Business

IBM to Freeze Worker Pensions in 2008

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The computer giant IBM announced Thursday that it would stop putting money into its employee pension plan as of 2008. Instead, the company will provide enhanced 401K benefits to its 125,000 employees.

STEVE INSKEEP, host:

Here's some all-too-familiar news that affects our money. IBM says it will stop contributing to its employee pension plan as of 2008. Instead, the company will provide enhanced 401(k) benefits to its 125,000 employees. Here's NPR's Jim Zarroli.

JIM ZARROLI reporting:

IBM already offers 401(k)s to new hires. Now everyone will get them even if they haven't signed up for them. In a statement, the company said it was taking the step to better control retirement expenses and position the company for business growth and competitive strength. It said this move, along with other changes in its pension programs, would save the company $2 1/2 to $3 billion between 2006 and 2010. Dallas Salisbury is CEO of the Employee Benefit Research Institute.

Mr. DALLAS SALISBURY (CEO, Employee Benefit Research Institute): It puts them going forward into a retirement plan that is more similar to what they're competitors have; number two, one that has predictable cost, not variability.

ZARROLI: US companies have long been moving away from defined benefit pension plans, seeing them as too risky. Such plans commit companies to paying a certain level of benefits regardless of business and economic conditions, and companies in older industries like automobiles and steel have cited pension obligations as a major drain on their finances. Salisbury says it's not clear employees are better off with 401(k)s, especially those who are closer to retirement, but as 401(k)s go, the new IBM plan, he says, is relatively generous. The company will make a contribution equal to as much as 10 percent of employees' salaries into their funds and will provide matching funds of up to 6 percent more when employees contribute their own money. Salisbury says other big technology companies may be forced to offer similar benefits.

Mr. SALISBURY: Within their industry, it may actually cause some of their competitors to have to improve their defined contribution plans and add some of these other features.

ZARROLI: Salisbury says many big companies, especially in the technology sector, have already shifted their employees to 401(k)s, but he says this move by a big and important company like IBM could encourage other companies that haven't yet done so to reassess their retirement plans.

Jim Zarroli, NPR News, New York.

INSKEEP: From NPR News, this is MORNING EDITION.

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INSKEEP: I'm Steve Inskeep.

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