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Friday, January 06, 2006

401(k) Street Gets a New Resident

More evidence of the changing social contract between firms and workers:

IBM Adds Its Name to List Of Firms Freezing Pensions, by Albert B. Crenshaw and Amy Joyce, Washington Post: International Business Machines Corp. said yesterday that it will freeze the pension plans of some 120,000 employees in the United States, effective at the end of next year, and will offer instead an improved 401(k) plan. IBM's move is part of a corporate stampede away from traditional pension plans. IBM officials called the change essential to remain competitive with foreign and domestic information-technology rivals. ... IBM's action adds the company to a growing list of U.S. employers that have frozen or terminated pension plans to cut costs or, in some cases, to emerge from bankruptcy. ...

[T]he full benefits of the new 401(k) plan will closely match those that employees would have gotten under the cash-balance plan. However, ... a consequence of dropping the plans is less guaranteed money for all workers. Under a traditional pension ... the employer bears the investment risk, and the pension ... is insured by the PBGC. With 401(k) plans, no matter how generous the company match, the worker's ultimate benefit depends substantially on the performance of his or her investments. "We're looking at very large companies who have had traditional pension plans for a very long time getting rid of them," ... "This is corporate America ... saying to workers 'you're on your own.' "

    Posted by on Friday, January 6, 2006 at 03:15 AM in Economics, Social Security | Permalink  TrackBack (0)  Comments (13)

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