IBM Will Freeze Pension Plan In Two Years
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BOSTON – International Business Machines Corporation said it will freeze its American pension plan in 2008, saving billions of dollars and ending benefit accruals at one of the largest pensions in the country.
The IBM plan has long set Big Blue apart from its large-tech competitors, most of which offer 401(k)s, and the freeze marks a significant milestone in the gradual but persistent shift away from traditional, defined-benefit plans at major American corporations.
Like Verizon Communications, which recently froze a plan affecting tens of thousands of managers, IBM says it wants the stability and predictability of a defined-contribution plan, in which employees save some of their income for retirement and the company chips in.
IBM says it intends to increase the amount it currently contributes to its workers’ 401(k) plans. IBM says the changes, which affect about 117,000 employees currently accruing pension benefits, will save it $2.5 billion to $3 billion between 2006 and 2010.
The company says that 125,000 retirees and others already receiving benefits won’t be affected, and the company’s human resources chief, Randy MacDonald, says the company hasn’t changed its retiree medical benefits.
Mr. MacDonald says that freezing the plan is “the prudent, responsible thing to do going forward.” He adds: “This is clearly about preserving the financial stability of IBM.”
The financial stability of IBM’s pension plan isn’t in question. The plan, with $48 billion in assets, was fully funded at the end of the year, and IBM didn’t make a fourth-quarter contribution to it.
But IBM has long expressed concern about the potential for future increases in pension liabilities, which have been expanded by falling interest rates. In 1999, it invoked a firestorm by announcing a switch to a cash-balance plan that made benefit accruals occur more evenly over the course of a career, instead of growing steeply towards the end.
That hurt older workers, who asserted that IBM discriminated against them.A federal district court concluded that IBM had discriminated against older workers; the matter is still pending.
