IBM Joins Companies Freezing Pension Plans

IBM recently joined the ranks of major US companies who are attempting to distance themselves from pensions as a means of providing retirement benefits to employees. Similar to the other companies that have already made such moves, IBM will be freezing its defined benefit pension plan in 2008, and plans to encourage greater participation in their 401(k) plan, even to the point of making company contributions for non-contributing employees. While this change is estimated to cost IBM nearly $270 million in the short run, over the next 5 years, even with greater company contributions to the 401(k) plan, it is estimated to save IBM a whooping $2.5 billion, as well as make the expense of providing retirement benefits more predictable. This shift in company policy, away from pensions, however, transfers a great deal of individual retirement planning responsibility and discipline to the employees, especially those who will be relying completely upon their 401(k)s and social security when they retire. Unless company HR departments revamp the level of informed advisory service they currently provide, there will be a great need for outside professional advice to individuals needing assistance in learning how to maximize their retirement security through both company and outside sources. This should provide a great deal of opportunity for brokers, advisors, and insurance professionals who want to pursue this market. The older segment of that working group, who only currently average about $125,000 in current retirement savings, will need to implement some aggressive savings measures to even consider a timely retirement. The need for professional outside planning help with pre-retirement issues has never been greater. I encourage professional planners and advisors to consider this opportunity as a serious responsibility, and always consider the client’s needs and objectives above your own personal preferences, product biases, or potential gain. This trend should take quite a number of years, perhaps more than a decade, to settle down, and during that time, there will be plenty of clients for competent advisors who maintain an ethical and professional reputation.