force in all our decisions. Here are things we likely have to look forward to:

Pensions--already disappearing as a standard benefit for years now--will rapidly be replaced by 401Ks and other more volatile retirement savings plans (greater risk to employee, lower cost to employer).

Medical benefit costs will continue to shift onto the shoulders of employees.

The part-time revolution will begin: companies will see the benefit in hiring people to work 32 hour(+or-) weeks in order to deny them a benefit package. This "savings" will allow them to hire more workers and actually increase their output for the same cost per person-hour, or not hire additional bodies and still get the same overall output for less money.

Peak Market efficiencies occur once everything is commoditized, and employees will someday become one of those commodities.

Volatile?

"will rapidly be replaced by 401Ks and other more volatile retirement savings plans (greater risk to employee, lower cost to employer)."

401k's are as safe, if not safer than traditional pensions (as long as, as a previous poster mentioned, you take advantage of them). A pension can be wiped out completely if a company goes bankrupt. How volatile is that? And that is NOT a rare occurrance. Ask a US Airways employee. At least with a 401k, the money is in your control.

Sure, its not guaranteed for life. But its yours. This is america, control your own life.

[markdoiron]

And Our President ...

and our president, just a couple months ago, was speaking about the need for corporations to own up to their obligation to their employee's retirement. consider there are three legs to retirement: company retirement plans, social security, and personal savings. company retirement plans all over are underfunded and/or being reduced/curtailed. social security is on shaky ground and is very unlikely to pay as much as it does today. and personal savings are at historic lows, even negative (meaning we spend more than we save) some months.

mr. president: it's going to take more than talk. it's going to take genuine leadership. leadership that acknowledges its responsibility to those who can't afford to curry favor with the politico's through huge financial contributions. otherwise, i believe there will be a sea change in the leadership of this country, but by then i think it will be too late to recover without incredible pain to lots of common folk.

mark d.

[scdecade]

You're doomed to be broke

If you want to wait around for a bunch of politicians to reach a consensus on how best to tax the 'rich' to pay the largest voting block they can scare then you're doomed to be broke.

Here's a tip. You are resonsible for yourself whether you want to be or not.

[markdoiron]

Irrelevant Remark

"tax the rich"? this story is about the pay folks would like to earn in a job (via fringe benefits), not about taxing anybody.

and, if that remark was directed at me, fyi i retired quite sufficiently happy with my financial situation six years ago--at the age of 50.

mark d.

[lazura]

Another 401K myth...

In addition to my post above about the details of this switch from a defined benefit pension to a 401K, here is another reason why IBM (and other companies) are lying about the benefit to employees in this switch. The defined benefit pension is a monthly amount guaranteed for the rest of your LIFE! While the 401K is only for as long as the money runs out. Therefore it's entirely possible to have little or no money in a 401K at retirement due to bad investment decisions or small personal contributions. As pointed out in another post, the defined benefit plan is managed by professionals (at no cost to you) while the 401K is managed by greenhorns (you!). In addition, you better not outlive your 401K (you can't outlive a defined benefit pension) or you will end up as another senior in the shelter. I understand all these companies going to 401K's for cost reasons, but I am tired of the deceptions and lies they perpetuate to their employees about the supposed benefit of this switch.

[scdecade]

More myths perpetuated

Yeah, your post contains just as many myths if not more and worse.

First of all, you say that "The defined benefit pension is a monthly amount guaranteed for the rest of your LIFE!" FALSE.

[David Arbogast]

Get Over It

<<Therefore it's entirely possible to have little or no money in a 401K at retirement due to bad investment decisions or small personal contributions.>>

So... let me get this straight. Your employer pays you a salary for the work you provide... and pays that salary over the entire course of your career. Then... once you are NO LONGER WORKING for that company, they somehow OWE you... because you made poor investment decisions earlier in life?

Get real. This perspective is a big problem... if a company pays you salary, then you are being compensated fairly. If a company *wants* to offer pension, then they are very generous and you are very lucky.

To be paid for making bad financial decisions after you have stopped working for an employer is certainly not a protected right... and it shouldn't be.

How would you like to be writing monthly checks to the plumber who fixed your sink 20 years ago? Hey... You *owe* him, because he didn't invest the money you gave him wisely.

sheesh...

This is good

This is a good thing, and more companies should move in this directions.

Giving pensions for life was wonderful when employees retired at 62 and didnt live past 67. But nowadays, with people living much longer, these pensions have become a serious, accumulating problem that companies often just cant keep up with. And when that happens, the company goes under, and guess what - so does the pension. Take a look at GM, for example, who's super-generous retirement pension and life time health care benefits have pushed it towards bankruptcy.

Putting money into an account owned by the employee means that the employee does not have to worry about their company pulling an Enron and wiping out their retirement savings. It also means that fewer companies will be pushed into bankruptcy by a retirement plan they can no longer afford because it was developed back when lifespans were shorter.

[markdoiron]

Give?

you said: "Giving pensions..."

give? do you know any companies that **give** pensions away? i want to go straight to that company and get mine.

in fact, these were part of a total compensation package. and the reason they are being eliminated is because overseas third world country companies do not pay them, and U.S. businesses must, in today's world, be able to compete with those low-priced imports. personally, having lived and traveled over 27 years to third world countries all around the world, i can assure you that they're beautiful people. but, i have no desire whatsoever to see the U.S. economy brought to that level.

also, many of the companies who are having troubles with their plans have failed to properly fund their plans through the years. and now the employees are being expected to take the hit, while the suits walk away with outrageous compensation packages, huge bonuses and golden parachutes.

mark d.