{"id":33402,"date":"2023-11-09T16:34:49","date_gmt":"2023-11-09T16:34:49","guid":{"rendered":"https:\/\/microloannexus.com\/personal-finance\/goodbye-match-hello-retirement-benefit-account-what-ibm-401k-change-means\/"},"modified":"2023-11-09T16:34:50","modified_gmt":"2023-11-09T16:34:50","slug":"goodbye-match-hello-retirement-benefit-account-what-ibm-401k-change-means","status":"publish","type":"post","link":"https:\/\/microloannexus.com\/?p=33402","title":{"rendered":"Goodbye match, hello retirement benefit account? What IBM 401(k) change means"},"content":{"rendered":"<div class=\"caas-body\">\n<p>Tech giant IBM will replace its 401(k)-matching program with a different kind of benefit that many employees and financial advisors worry will dampen retirement savings and become the norm.<\/p>\n<p>In a memo to U.S. employees last week, IBM said it\u2019s switching its 5% 401(k) match and 1% automatic contribution to an automatic tax-deferred 5% retirement benefit into a new &#8220;Retirement Benefit Account&#8221; (RBA) starting Jan. 1.<\/p>\n<p>Each employee who\u2019s served at least a year will receive a \u201cmonthly account credit\u201d up to IRS limits and a one-time salary increase, separate from the company\u2019s annual pay plan, to \u201coffset the difference between the current company 401(k) contribution rate\u201d and the new credit.<\/p>\n<p>IBM said it\u2019s guaranteeing a 6% return on that money through 2026. From 2027-2033, it guarantees the 10-year Treasury yield with a 3% floor and in 2034 and beyond, employees will receive whatever the 10-year Treasury yield is. The 10-year Treasury yield is currently hovering around 4.5%.<\/p>\n<p>Not only does the plan look less lucrative for employees, financial advisors fear that if a Fortune 500 company like IBM can pull this off, other companies will follow.<\/p>\n<p>\u201cProbably the most concerning thing is how the risk is getting shifted to employees,\u201d said Phillip Hulme, founder of Atlanta-based Stars &amp; Stripes Financial Advisors and advisor to some IBM employees.<\/p>\n<h2>How would the Retirement Benefit Account (RBA) hurt retirement savings?<\/h2>\n<p>Reasons financial advisors are skeptical of IBM\u2019s new plan include:<\/p>\n<ul class=\"caas-list caas-list-bullet\">\n<li>\n<p><strong>Disincentive to save. <\/strong>Without the lure of a 401(k) match, or what experts like to call the \u201cfree money,\u201d people may not save as much.<\/p>\n<\/li>\n<li>\n<p><strong>Employees lose control of the money. <\/strong>They can\u2019t choose how they want to invest that money and lose the flexibility of a 401(k), such as using it for a loan, said Hulme.<\/p>\n<\/li>\n<li>\n<p><strong>Lower returns.<\/strong> The average, inflation-adjusted return for the stock market for the past 200 years is between 6.5% to 7%, according to consulting firm McKinsey &amp; Co., compared with IBM\u2019s highest guaranteed return rate of 6%.<\/p>\n<\/li>\n<li>\n<p><strong>More taxable income.<\/strong> The one-time raise employees receive as part of the new benefit is taxable income, unlike the tax-deferred 401(k) match, and employees would be responsible for saving and investing that money now.<\/p>\n<\/li>\n<li>\n<p><strong>The salary increase is only once. <\/strong>Employees are compensated for lost matches in future years.<\/p>\n<\/li>\n<li>\n<p><strong>It\u2019s unclear how the RBA will be funded. <\/strong>Under the Employee Retirement Income Security Act (ERISA), companies must fund 401(k) matches with real dollars. If IBM\u2019s \u201ccredit\u201d is just that, with \u201cno cash in there, and it\u2019s just listed on the books, if something bad happens, and IBM couldn&#8217;t make good on its liabilities,\u201d employees would be on the hook, Hulme said.<\/p>\n<\/li>\n<\/ul>\n<h2>Why could this change be important for workers everywhere?<\/h2>\n<p>\u201cIf IBM can get away with it, maybe others will follow,\u201d said Steve Azoury, adviser and owner of Azoury Financial in Troy, Mich. \u201cIBM helped lead the charge into 401(k)s, basically ending pensions in America.\u201d<\/p>\n<h2>Why would IBM switch to an RBA?<\/h2>\n<p>Cash management.<\/p>\n<p>\u201cIt could be a reaction to increased interest rates,\u201d Hulme said. \u201cIf I put myself in IBM\u2019s shoes and carry debt and refinance every year and now, rates have gone from zero to over 5%, then I\u2019m thinking of cash flow management and how to decrease that debt load and carry cash at low rates.\u201d<\/p>\n<p>Basically, the company can improve its cash flow by just crediting accounts, instead of actually funding them using real dollars. Looking like it has improved cash flow, the company looks less risky and may be able to obtain better interest rates on its debt when it comes time to refinance, he said.<\/p>\n<p>Others speculate IBM can use the money as a cheap source of funding for its business or invest it to earn a profit above the promised yield to employees.<\/p>\n<p>Either way, employees should \u201cprepare to get bent,\u201d wrote one poster on Arstechnica\u2019s open forum on the topic.<\/p>\n<h2>What does IBM say about the new retirement plan?<\/h2>\n<p>The RBA helps its U.S. employees \u201csave for retirement automatically, with no contribution required from the employee,\u201d IBM said. It also \u201cadds a stable and predictable benefit that diversifies a retirement portfolio and provides employees greater flexibility and options. \u201c<\/p>\n<p>The company stressed, too, that employees will still be able to contribute to their 401(k) plan. Only the company\u2019s portion is changing to help \u201cdiversify their retirement portfolios.\u201d<\/p>\n<p><span class=\"exclude-from-newsgate\"><strong>Where are you? <\/strong>The average 401(k) balance by age<\/span><\/p>\n<p><span class=\"exclude-from-newsgate\"><strong>Retirement savings: <\/strong>Lower-income workers face a big challenge for retirement. What&#8217;s keeping them from saving<\/span><\/p>\n<h2>How many IBM employees will be affected by the change?<\/h2>\n<p>The change only applies to U.S. employees. Worldwide, the company had about 288,000 employees last year but doesn\u2019t break out how many are in the U.S. Some reports have said there are fewer than 100,000 in the U.S.<\/p>\n<p><em>Medora Lee is a money, markets, and personal finance reporter at USA TODAY. You can reach her at mjlee@usatoday.com and subscribe to our free Daily Money newsletter for personal finance tips and business news every Monday through Friday.<\/em><\/p>\n<p><em>This article originally appeared on USA TODAY: IBM 401(k) match ends in 2024, replacement raises eyebrows<\/em><\/p>\n<\/div>\n<p>Read the full article <a href=\"https:\/\/money.yahoo.com\/goodbye-match-hello-retirement-benefit-155835162.html\" target=\"_blank\" rel=\"noopener\">here<\/a><\/p>\n","protected":false},"excerpt":{"rendered":"<p>Tech giant IBM will replace its 401(k)-matching program with a different kind of benefit that many employees and financial advisors worry will dampen retirement savings and become the norm. In a memo to U.S. employees last week, IBM said it\u2019s switching its 5% 401(k) match and 1% automatic contribution to an automatic tax-deferred 5% retirement<\/p>\n","protected":false},"author":1,"featured_media":18659,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[44],"tags":[32],"class_list":{"0":"post-33402","1":"post","2":"type-post","3":"status-publish","4":"format-standard","5":"has-post-thumbnail","7":"category-personal-finance","8":"tag-featured"},"yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v20.12 - https:\/\/yoast.com\/wordpress\/plugins\/seo\/ -->\n<title>Goodbye match, hello retirement benefit account? 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