In early November, IBM made news by announcing it would end the company’s 401(k) matching contribution, effective at the end of this year. IBM’s 401(k) plan offered a generous dollar-for-dollar match on the first 5% of salary from employee contributions. IBM is replacing the 401(k) match with a 5%-of-salary contribution to a retired benefit account (RBA), which appears to be essentially a cash balance plan. IBM says funds inside the RBA will earn a fixed rate of 6% for the next three years.
Why did IBM do this? This change allows IBM to switch its retirement contribution from a defined contribution of the company to a defined benefit of the employee. At year-end 2022, IBM had $53 billion in defined benefit assets and an overfunded pension of roughly $15 billion. The change will free up substantial cash for the company since the 401(k) match required current funding, while the RBA contribution may not require funding, given IBM’s overfunded pension.
