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IBM draws flak for change to 401(k) plan

Bloomberg/New York 10 Dec 12 | 12:43 AM

International Business Machines Corp, the largest computer-services provider, drew fire from a worker organisation 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 December 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 December 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.

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“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."

US 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 per cent of pay for those hired before January 1, 2005, and as much as 5 per cent for those hired after, IBM said in a statement e-mailed by Doug Shelton, a spokesman.

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 US 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.

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