Monday, December 17, 2012

IBM's New 401K Policy: Once a year is more than enough

Time Magazine is reporting that IBM has moved to pay a yearly lump sum on 401k contributions, as opposed to matching every paycheck. The new policy will apply to those employees working with the company since December 15, with contributions being paid on December 31. Anyone who leaves the company before the deadline, aside from retirees, will lose out on a matched payment.

Last year, IBM paid out $875 million in contributions, a savings that will now come at the expense of employees. To cut costs even further, IBM can choose to fire employees before the deadline. The fear now is that other companies will follow IBM's lead.

It is a sign of the times, unfortunately. With all the uncertainty that still persists thanks to the stagnating economy and politicians who refuse to compromise on tax policies, companies are taking steps to protect their bottom line and their future. Some companies have even moved to distribute bonuses before year's end to avoid any tax consequences potentially arising from the upcoming 'fiscal cliff'.

Early bonuses may be a good thing, especially when they are expected around the holidays. But a cut in matched contributions is a problem to the scores of Americans who rely on their retirement plans as their only source of  savings. Though smart investors allocate a portion of their bonuses to 401k plans, this new method does not necessarily guarantee a matched contribution.

If a yearly match becomes the norm, this will force many to become either more aggressive or diversified with their savings options, which is a good thing. Experts have long recommended enrolling in multiple plans. Safeguard your life savings and prepare for the worse. Ask a financial advisor how you can benefit from this change.

No comments:

Post a Comment