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IBM shifts 401(k) policy to once-a-year matches

Published on NewsOK Modified: December 7, 2012 at 7:06 pm •  Published: December 7, 2012

Also, with annual contributions, Borland noted that a company has more freedom to allocate cash reserves as it sees fit during the course of a year, rather than regularly having to dip into accounts for biweekly matching contributions. Ultimately, however, the contribution must be made, in lump-sum at the end of the year.

Although annual contributions could help the company better manage its finances and cut costs, Alfred, of BrightScope, said IBM's shift away from biweekly matches isn't a positive for employees on the whole. Employees could miss out on some investment gains depending on how the financial markets perform during a given year. That's because the company will have the cash available until year-end, rather than putting it in employee accounts where it would be invested throughout the year. However, that could be a plus for employees if markets decline.

For long-term employees, any savings differences resulting from an annual match rather than biweekly contribution could be marginal by the time a worker reaches retirement, given the ebb and flow of the markets.

A company's policy of making matches annually rather than biweekly may not be a decisive factor for an employee considering leaving, or for a potential hire who might join, Borland said. The amount of matching contributions is what employees focus on, rather than the timing.

But the potential hit to retirement savings for an employee leaving could be significant.

Take this example of an employee who earns $45,000 a year, and receives a matching contribution capped at 4 percent. That employee would get an $1,800 match from the company. But if the worker leaves at the end of September under a policy like IBM's new one, he or she would give up an accrued value of about $1,405, compared with what the worker could have received in biweekly matches. That example assumes a monthly average investment return of 0.4 percent.

Whatever a company's matching policy, employees need to be saving more for their retirements, Borland said.

Aon Hewitt estimates that employees will typically need a retirement fund worth 11 times their annual end-of-career pay, beyond Social Security, to cover their needs when they stop working. Currently though, Americans are on track to accumulate funds worth only 8.8 times their final salaries, according to the consulting firm's most recent research.