INDEPENDENCE DAZE:

More Companies Ending Promises for Retirement (MARY WILLIAMS WALSH, 1/09/06, NY Times)

Companies now emphasize 401(k) plans, which leave workers responsible for ensuring that they have adequate funds for retirement and expose them to the vagaries of the financial markets.

"I.B.M. has, over the last couple of generations, defined an employer's responsibility to its employees," said Peter Capelli, a professor of management at the Wharton School of Business at the University of Pennsylvania. "It paved the way for this kind of swap of loyalty for security."

Mr. Capelli called the switch from a pension plan to a 401(k) program "the most visible manifestation of the shifting of risk onto employees." He added: "People just have to deal with a lot more risk in their lives, because all these things that used to be more or less assured - a job, health care, a pension - are now variable."

I.B.M. said it is discontinuing its pension plan for competitive reasons, and that it plans to set up an unusually rich 401(k) plan as a replacement. The company is also trying to protect its own financial health and avoid the fate of companies like General Motors that have been burdened by pension costs. Freezing the pension plan can reduce the impact of external forces like interest-rate changes, which have made the plan cost much more than expected.

"It's the prudent, responsible thing to do right now," said J. Randall MacDonald, I.B.M.'s senior vice president for human resources. He said the new plan would "far exceed any average benchmark" in its attractiveness.

There was a tremendous sense of security in the idea that your bosses and the State would take care of you until you were buried, it just proved to be neither financially affordable for the caretakers nor morally desirable for the cared-for.

MORE:
The Rush to Shut Down Pensions: When a well-funded giant like IBM joins the move to end defined-benefit plans in favor of 401(k)s, even more companies are likely follow (Nanette Byrnes, 1/09/06, Business Week)

Employee activists are outraged. "It's difficult to understand how they're doing this in the context of wanting to be a world-class employer. You see companies of this stature, Verizon, IBM, seemingly in concert, in a race to the bottom for the defined-benefit system," says John Hotz, deputy director of the Pension Rights Center, a Washington consumer organization focused on retirement rights. "No matter what IBM wants to call it, it's a cut in employee compensation, and it's the sneakiest kind of pay cut, one employees won't realize the full impact of until they reach their retirement years." [...]

Besides making its finances more predictable, IBM argues, a 401(k) system is what its rivals offer and what employees expect these days. And though it acknowledges that 19% of its people will suffer some loss from the pension move -- mostly those who are close to retirement age but not old enough to retire by 2008 -- everyone enrolled in the 401(k) will be getting more.

IBM has raised its contribution to a possible 10% of salary, very high compared to a typical plan. But the ultimate returns on those 401(k)s will depend on the performance of the investments the employees choose.

IBM may be making headlines, but the trend toward freezing plans has been ongoing for years. According to human resources consultant Watson Wyatt Worldwide, 638 of the 1,000 largest companies had defined-benefit, or traditional, pension plans in 2001. Of those, only 5%, or 34 plans, were frozen to new entrants. By September, 2005, only 627 were offering the plans, and 13% of those, or 82 plans, had been put in the deep freeze.

Still, IBM is likely to speed the march away from defined-benefit pensions. "There has always been a bit of a herd mentality in the whole benefits world," says Syl Schieber, director of U.S. benefits for Watson Wyatt.

Also expected to propel the drop-off is a series of accounting and legislative changes being contemplated by the government. In Washington, lawmakers are considering legislation that would raise the premiums companies must pay into the PBGC insurance system. Those premiums are in part based on how many people a plan includes, so blocking out new entrants lowers that impact for employers.

In addition, rulemakers at the Financial Accounting Standards Board are expected to make a series of changes, including requiring companies to mark pension assets and liabilities to market, a step that will make pensions more volatile and bring underfunded pension obligations onto the parent company's books.

Posted by Orrin Judd at January 9, 2006 8:28 AM