IBM to discontinue 401(k) matching, introducing a hybrid plan. Experts predict that other companies may struggle to implement a similar shift.

• IBM is moving from a defined contribution 401(k) plan to a traditional defined benefit pension.
• To create a plan similar to IBM's, companies must have a comparable structure.
• The new plan offers a guaranteed rate of return, but it may be lower than what employees could achieve through more aggressive investments.

IBM, which played a significant role in the transition from defined benefit to defined contribution retirement plans in the past, recently announced that it will replace its 401(k) matching program with a "retirement benefit account" funding.

Other companies may find it tricky to follow suit, experts say.

Starting next year, the company will no longer offer a 5% match and a 1% automatic contribution into an employee's 401(k). Instead, effective Jan. 1, the company will contribute 5% into the RBA, which is a pension plan that will pay 6% interest through 2026. After that, the RBA will earn a rate equivalent to the 10-year U.S. Treasury Yield, with a 3% per year minimum through 2033.

IBM claims that the change provides a stable and predictable advantage to employees and aids in diversifying their retirement portfolios.

IBM will be solely responsible for the risk under the plan and must pay the benefit to employees at the time of separation, according to a statement from the company.

Next year, more part-time workers will have access to employer retirement plans. Amid financial stress, workers are increasingly seeking emergency savings accounts. Some companies are lowering job posting salaries as pay transparency laws take effect.

It’s unlikely to start a trend, however.

Experts suggest that a company must have a traditional defined benefit pension plan in place, which must be overfunded and not be associated with a union in order to make a similar move.

"IBM's favorable circumstances allowed it to execute this type of change more effectively than other companies without a clear structure," stated Craig Copeland, director of wealth benefits research at the Employee Benefit Research Institute.

IBM change makes use of a $3.5 billion surplus

IBM, formerly known as "Big Blue," has a history of changes to its retirement plans.

In 1984, IBM was among a wave of large companies that began offering 401(k) plans. However, by the 1990s, its pension plan was cut back and eventually closed to new participants in 2006. Some employees opposed the change and filed a lawsuit. In 2005, IBM settled some claims and won on appeal for the rest.

IBM transferred $16 billion worth of pension liabilities to insurance companies Prudential and MetLife last year, despite having a $3.5 billion surplus in its plan, according to the company’s annual report.

By restructuring its retirement plan, IBM can utilize its surplus pension assets to fund its match.

Jonathan Price, a senior vice president and the national retirement practice leader at Segal, an HR management consulting firm, stated that what's interesting about what IBM is doing is that they are considering a more efficient way to capture their assets. He added that IBM is taking a more nuanced approach than what was seen a few years ago and what other employers might choose to do in the future.

What the change means for employees

IBM's change offers a defined benefit and annuity payment option to all employees, but younger workers and high contributors may be limited in their potential returns.

Brandon Gibson, a certified financial planner and founder of Gibson Wealth Management in Dallas, stated that a 6% to 7% annual return is a reasonable goal that can be achieved through a combination of equities and fixed income. However, he cautioned that yields could drop as low as 3% after 2026.

Boston Wealth Strategies financial adviser Jack Heintzelman recommends that 401(k) plan participants reconsider the allocation of their remaining assets after the match is invested in a highly conservative option.

Heintzelman advised employees to consider taking on more equity exposure and risk in their retirement portfolio, as the company's contribution is in fixed income, bond-like investments.

Experts suggest that although there is no legal requirement for employers to provide a 401(k) plan or a match, it is still beneficial to have one.