> So they are not replacing 401k, they are offering RBA separately. You are still able to contribute to your 401k. However they are not contributing to the 401k anymore. They will be contributing 5% of your salary to your RBA with no employee contribution needed. After 3 years of 6% interest (starting 2027) it will equal the 10 year US treasury yield. Where IBM will guarantee it’s no lower than 3% per year.
That doesn't sound like a good deal at all.
Anyone know what is prompting this change?
You are essentially switching to your retirement strategy being loaning your money to IBM at the lowest possible interest rate, vs investing with and growing with the American economy as a whole. The difference in compound interest between the two is going to epic over twenty to forty years.
The SP500 has more than 50x since 1970. If you had your money in 10 year treasury bonds, that would be less than 12x. So you'd have 1/4 as much, and IBM would have 3/4 of what you would have had.
A very important nuance (not disagreeing with you, just sharing my pet thing), is that the stock market outgrows GDP because you aren't investing in the economy as a whole. You are investing in the good parts of the economy that people are excited about (i.e. When you invest in Amazon, you assume that they will continue to take share from mom and pop retailers, even in a flat-GDP scenario). You are also generally assuming that US-HQ companies will gain share globally, not just in the US.
That's why the Internet has been so positively impactful to the S&P 500 - it has really accelerated share shift to large companies (even if it hasn't accelerated GDP) and it has increased the global share of US-based companies.
I'm not sure if this is legally a pension, if not assume it is worth nothing. If it is the US government backs it and so if you work for IBM for 30 it is a great deal, pensions are defined income so you don't have to worry about if you will live to 66 or 120. (If like most you switch jobs it is terrible)
A lot of the free money that was flying around has dried up and it's easier to cryptically "rework our retirement benefits program" than it is to openly cut the unsustainable salaries that were offered during flush times.
It's the same reason that everything's finally being monetized, massive layoffs washed through, and prices are being increased. At best, it'll be the soft deflation of an egregious 5-10 year bubble and we'll remember that you can't get paid $300k out of college to write glue code nor expect to get all your online services for free.
When you leave IBM, you are have the option to collect it as a lump sum or annuity (taxed as income) or to roll it into a 401K or IRA
My father had almost all of his savings in a pension fund by a bank (he worked at that bank) that was later acquired by Santander. They completely screwed him over with his pension, lawsuits are ongoing for almost 20 years now. My father passed away last year still dreaming about all the money he was "about to get" from the lawsuits
Correct URL might be one of:
https://old.reddit.com/r/IBM/comments/17lcfxe/401k_is_being_...
https://old.reddit.com/r/IBM/comments/17lc4jz/is_ibm_replaci...
At the time, the old timers were annoyed as the conversions did not generally work in their favor, although the old old timers were allowed to stay on the pension.
How is this helping diversify a retirement portfolio?
(Compared to the usual advice of total-market stock and bond index funds.)
Think of the poor shareholders. They need money too!
IBM is a case study for that.
Also being a top heavy business with managers that protect their jobs through incredibly massive process (forget node_modules, IBM process is the only thing heavier than a black hole, in fact).
There was a time when we were 18 managers for 24 employees.
Revenue is heading steadily down. Profit is down 50% over the past five years. All during a massive tech-fueled economic boom. What are they doing over there?! [valustox.com/IBM]
Ideally, all workers should be invested in their own company and a diversified set of other public companies. Most already are.
Those were the days. remembers in Mr. Burns
The reason they do this is to create divides between employees.
At some point, if you’re a late retiree, you’ll be one of that last on the better plan, and all the younger guys will actively support measures to get rid of you, cause of course your more expensive pension is totally the reason why raises cannot go out.
This corporate communication sounds slimy, but I'm wondering about the "stable and well-funded" part: is this new infusion of money propping up the pension plan?
Once caveat was that the IBM older pension plan was more valuable than a 401k plan because IBM investment strategy was far better than the average 401k investor options.
"Conversions did not generally work in their favor" for these reasons: 1) IBM originally announced (around 1999) that all active employees were converted to the less desirable 401k plan. After a lawsuit, IBM had a formula for who got the more valuable older pension. Two people have 18 years of service for IBM. The younger one (say 45 years old) had no choice but to switch. The older one (say 50 years) was allowed a choice.
2) IBM was able to control the amount for the 401k payout. Their pension value (easily calculated future value based on salary and years of service) was converted into present value based on IBM's estimation of the amount you could make in free market investments. So essentially they said "Your $2M pension is worth $36k today because we calculated you can make 20% per year in investing. Here's your $36k for 18 years of service." (By the way, IBM salaries were usually lower than most other companies because they always touted their great pension plan that no others could match.)
Both these points were argued in courts. The first point was won by some employees, not all, only IBM knows. The second point was won by IBM.
If this is true, is there anyone reading this who'd accept an offer to work for IBM?
https://www.pbs.org/wgbh/frontline/documentary/the-pension-g...
And also in their followup, "The Retirement Gamble":
https://www.pbs.org/wgbh/frontline/documentary/retirement-ga...
Both can also be found on YouTube.
I rewatched both just a few months ago, to understand the history a bit better. The short answer is that eliminating pensions was part of a larger restructuring in corporate America, wherein major companies that became megacaps in the 20th century used the Chapter 11 bankruptcy rules as a shield to eliminate employee pensions, while the burgeoning consumer finance industry of the 1980s and 1990s was all too eager to create a new fee-generating monster in the form of 401ks.
These days, employer-matched 401ks with low-fee index funds are the only sane retirement tool available to middle-class workers, but much like US employer-sponsored healthcare, the system is about 10x more complex and 10x more precarious than it otherwise could be, and it benefits all sorts of ridiculous middleman paper-pushing rent-seeking corporations along the way. The news from IBM is ironic because employees will rightly revolt against this "pension" because now that Vanguard-style low fee funds have become ascendant in 401k accounts, a number of new unscrupulous financial actors are pitching "pension plans" to companies which are really opaque fee- and cash-grabs for employee retirement accounts.
I don't remember exact years or numbers above, but they are close enough for discussion.
Company-administered pensions offered little to no opportunity for a financial services middleman to collect a percentage, and involved employers promising their employees things that might (might) cause some pain to the employer to deliver.
So a story was made up that "you can do better on your own investing in the market", thus allowing Fidelity et al. to collect their cut, and to let employers off the hook.
And of course, like all other Republican political policy that asserts that you are responsible for yourself and nobody else is, it has all turned out swimmingly, don't you agree\?
He collects less than 10 cents on the dollar from the PBGC backstop since Eastern went bankrupt.
> So a story was made up that "you can do better on your own investing in the market"
In his case, that story was true. After Eastern, he took a job at FedEx. FedEx killed their pension plan and the employees largely had to save for retirement via 401k accounts. He lives off of that money quite nicely now. The Eastern pension buys him a nice dinner once a month or so.
How many times have you changed jobs in your career? I’m on #9.
This comment is laughable with it's "blame the Republicans". It's incredibly misinformed.
Who do you think manages the pension fund? Do you know how much money they make? If anything, getting rid of the pension fund eliminates the middleman.
The answer is easy - there is no long-term financial liability with a 401k match. The company gives the money and their obligations stop.
Pensions are notorious for creating future liabilities that companies can't predict. So they end up taking a hit to their financials in 2020 for a pension they awarded back in 1995.
You don’t have to be an expert. Most 401K plans have index funds and target date funds.
For HSA, you can do a variation of that: open a separate HSA anywhere you want and set up recurring monthly trustee-to-trustee (i.e. direct) transfers of your payroll contributions plus any employer contributions from one HSA to the other. This can all happen while you're employed.
You still need to make sure to adjust the transfer amounts any time you or your employer contributes less to the employer-affiliated HSA, generally avoid overdrawing either account, and make sure to count your contributions only once per year at tax time. But there are no other downsides.
The reality behind it is that 401k administration is a heavy and expensive process and the reason it's all pooled together at one provider is that. Obviously once you're done, you can take it anywhere into an IRA.
I thought they were criminals for going to lump sum match. This is net level stuff...
But look at Calpers. They have $500 billion in management and an annual budget of $2.5 billion. That's a huge amount just to run the damn thing.
And then they go and invest in private equity, hedge funds, and VC funds, all charging their variation of 2/20 on top of everything.
401ks and pensions are ultimately invested in the same thing. The equity and debt of businesses. But 401ks have much lower fees.
It's not just the rollovers when you switch jobs. It's also being locked into whatever funds (and fees) the plan your company selected offers. Especially given you can go standup a full 401k for yourself if you are self employed for free (at Fidelity amongst other places).
Let's use https://old.reddit.com/r/IBM/comments/17lcfxe/401k_is_being_... as suggested by neilv above.
Except IBM also takes plenty of upside if interest rates stay high too, by paying way below-market yield for the first few years.
Certainly the facts are not contestable: plenty of corporate bankruptcies left their employee's pension funds screwed in a way that does not happen with a 401k plan. But it didn't have to be that way, it was a choice (of our legal, political and economic system). Other countries have made different choices, for examples.
If you look at the history of the 401k, specifically, which you originally claimed was some sort of republican conspiracy to generate asset management revenue for financial firms, you'll see more Democrats than Republicans involved. For instance, the law that created section 401(k) of the internal revenue code was passed by a congress where Democrats maintained a majority in both houses, and was signed into law by a Democrat (Jimmy Carter.) In the intervening years, every single Democratic president has supported (or strengthened) the status quo. Bill Clinton signed SIMPLE plans into law, Obama championed the "MyRA" thing bolted onto the side of IRAs, etc.
so, you know, might need to longer term forecast here.
Leveraging their wealth to pass laws that are to their benefit at the cost of the "lower classes" is the next.
I'm sure this is a fun game for someone who thinks it's useful to retread it.
if you're ignorant of billionaires buying political policies, I doubt you see these things.
Soros donated 140m in the 2022 mid-term to democrats. So you're against that?
Trump didn’t get bankrolled by billionaires. Trump won because both parties and the media ignored the needs of mostly the White working class and “evangelical conservatives” always vote Republicans.
I’m saying this as decently well off Black guy.
https://www.ft.com/content/29c67711-377c-4435-9c90-280852374...
> Our investment represented less than 0.05% of our total net assets
> Naturally, not all of the investments in this early-stage asset class perform to expectations, however, since inception, TVG has delivered solidly on intended objectives.
401ks are a separate thing entirely. Generally they don’t let you invest in individual stocks at all.
Next month, I'll be forced to cash out the pension funds from a multinational corporation I worked for for 18 months back in the mid-1980s. $14k. I'll take it :)
The point you're making is predicated on the idea that there are only two options: company-owned-and-managed pension plans (typically defined benefit) and individually directed investment based strategies (i.e. 401(k)).
However, the problems with both of these (and yes, there are problems with both of them) can be addressed by socialized pension schemes. Make them opt-out (opt-in if you must): the vast majority of people will opt in, the plans will have enormous financial stability (some would argue based on too much economic power, which we can already see said about e.g. Vanguard), and people would not be forced to grapple with investment questions they are generally ill-equipped to answer. For those that really think they can do better by themselves - go for it.
Either taxes will have to be raised on workers or benefits cut. Social security taxes have been used as part of the current general budget since the 70a
and myth #5 here: https://www.aarp.org/retirement/social-security/info-2020/10...
And why would you want more of your taxes going toward current government spending that you have no control over like social security does?
I'm not a fan of the PR that surrounded the introduction of SS in the USA, but the technical aspects of how it was intended to work have not changed, and have worked as intended thus far. Fixing the demographic issues is relatively easy: just remove or increase the cutoff for SS taxes.
You know if you increase the amount of income that is eligible for social security that means you also increase the benefit amounts.
How is paying more taxes that the government can use for whatever it wants better than saving your own money?
All other things being equal, I'd rather not have to control it. One less web site to have to log into to micromanage something that should just be done for me. Let a index fund manager or the government get me my 7%. I really don't care at all.
I guess some people just hate on principle the idea of government doing anything for them, so for them, owning the account gives them a warm fuzzy feeling. I don't get it.
I. Dont. Care.
Maybe some government retirement agent can pick the index fund. They should feel free to knock themselves out geeking out over it. They'd probably just contract it out to Vanguard or whatever. Great and fine. I don't want to do it.
Our insistence on privatizing and individualizing everything just makes more busywork for everyone. I have an HDHP and HSA and it's frankly awful having to log in all the time and look for claims and pay the doctors from it and all that on top of the Explanation of Benefits form that comes from the insurance company and the separate bills from each doctor and me in the middle having to tell customer support from hospital X to talk to insurance provider Y over line item Z arrrrggggghhhhhhhh! I just want to go to the doctor!
Somehow voters keep optimizing for the geeks. Yes, there are a handful of people out there who enjoy spending their valuable time hunched over a spreadsheet looking at investment funds. They get their way with these hyper-individual 401(k) accounts. Screw the rest of us who just want to live their lives and then retire.
Where does it come from in a 401k plan? The obvious answer is "growth in asset values", but what does that mean? It means you took ownership of something that is worth more at the time of sale than at the time of purchase. That's an investment (aka "gambling") strategy and it MUST come with a disclaimer that returns are not guaranteed.
By contrast, socialized pension systems (of which SS is an example, albeit not a particular awesome one) are NOT investment strategies. Their goal is to provide a guaranteed income for people in retirement. It follows that they must be designed and work quite differently. One part of the strategy was termed "pay as you go", in which current workers pay for the outlays of current retirees. There's nothing inherently wrong with this approach, but as you note it can run into demographic bubbles. However, the idea that handling the one we are in/facing right now needs some sort of massive tax cut is false: just remove the cap on income subject to SS taxes, and there is no issue.
Corporate pension plans were/are a strange middle ground. Behind the scenes the fund manager would be following an investment strategy, but as far as the employee was concerned, the plan offers a guaranteed return. This was supposed to be able to work because the corporate pension plan offered a modest guaranteed return and behind the scenes, a more volatile but hopefully more substantial value was associated with the fund. This would, in theory, allow the company to make the payouts that formed part of the contracts it had agreed to with employees, but way too many companies failed to even manage that. And of course, it turned out that many had dipped into "their" pension funds to provide general corporate revenue or, even more brazenly, had simply not paid in the contributions they were contractually obliged to (I am not aware of a single company that has ever been sanctioned for this insanely illegal behavior).
Also, with my 401k plan, the amount I accumulate can be inherited when I die. I could also take some of it as a lump sum at retirement to pay off my house (hypothetically, mine will be paid off when I’m 60).
Why would you assume that? Social security has been changed since it's inception, it's not written in stone. Changing the cap would be a relatively minor change compared to any changes needed if nothing is done.
While that can work out as a viable retirement strategy for some people, it's not really the basis of a solid, dependable retirement system for a nation.
> The social security tax id capped. But so are the benefits amount. If you increase one, you have to increase the other.
I don't believe that the laws and regulations for SS require this.