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’s switching its 5% 401(k) match and 1% automatic contribution to an automatic tax-deferred 5% retirement benefit into a new “Retirement Benefit Account” (RBA) starting Jan. 1.
Each employee who’s served at least a year will receive a “monthly account credit” up to IRS limits and a one-time salary increase, separate from the company’s annual pay plan, to “offset the difference between the current company 401(k) contribution rate” and the new credit.
IBM said it’s 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%.
Not only does the plan look less lucrative for employees, but financial advisers fear that if a Fortune 500 company like IBM can pull this off, other companies will follow.
“Probably the most concerning thing is how the risk is getting shifted to employees,” said Phillip Hulme, founder of Atlanta-based Stars & Stripes Financial Advisors and adviser to some IBM employees.
How would the Retirement Benefit Account hurt retirement savings?
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