US - Technology giant IBM has announced it will freeze its existing US$48bn defined benefit scheme in favour of focussing on the restructure of the 401(k) savings plan.
Coming into effect in 2008, the dramatic changes will affect new hires, and those currently working for IBM who do not retire before January 1 2008. The company claims the current 125,000 US retirees will not be affected by the shift.
In a statement IBM said the changes were a continuation of its global strategy to set up a more “predictable cost structure of 401(k)” or defined contribution scheme.
The changes include: stopping the accrual of future benefits in the DB scheme as of 31 December 2007; restructuring the 401(k) plan to potentially include an annual company funded contribution of up to 10% of pay.
IBM are hoping these changes, along with 2006 plan changes under global consideration, will result in world-wide savings of at least $450bn for 2006, and subsequently $2.5bn up to 2010, based on year-end 2005 assumptions
Senior vice president of human resources Randy MacDonald (pictured) at IBM said: “We believe these are prudent and balanced steps at a time of uncertainty and conflicting legislative and regulatory direction about defined benefit retirement plans in the United States.”
The current IBM 401(k) plan has $26bn of assets which, the company claim, is the largest in the US and has a 90% employee participation level.
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