Skip to main content

Will 401(k) plans keep getting worse?

By Teresa Ghilarducci, Special to CNN
December 12, 2012 -- Updated 2222 GMT (0622 HKT)
IBM plans to contribute only once every December to its employees' 401(k) accounts.
IBM plans to contribute only once every December to its employees' 401(k) accounts.
STORY HIGHLIGHTS
  • IBM said it would contribute once every December to its employees' 401(k) plans
  • Teresa Ghilarducci: This type of payment benefits the company rather than workers
  • She says relative to other companies, IBM actually has a good retirement plan
  • Ghilarducci: Most companies are reducing retirement benefits; workers lose

Editor's note: Teresa Ghilarducci is a professor of economics and director of the Schwartz Center for Economic Policy Analysis at The New School.

(CNN) -- IBM, one of America's largest companies, shook the employee compensation world when it announced recently that it would contribute only once every December to its employees' 401(k) accounts. Any employee who leaves before December would not be able to collect the company's match.

Workers at IBM aren't marching to the picket line like Walmart workers and longshoreman who protest pay and working conditions, but you just never know.

Only about 9% of the nation's employers make matches once a year. IBM's move is paving the way for big companies to go down this road.

If I were an IBM manager, I would love this once-a-year lump payment. First, my buddies in Human Resources would have much less hassle with fewer deposits to make. By delaying payment to the end of the year, "the float" -- interest accrued -- would go to the company instead of the workers. In other words, the company saves money.

Moreover, few IBM workers are going to voluntarily leave before December, which means projects can be planned better and employees can be asked to do more.

QUIZ: The ultimate portfolio -- 15 questions to help you define your financial goals

A few years ago, in 2008, IBM made news by transforming its traditional defined benefit plan, a pension, into a 401(k)-type plan. That move saved money, but the company lost an important personnel tool.

Defined benefit plans are designed to encourage employees to exit or retire when it is optimal for the company. A 401(k) is cheaper, but it is a "cash and carry" account that does not have the element of timing finesse. A 401(k) plan does not reward loyalty, and its value is not predictable as it fluctuates all over the place depending on the financial markets.

How important is saving for retirement?
Investment options for a 401(k)?

By making workers stay until December before they can receive the company's 401(k) match, IBM is putting back, albeit with an anemic substitute, a reward for workers to stay at least until December.

The company can be pretty sure that there will be very few workers exiting during crunch time season: September, October and November. It would really be IBM's choice in determining which employees to let go. This incremental addition to IBM's control over their employees is surely the main reason IBM changed its 401(k) payment timing.

But let's step back. Relative to other companies, IBM actually has a good retirement plan. It matches more than 6% of a worker's contribution, which is above the national average. Only 7% of companies do not make matches to 401(k) plans, so at least IBM is, for now, in the majority of companies that match their employees' contributions. Not many people know that just because a company sponsors a 401(k) plan doesn't mean that it will pay a cent.

In the Great Recession of 2008 to 2009, more than 11% of companies stopped their 401(k) match. Because they are voluntary, most workers do not even have a retirement account plan, which means many middle-class and upper-middle-class workers will only have Social Security to rely on for retirement.

These workers face considerable chance of downward mobility later in life because Social Security is not designed to replace pre-retirement living standards for anyone but the lowest paid workers. Middle-class workers will need at least a $500,000 payout on top of Social Security checks to have a chance of remaining middle class when they retire. Most of us could only dream of accumulating that amount or its equivalent by saving for retirement at work or being in a pension plan.

IBM looks better than most companies because most companies are whacking their workers' retirement plans or don't sponsor any at all. GM offered its salaried, white-collar workers a lump sum -- the worst way to get a retirement account because people spend a lump sum too fast -- instead of an annuity. Ford will follow GM's example next year. Fortunately, very few auto managers and workers are taking up such an offer; they must know an annuity is more valuable.

What is there to stop companies from ending retirement accounts altogether? Nothing.

Unions represent less than 11% of the private sector workforce and the unemployment rate is high enough that anyone who has a job feels lucky to have a job. I don't see anything on the horizon that will encourage companies to maintain or improve retirement programs at the workplace.

Political leadership and bravery is needed to call out the failure of the voluntary retirement system and to secure retirement income and savings for all American workers.

Follow us on Twitter @CNNOpinion

Join us on Facebook/CNNOpinion

The opinions expressed in this commentary are solely those of Teresa Ghilarducci.

ADVERTISEMENT
Part of complete coverage on
April 16, 2014 -- Updated 1642 GMT (0042 HKT)
Rick McGahey says Rep. Paul Ryan is signaling his presidential ambitions by appealing to hard core Republican values
April 16, 2014 -- Updated 1539 GMT (2339 HKT)
Paul Saffo says current Google Glasses are doomed to become eBay collectibles, but they are only the leading edge of a surge in wearable tech that will change our lives
April 15, 2014 -- Updated 1849 GMT (0249 HKT)
Kathleen Blee says the KKK and white power or neo-Nazi groups give haters the purpose and urgency to use violence.
April 16, 2014 -- Updated 1156 GMT (1956 HKT)
Sen. Sheldon Whitehouse and Rep. Henry Waxman say read deep, and you'll see the federal Keystone pipeline report spells out the pipeline is bad news
April 16, 2014 -- Updated 1153 GMT (1953 HKT)
Frida Ghitis says President Obama needs to stop making empty threats against Russia and consider other options
April 15, 2014 -- Updated 2129 GMT (0529 HKT)
Peter Bergen and David Sterman say the Kansas Jewish Center killings are part of a string of lethal violence in the U.S. that outstrips al Qaeda-influenced attacks. Why don't we pay more attention?
April 15, 2014 -- Updated 1641 GMT (0041 HKT)
Danny Cevallos says families of the passengers on Malaysian Airlines Flight 370 need legal counsel
April 14, 2014 -- Updated 1523 GMT (2323 HKT)
David Frum says Russia is on a rampage of mischief while Western leaders and Western alliances charged with keeping the peace hem and haw
April 14, 2014 -- Updated 1156 GMT (1956 HKT)
Most adults make the mistakes of hitting the snooze button and of checking emails first thing in the morning, writes Mel Robbins
April 14, 2014 -- Updated 1754 GMT (0154 HKT)
David Wheeler says as middle-class careers continue to disappear, we need a monthly cash payment to everyone
April 14, 2014 -- Updated 1155 GMT (1955 HKT)
Democrats need to show more political spine when it comes to the issue of taxes.
April 14, 2014 -- Updated 1555 GMT (2355 HKT)
Donna Brazile recalls the 50th Anniversary of the Civil Rights Act as four presidents honored the heroes of the movement and Lyndon Johnson, who signed the law
April 14, 2014 -- Updated 1317 GMT (2117 HKT)
Elmer Smith remembers Chuck Stone, the legendary journalist from Philadelphia who was known as a thorn in the side of police and an advocate for the little guy
April 13, 2014 -- Updated 1856 GMT (0256 HKT)
Al Franken says Comcast, the nation's largest cable provider, wants to acquire Time Warner Cable, the nation's second-largest cable provider. Should we be concerned?
April 11, 2014 -- Updated 1522 GMT (2322 HKT)
Philip Cook and Kristin Goss says the Pennsylvania stabbing attack, which caused grave injury -- but not death, carries a lesson on guns for policymakers
April 11, 2014 -- Updated 1906 GMT (0306 HKT)
Wikipedia lists 105 football movies, but all too many of them are forgettable, writes Mike Downey
April 11, 2014 -- Updated 1432 GMT (2232 HKT)
John Sutter and hundreds of iReporters set out to run marathons after the bombings -- and learned a lot about the culture of running
April 11, 2014 -- Updated 1649 GMT (0049 HKT)
Timothy Stanley says it was cowardly to withdraw the offer of an honorary degree to Ayaan Hirsi Ali. The university should have done its homework on her narrow views and not made the offer
April 11, 2014 -- Updated 1416 GMT (2216 HKT)
Al Awlaki
Almost three years after his death in a 2011 CIA drone strike in Yemen, Anwar al-Awlaki continues to inspire violent jihadist extremists in the U.S, writes Peter Bergen
April 12, 2014 -- Updated 0121 GMT (0921 HKT)
David Bianculli says Colbert is a smart, funny interviewer, but ditching his blowhard persona to take over the mainstream late-night role may cost him fans
April 10, 2014 -- Updated 1731 GMT (0131 HKT)
Rep. Paul Ryan says the Republican budget places its trust in the people, not in Washington
April 10, 2014 -- Updated 2128 GMT (0528 HKT)
Aaron David Miller says Obama isn't to blame for Kerry's lack of progress in resolving Mideast talks
April 14, 2014 -- Updated 1522 GMT (2322 HKT)
David Weinberger says beyond focusing on the horrors of the attack a year ago, it's worth remembering the lessons it taught about strength, the dangers of idle speculation and Boston's solidarity
April 10, 2014 -- Updated 1632 GMT (0032 HKT)
Katherine Newman says the motive for the school stabbing attack in Pennsylvania is not yet known, but research on such rampages turns up similarities in suspects and circumstances
April 11, 2014 -- Updated 1103 GMT (1903 HKT)
Simon Tisdall: Has John Kerry's recent track record left Russia's wily leader ever more convinced of U.S. weakness?
April 10, 2014 -- Updated 1640 GMT (0040 HKT)
Mel Robbins says Nate Scimio deserves credit for acting bravely in a frightening attack and shouldn't be criticized for posting a selfie afterward
April 9, 2014 -- Updated 1839 GMT (0239 HKT)
Wendy Townsend says the Rattlesnake Roundup -- where thousands of pounds of snakes are killed and tormented -- is barbaric
April 10, 2014 -- Updated 1345 GMT (2145 HKT)
Dr. Mary Mulcahy says doctors who tell their patients the truth risk getting bad ratings from them
April 9, 2014 -- Updated 1328 GMT (2128 HKT)
Peggy Drexler says the married Rep. McAllister, caught on video making out with a staffer, won't get a pass from voters who elected him as a Christian conservative with family values
April 9, 2014 -- Updated 1143 GMT (1943 HKT)
David Frum says the president has failed to react strongly to crises in Iran, Syria, Ukraine and Venezuela, encouraging others to act out
April 9, 2014 -- Updated 2057 GMT (0457 HKT)
Eric Liu says Paul Ryan gets it very wrong: The U.S.'s problem is not a culture of poverty, it is a culture of wealth that is destroying the American value linking work and reward
April 9, 2014 -- Updated 1151 GMT (1951 HKT)
Frida Ghitis writes: "We are still seeing the world mostly through men's eyes. We are still hearing it explained to us mostly by men."
April 10, 2014 -- Updated 1408 GMT (2208 HKT)
Chester Wisniewski says the Heartbleed bug shows how we're all tangled together, relying on each other for Internet security
April 9, 2014 -- Updated 1926 GMT (0326 HKT)
Danny Cevallos says an Ohio school that suspended a little kid for pointing his finger at another kid and pretending to shoot shows the growth in "zero tolerance" policies at school run amok
ADVERTISEMENT