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Sat, Jan 07, 2006 - Page 12 News List

IBM to end cash-balance pension benefits in 2008


Furthering corporate America's move away from pensions, IBM said on Thursday it will freeze its US$48 billion pension plan in 2008 and instead enhance its company-sponsored retirement benefits plan for its 125,000 US workers.

Nearly all of IBM's US employees -- everyone hired before Jan. 1 last year -- have pension benefits accruing under a traditional annuity-like plan or a cash-balance plan, which gives workers interest-bearing funds that they can take with them if they leave the company.

But these "defined-benefit" plans are becoming rarer. Companies say the plans carry too many uncertainties, largely because swings in interest rates and investment performances change accounting considerations and the amounts businesses must contribute to their pension funds in a given year.

Industrial giants such as IBM and airlines that still carry pension obligations say the costs and complexities hamper their ability to compete with younger, more nimble rivals that aren't saddled with pension obligations.

Beginning in 2008, then, IBM workers' pension benefits will be locked in place, based on salary and length of service.

The accrual of benefits will stop, meaning future raises or additional years with the company will not signify bigger pension checks upon retirement.

Instead, IBM will increase its contribution to its company-sponsored 401(k) benefits plans, in which workers get a defined, predictable amount from the company that they're responsible for investing.

IBM will double the percentage of employees' contributions that it matches, to 6 percent of salary; certain employees will be eligible to receive more.

Current retirees will see no changes.

IBM executives said that by no longer having to account for pension accruals that would have mounted after 2008, the Armonk, New York-based technology giant will save between US$450 million and US$500 million this year alone and up to US$3 billion from this year through 2010.

However, the change will result in a US$270 million charge in the just-completed fourth quarter of last year.

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