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IBM 401K program pared down, will others follow suit?

As one of America’s leading legacy brands, will others follow suit as the IBM 401K package is altered for employees? It wouldn’t be the first time they were copied…

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IBM 401K program shifts, who will follow?

If you currently enjoy the benefits of employee matching after each pay period, you may want to enjoy them while you can. IBM recently announced its plans to switch the structure of its 401k employee contribution schedule from payments after each pay period to one annual lump sum payment at the end of each year. On the surface, the decision to alter the IBM 401K program doesn’t seem to be that big of a change. But there are many caveats involved when switching to this payment plan, and it doesn’t pan out well for IBM staff or employees of other companies that may decide to follow suit.

Beginning in January of 2013, IBM will follow through on its decision to switch to an annual lump sum contribution in an effort to cut costs. Employees will receive their employer contribution on December 31st of each year. However if an employee happens to quit prior to December 15th, they will not receive an employer contribution for that year. This will help cut down on the amount of money IBM loses when it invests in employees that decide to leave a few months later, giving IBM employees reason to want to stay on with the company for the long-term and rethink any decisions to leave mid-year.

Another result of the switch will be a decrease in employee 401K account balances overall. Because employer contributions won’t be distributed until the end of the year, that’s 12 months of interest that IBM employees miss out on. With incremental payments distributed after each pay period, the employer contributions were input immediately and could begin accruing interest. Withholding payment until the end of the year stunts the growth potential of these 401K accounts.

Employees will have to adapt

In order to fully maximize employer contributions under the new system, employees will need to stay on with the company for a full year spanning from December to December in order to retrieve an employer payment. Any decision to quit or change careers would need to be made soon after December 15th as employees receive no benefit in the form of a 401K contribution for staying at the company for periods anything less than a year.

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Because IBM is an innovative company that many look up to, other companies may begin to employ similar methods to cut costs. Workers at these companies will need to increase their 401k contributions to make up for the interest that will no longer accrue on employer payments paid each after each check.

Destiny Bennett is a journalist who has earned double communications' degrees in Journalism and Public Relations, as well as a certification in Business from The University of Texas at Austin. She has written stories for AustinWoman Magazine as well as various University of Texas publications and enjoys the art of telling a story. Her interests include finance, technology, social media...and watching HGTV religiously.

1 Comment

1 Comment

  1. NTD

    January 5, 2013 at 9:40 am

    “Innovative” in ways that hurt it’s emloyees’. Most employee’s assume IBM will make mass layoffs sometime before Dec. 15th! It’s not about employees’ quiting it’s all about saving money for “Roadkill 2015”

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