March 15, 2013

IBM Draws Senate Heat for 401(k) Changes

Big Blue has employees, politicians seeing red over lump-sum match

Firms are getting increasingly creative in the methods they use to cut costs and shift retirement responsibility to employees—maybe a bit too creative.

It seems IBM has attracted the ire of Sens. Patrick Leahy and Bernie Sanders, both Democrats of Vermont (Sanders is actually a Socialist, but caucuses with Democrats). Essex Junction, Vt., happens to have a major IBM campus.

At issue is the business giant’s decision to match employee contributions to their 401(k) in a lump sum at the end of the year, rather than matching on a biweekly basis, which is now the norm. It means any employee who leaves will forgo the match for the entire last calendar year, even if they worked to, say, December.

The announcement caused an uproar, and employees enlisted the help of their unions and politicos. Sanders and Leahy wrote Ginny Rometty, chairman and CEO of IBM, a strongly worded letter in a direct appeal to reverse the new policy. A copy of the letter was then obtained by CWA Local 1701, the union representing IBM workers.

TechWire, a blog run by radio station WRAL in North Carolina, which also has an IBM presence in Charlotte, posted the letter, which the station notes is short and direct, in its entirety.

Here's the letter, dated Feb. 25:

Dear Mrs. Rometty:

"We are writing to express our strong concerns with recent changes in IBM's match and automatic contribution to employees' 401(K) Plus and Excess 401(K) Plus plans. We respectfully request that IBM review this decision and reinstate matching funds on a biweekly basis as soon as possible.

Over the last decade IBM has greatly reduced pension benefits for tens of thousands of loyal and hardworking employees, despite the fact that the same period yielded 40 consecutive quarters of growth in earnings per share from the previous year. Given IBM's reported earnings in 2012, this most recent decision to terminate biweekly contributions in favor of one annual payment at year's end seems severe.

In the last decade IBM has cut its U.S. workforce by nearly half. Due to this policy change, employees who leave for any reason other than retirement or who are laid off before December 15 will not receive any annual contribution from IBM to their 401(K) plans. As is consistent with dollar-cost averaging, employees will also lose a year of interest which could have been gained by these contributions.

If this change remains, we are concerned that IBM will benefit greatly at the expense of thousands of loyal employees in Vermont and across the country. When a company makes a promise to its employees regarding their pension, it must not renege on those commitments by cutting or deferring their retirement benefits, especially when employees who have worked at IBM the longest have already seen their benefits reduced. Given that reality, we respectfully request that you reconsider this policy.

Thank you for your attention to this important matter. We look forward to receiving your prompt response.

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