Tuesday, December 11, 2012

The New Wave for 401(k)s?


IBM recently announced a change to the way it operates its 401(k): Rather than contributing to the employees’ retirement plans with every pay period, Big Blue will do so just once a year, on December 31st.  It may at first blush look like solely an actuarial change, but it could have a serious effect on the way IBM employees save for retirement. And it could be the wave of the future.

The contributions will be made at the end of each year, which deprives workers of earnings and interest that could be compounding in the accounts over the course of the year. And if an IBM employee leaves the company before December 15th, he or she gets nothing in their 401(k) for that calendar year.

To date only 9 percent of all companies operate their 401(k)s under the IBM annual model, while 84 percent continue to do it the traditional way, contributing a portion of every paycheck. But as more and better-known companies become aware of the savings – IBM may save millions with a once-a-year plan – it could be increasingly commonplace.

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