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IBM newcomers to get only 401(k) plan

By Ellen Simon
The Associated Press

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NEW YORK — Starting next year, IBM will exclude new workers from its contested cash-balance pension plan and offer them only a 401(k) savings plan.

The decision comes 10 months after a federal judge ruled IBM's cash-balance pension plan discriminated against older workers because it cut their expected pensions.

IBM has said it will appeal but in the meantime agreed to settle with some of the workers who sued. The settlement, capped at $1.4 billion, awaits court approval.

IBM said the switch to a 401(k) plan would not affect the 135,000 employees covered by the cash-balance plan, who also have company-sponsored 401(k)s as part of their retirement investments. Workers who joined the company before 1995 also have traditional pension plans.

Workers with the new 401(k) plan will be able to put in 6 percent of their pay with a dollar-for-dollar company match, up from the current 50 percent match. The new plan will include annuity and disability options.

Spokeswoman Kendra Collins, a company spokeswoman, said employees eligible for the new 401(k) won't have other company-sponsored retirement plans.

A memo about the change was posted on IBM's internal Web site. The company did not announce the change publicly but did notify managers who will be hiring. The Web site Plansponsor.com, a trade publication, first reported the change.

Cash-balance plans, which mushroomed in the late 1990s, resemble 401(k) plans in that they allow workers to track growth of their money in a hypothetical individual "account." Unlike 401(k) plans, however, workers can't allot their own pay toward the plan or decide how it's invested.

IBM had defended the cash-balance plan as a way to attract younger workers who would receive pensions even if they left the company after a few years. The plan also saves the company money because it can contribute less than it would under a traditional pension plan.

Copyright © 2004 The Seattle Times Company

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