Washington – International Business Machines Corp. said Thursday it will freeze the pension plans of about 120,000 employees in the United States, effective at the end of next year, and will offer instead a more generous 401(k) plan.
IBM’s move is part of a corporate stampede away from traditional pension plans. IBM officials called the change essential to remain competitive with foreign and domestic information- technology rivals.
The freeze means that benefits earned by current workers up to Jan. 1, 2008, will be preserved, but after that date they will not increase.
IBM employs about 6,200 employees in Colorado.
The company already had eliminated traditional pensions for new hires starting last year.
The company said it expects the changes, announced Thursday along with changes it expects to make this year for workers in other countries, to cut worldwide retirement-related expenses by $450 million to $500 million this year and by $2.5 billion to $3 billion through 2010.
The action adds IBM to a growing list of U.S. employers that have frozen or terminated pension plans to cut costs or, in some cases, emerge from bankruptcy. Such changes are especially common in industries where foreign competition is tough, such as steel, or where new domestic competitors have arisen – such as airlines and high tech – that do not offer traditional pensions.
Last month, for example, Verizon Communications Inc., the nation’s second-largest phone company, froze its traditional pension plan for 50,000 managerial workers and boosted benefits through its 401(k) plan. Verizon said it expected the change to save it about $3 billion over the next decade.
A survey last year by the government agency that insures traditional pensions, the Pension Benefit Guaranty Corp., found that 9.4 percent of existing plans are frozen. However, some experts say the PBGC figure is too low. The trend has been accelerating, they say, and some surveys suggest that 15 percent to 20 percent of employers with traditional pensions are considering freezing or terminating them.
Traditional pensions, which typically promise a specific benefit based on pay and years of service, cover about 34 million workers and retirees. They pay out about $120 billion in benefits annually, according to estimates.
Roughly 29,000 of these plans remain today, down from 112,000 in 1985. The surviving plans tend to be large – most of the decline has come at small employers – and are concentrated in older, unionized industries such as the auto industry.
IBM over the past 15 years has revamped its pension offerings several times, most recently converting a number of workers to a hybrid “cash-balance” plan, which is operated by the company but delivers benefits in a form that resembles a 401(k).
