Yesterday the business press was busy lauding IBM’s decision to cut back on their pension plan.
IBM said it expects the announced changes, along with 2006 changes under consideration in several other countries, to cut worldwide retirement-related expenses this year by $450 million to $500 million. From 2006 through 2010, the company expects to cut costs by $2.5 billion to $3 billion.
This is absurd. IBM is one of the most successful corporations in the world. Even Bill Gates recently acknowledged (albeit somewhat disingenously as a back-handed swipe at Google) IBM as the company for Microsoft to beat with four times as many employees as Microsoft. If anyone can afford to pay their workers properly and treat their retirees with dignity it is IBM.
The employees getting those good pensions did a lot to create the wealth in which they had expected to share in old age. For decades IBM was able to scoop up many of the best minds in engineering and MBA programs. Those signing on the dotted line might have looked elsewhere if they were to know the ingratitude that awaited them.
Yet another violation of the social contract.
Every time these pension plans gets cut or goes bankrupt after being pillaged by the mother corporation, it is our money (as working people) which is stolen. We worked, we created these pensions funds. Pay us our pensions and stop robbing us.
It is high time that white collar crime is treated with the severity of petty crime. Why are our millions less worthy of protection than the merchandise of the local Walmart?
What really incenses me though is the applause for this behaviour from the press. I suppose most in the press long ago were forced to give up any kind of job security, let alone decent pensions. They are thrilled to see those with join them with nothing. Even better if it is retroactive, so they can point their spindly fingers and shriek to their parents and siblings or anyone else who will listen – I told you there was nothing wrong in becoming a freelance journalist – there is no job security for anybody!
As far as I am concerned this is theft and double-dealing and the rogues who came up with the plan to cheat their fellow workers should be in prison – not collecting triple bonuses this year.
On the up side, enough shenanigans like this at the expense of the middle class (we are not talking about screwing Walmart employees this time) and we will be able to talk about a revolution again.
For more on how Americans on being swindled out of their lives by the new economy. A very fine and detailed article. Via Melanie.
that is typical B.S. to expect from large companies these days. Lets just piss on our faithful employees.
It is a kill to kill world, I would only suggest that every employee of IBM up and walk out. Let those in charge run around franticly like a chicken with it’s head cut off. Fuck the big shots.
You make it sound like IBM executives are stealing existing retirement funds. That would be dastardly, for sure. But that’s not what’s happening. All existing pension balances remain intact, and will continue to accrue interest and to pay retirees exactly as before. Only future contributions will change. And it would be silly to call those changes a “robbery” or a “violation of the social contract”.
I’m an IBM employee (an ordinary one–not an executive). The fellow IBMers I’ve spoken to prefer this new plan to the existing pension. For the vast majority of us, IBM will contribute the same amount to our retirement as before. The primary difference from our perspective is that the money will go into a 401K account that we own and control, rather than a pension account that the company owns and controls. We get to choose from a huge variety of low-cost mutual funds (including low-risk funds based on US Treasuries). In fact, many of us would like to have our existing pension balances rolled over into the 401k as well. But unfortunately that’s not an option (probably because of government bureaucrats)
As far as I can tell, the people who are hurt by this will be those who don’t use their 401K to save for retirement. For them, the solution is easy. Start saving. Now that IBM will match 100% of employee savings (up from 50%), the incentive for them to do so will be stronger. That’s a good thing from a social perspective (have you seen the US savings rate?).
There are probably some IBMers who like the old way better. But don’t misconstrue this as “robbing the middle class”. As a middle-class IBM worker, I’m quite happy with this change.
Thanks, KC, for the very interesting clarifications. Given the way most large companies are treating their pension funds (like a piggy bank to be turned upside down to cover new acquisitions), I can understand your enthusiasm for having control of your own pension package. On the other hand, a properly managed company pension fund can do things which individual investors just can’t do on their own (economies of scale, spreading risk).
In any case, I hope it works out for you. I hope the IBM employees take advantage of the savings opportunity.
How much savings will IBM match, btw?
IBM will match 100% of our savings up to 6% of salary. On top of that, they will contribute another 2% (or 4% for certain employees who are closer to retirement age). So, I can get up to an 8% contribution from IBM if I save 6% myself. That’s the same as their combined pension and 401K contribution before.
I’m not too worried about the economies of scale and risk. The 401k provides access to dozens of mutual funds that match the scale and diversification of a corporate pension fund. In any case, a fund as big as IBM’s would run into significant diseconomies of scale, too. They have such large positions in their investments that they find it difficult to make a trade without altering the price in an unfavorable direction. That’s one reason why most pension funds don’t perform as well as market indices over the long run.
Well, this is interesting. If you save six per cent you can get the same contribution from IBM that you would have had without condition before the changes.
So that’s an improvement? Interesting thought.
As you say, it does force savings. For people who plan to move companies it simplifies matters (a 401k plan is more portable than a company plan).
Otherwise it doesn’t look like an improvement to me.
if you withdraw money from a 401k plan, how much taxes do you have to pay?
link to moneysavingfreetips.com
it says here
The earlier you start maxing out your 401k plan, the more money you will have in your
retirement age. Infact, if you face financial difficulties in your mid-age, you can
withdraw some money from your 401k plan (this withdrawal is subject to local state taxes).
You’ve gotta be kidding me. I’m 43, work for ibm, and i’m going to get the worst of both worlds here. Please, i see that everyone is a professional on their own opinion here. Pensions vs. 401k’s are not even in the same ball park. Speak to a financial advisor on this one, and not some moron typing away at his own opinion. For people who’ve worked for the company for 20 years and losing the factor of years of service, you’re taking an enormous hit and you won’t be able to recover unless your 40k pays out at double digit returns without fail for the next 10 years. The way things look, good luck with that one.