Sign up today and take advantage of member-only content — the kind of timely, cutting edge industry insight that only Money Management Executive can deliver.
  • Exclusive Online Only Content
  • Free Daily Email News Alerts
  • Asset Management Blogs

Retire Rich

By Lee Barney, MMExecutive

March 26, 2007

IBM's Plan to Give Advice To 401(k) Participants May Portend Promising Trend

Critics of 401(k) plans say they have failed the nation's workers because they don't equip them with financial advice. Although the Pension Protection Act prescribes giving guidance, it is vague on what it should constitute and, therefore, hasn't prompted many plan sponsors or administrators to provide such assistance. Without clear rules, they are afraid of fiduciary liability.

But that could change due to a bold decision at IBM to equip its 127,000 U.S. workers with financial education and one-on-one personal coaching about their 401(k)s and a myriad of other money issues-particularly because IBM is such a large firm.

Next year, when IBM freezes its pension and moves to a defined contribution plan, the firm will give its employees and their spouses or partners free online planning tools, seminars and one-on-one coaching, either in person or over the phone. The program, which will be administered by Ayco and Fidelity Investments and cost IBM $50 million over five years, will go beyond retirement planning to encompass college savings, debt, wills, trusts, taxes, insurance and healthcare.

While IBM said it will review participation rates after two years and pull the plug if they are low, the firm is hopeful the program will be a success.

"We're going to give them the tools and the guidance and the knowledge to make decisions on their own," Randy MacDonald, IBM senior vice president of human resources, told the Raleigh News & Observer. "We don't want people to make decisions in a vacuum. We believe this establishes a new benchmark for retirement programs in this country."

Big Blue certainly could use the goodwill among its employees. The firm began cutting back on its pension in the past few years. Then, last year, some of its employees filed an age-discrimination lawsuit. IBM won the case, and again on appeal in the Supreme Court in January.

Although medium and large employers are increasingly offering financial education, only a handful offer one-on-one counseling, concurred Tom Garman, a professor emeritus at Virginia Tech.

Ed Ferrigno, vice president of Washington affairs at the Profit Sharing/401(k) Council of America, also believes IBM's move to provide personal advice is significant. "IBM is a bellwether company, and certainly a lot of others follow the lead of IBM, so it's a very positive sign," Ferrigno said.

(c) 2007 Money Management Executive and SourceMedia, Inc. All Rights Reserved.

http://www.mmexecutive.com http://www.sourcemedia.com

Recent Posts

Give Control Back to Fund Managers

Finally, insiders launched candid criticism at the mutual fund industry last week, to help it respond sensibly to the economic meltdown and reposition itself to regain investor trust.Foremost among this advice is giving portfolio managers back the power to pick stocks and run with their investment ideas, instead of being so tightly tethered to an investment class and market capitalization. Further, fund managers should step away from their style boxes and take a look at bigger economic trends.

401(k)s Will Supplant Pensions in Our Lifetimes

How far the 401(k) has come since employers first introduced the savings plan in 1981. And how far it has yet to go. 401(k)s, I predict, will become universal in our lifetimes, supplanting all forms of pension plans. The first time I heard about 401(k)s, when I entered the workforce in 1982, was from a fellow classmate from the University of Pennsylvania, who was familiar with then-esoteric 401(k) section of the IRS code (then being touted merely as a tax benefit), since she worked as an accountant for Coopers & Lybrand.

Index of Posts

Post a Comment

You must be registered and logged in to post a comment. Click here to register.

Reader Comments

Be the first to comment.

Lee Barney

Lee Barney has been the editor of Money Management Executive since 2002 and has been writing about Wall Street since 1993. Previously, at United Media’s Wall Street & Technology magazine and Risk/Waters Information Services, she covered financial IT. For TheStreet.com, she wrote the daily “Meet the Street” column covering a broad spectrum of market-moving events. Lee began her career as a reporter in Tokyo with The Japan Times and was executive editor of Spotlight magazine.

Related Items