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by jghn
962 days ago
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When I was at IBM mumbles years ago they cancelled their pension fund in favor of a 401K program. I don't remember the specifics of the classic pension fund except that it worked like a classic pension fund. I assume this is worse than either of the two. 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. |
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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.