IBM cancels 401k matching, replaces with proprietary pension fund RBA(old.reddit.com)
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IBM cancels 401k matching, replaces with proprietary pension fund RBA
https://old.reddit.com/r/IBM/comments/17lcfxe/401k_is_being_replaced_by_a_proprietary/
138 comments
Yes, the RBA seems an incredibly bad long term investment strategy.
You are essentially switching to your retirement strategy being loaning your money to IBM at the lowest possible interest rate, vs investing with and growing with the American economy as a whole. The difference in compound interest between the two is going to epic over twenty to forty years.
The SP500 has more than 50x since 1970. If you had your money in 10 year treasury bonds, that would be less than 12x. So you'd have 1/4 as much, and IBM would have 3/4 of what you would have had.
You are essentially switching to your retirement strategy being loaning your money to IBM at the lowest possible interest rate, vs investing with and growing with the American economy as a whole. The difference in compound interest between the two is going to epic over twenty to forty years.
The SP500 has more than 50x since 1970. If you had your money in 10 year treasury bonds, that would be less than 12x. So you'd have 1/4 as much, and IBM would have 3/4 of what you would have had.
For clarity's sake though, we're talking about yield theft on what was IBM's already evasive 401k match. One's "real" 401k contributions remain separate, portable and their yield bounded only by IBM's limited choices/fees.
How did their 401k match work?
They used to wait until end of year to match funds until recently they switched to monthly matching. So if you left before end of year, your match didn’t pay out iirc. Now they’re getting rid of 401k matching entirely so suppose it’s a moot point.
Didn't they get to write off their contribs to the 401k? And if they're now contributing to the RBA instead would they still get to write that off?
I think outside of a few edge cases employee compensation is always a writeoff for the employer
>investing with and growing with the American economy as a whole.
A very important nuance (not disagreeing with you, just sharing my pet thing), is that the stock market outgrows GDP because you aren't investing in the economy as a whole. You are investing in the good parts of the economy that people are excited about (i.e. When you invest in Amazon, you assume that they will continue to take share from mom and pop retailers, even in a flat-GDP scenario). You are also generally assuming that US-HQ companies will gain share globally, not just in the US.
That's why the Internet has been so positively impactful to the S&P 500 - it has really accelerated share shift to large companies (even if it hasn't accelerated GDP) and it has increased the global share of US-based companies.
A very important nuance (not disagreeing with you, just sharing my pet thing), is that the stock market outgrows GDP because you aren't investing in the economy as a whole. You are investing in the good parts of the economy that people are excited about (i.e. When you invest in Amazon, you assume that they will continue to take share from mom and pop retailers, even in a flat-GDP scenario). You are also generally assuming that US-HQ companies will gain share globally, not just in the US.
That's why the Internet has been so positively impactful to the S&P 500 - it has really accelerated share shift to large companies (even if it hasn't accelerated GDP) and it has increased the global share of US-based companies.
on the downside, those billionaires are leveraging that value to make your overall tax burden higher and quality of life lower along with ignorant externalities which will wipe it all out if you have any number of health issues or hurricanes.
so, you know, might need to longer term forecast here.
so, you know, might need to longer term forecast here.
So how are the billionaires making your life worse?
Socializing the losses and privatizing the profits comes to mind.
Leveraging their wealth to pass laws that are to their benefit at the cost of the "lower classes" is the next.
I'm sure this is a fun game for someone who thinks it's useful to retread it.
Leveraging their wealth to pass laws that are to their benefit at the cost of the "lower classes" is the next.
I'm sure this is a fun game for someone who thinks it's useful to retread it.
they bankrolled Trump, bankroll science denialism, deadlock against universal health care, homeless increases.
if you're ignorant of billionaires buying political policies, I doubt you see these things.
if you're ignorant of billionaires buying political policies, I doubt you see these things.
> billionaires buying political policies
Soros donated 140m in the 2022 mid-term to democrats. So you're against that?
Soros donated 140m in the 2022 mid-term to democrats. So you're against that?
That wasn’t the billionaires. That was straight out of the conservatives playbook.
Trump didn’t get bankrolled by billionaires. Trump won because both parties and the media ignored the needs of mostly the White working class and “evangelical conservatives” always vote Republicans.
I’m saying this as decently well off Black guy.
Trump didn’t get bankrolled by billionaires. Trump won because both parties and the media ignored the needs of mostly the White working class and “evangelical conservatives” always vote Republicans.
I’m saying this as decently well off Black guy.
If an IBM employee asked me for investment advice, I'd suggest they loan money to short sellers of IBM. That's the only people IBM makes money for.
That sounds like a violation of pretty much any well-developed corporate conflict of interest policy, at least assuming they remain employed at the short-sold company during the loan.
they made money for me when I was overemployed with them + 2 other companies.
Is that 50x inflation/printing adjusted?
No, it’s not relevant when comparing ratios between stocks and bonds.
They are doing this because it's better financially for IBM the corporation ... period ... full stop.
Speculation is that it’s beneficial to IBM because the money will be under their management rather than Fidelity’s. What exactly they’re allowed to do with that money, I’m unsure.
Pension funds are carefully regulated and cannot be in risky investments. IBM cannot invest in IBM, they have to invest in various bonds. Before pension regulations a few pensions invested in the.company and employees discovered that was a bad idea when the company went bankrupt just before they were set to retire and their pension value went to zero.
I'm not sure if this is legally a pension, if not assume it is worth nothing. If it is the US government backs it and so if you work for IBM for 30 it is a great deal, pensions are defined income so you don't have to worry about if you will live to 66 or 120. (If like most you switch jobs it is terrible)
I'm not sure if this is legally a pension, if not assume it is worth nothing. If it is the US government backs it and so if you work for IBM for 30 it is a great deal, pensions are defined income so you don't have to worry about if you will live to 66 or 120. (If like most you switch jobs it is terrible)
Pension funds invest in risky assets, just at a lower percentage than say a hedge fund with accredited investor status. The Ontario Teachers Pension Plan lost $100m to the FTX bandits last year.
https://www.ft.com/content/29c67711-377c-4435-9c90-280852374...
https://www.ft.com/content/29c67711-377c-4435-9c90-280852374...
If you manage a pension fund, especially a public pension fund, putting any of the money in crypto should be grounds for immediate termination at the very least, and possibly civil and criminal penalties. There's no excuse for touching that radioactive shitpile with other people's money after the countless demonstrations of fraud and incompetence.
Their statement explains it pretty reasonably: https://www.otpp.com/en-ca/about-us/news-and-insights/2022/o...
> Our investment represented less than 0.05% of our total net assets
> Naturally, not all of the investments in this early-stage asset class perform to expectations, however, since inception, TVG has delivered solidly on intended objectives.
> Our investment represented less than 0.05% of our total net assets
> Naturally, not all of the investments in this early-stage asset class perform to expectations, however, since inception, TVG has delivered solidly on intended objectives.
Legally, I believe this is a pension fund. Still, they have to be pocketing the difference somewhere because why else would they make such a controversial decision that also increases administrative overhead?
The current decision making ranks at IBM can do plenty of shady stuff then depart, before legal problems come home to roost. Years and years at least.
It’s not a pension at all.
401ks are a separate thing entirely. Generally they don’t let you invest in individual stocks at all.
401ks are a separate thing entirely. Generally they don’t let you invest in individual stocks at all.
Is there a rule to prevent them from investing in a fund that invests primarily in IBM?
Federal pension law put into place since (because) the events I mentioned.
> Anyone know what is prompting this change?
A lot of the free money that was flying around has dried up and it's easier to cryptically "rework our retirement benefits program" than it is to openly cut the unsustainable salaries that were offered during flush times.
It's the same reason that everything's finally being monetized, massive layoffs washed through, and prices are being increased. At best, it'll be the soft deflation of an egregious 5-10 year bubble and we'll remember that you can't get paid $300k out of college to write glue code nor expect to get all your online services for free.
A lot of the free money that was flying around has dried up and it's easier to cryptically "rework our retirement benefits program" than it is to openly cut the unsustainable salaries that were offered during flush times.
It's the same reason that everything's finally being monetized, massive layoffs washed through, and prices are being increased. At best, it'll be the soft deflation of an egregious 5-10 year bubble and we'll remember that you can't get paid $300k out of college to write glue code nor expect to get all your online services for free.
IBM hardly paid anyone $300k out of college. If anything they were the big pushers for “new collar” == white collar work at blue collar wages. Scumbags.
Am I reading it right that you are just getting IBM defined X% rate of return? So even if the market does gang busters, you might get none of that upside?
First 3 years, yes. After 2026 you either get 3% or whatever the 10Y is yielding, whichever is greater
So they're basically switching employees from an investment plan where the employees profit from falling interest rates to an investment plan where IBM profits from falling interest rates.
Except IBM also takes plenty of upside if interest rates stay high too, by paying way below-market yield for the first few years.
Except IBM also takes plenty of upside if interest rates stay high too, by paying way below-market yield for the first few years.
So now they can literally make money off of this “retirement plan”. Wow
You can bet that some big consultancy is flogging this idea and it will be cropping up far and wide, just like "unlimited time off".
Yeah it's not good. Once the matching contribution is vested, the money is yours to do with as you please -- including potentially loaning the money out to yourself.
Having you private pension fund be owned by the company you work for is TERRIBLE
My father had almost all of his savings in a pension fund by a bank (he worked at that bank) that was later acquired by Santander. They completely screwed him over with his pension, lawsuits are ongoing for almost 20 years now. My father passed away last year still dreaming about all the money he was "about to get" from the lawsuits
My father had almost all of his savings in a pension fund by a bank (he worked at that bank) that was later acquired by Santander. They completely screwed him over with his pension, lawsuits are ongoing for almost 20 years now. My father passed away last year still dreaming about all the money he was "about to get" from the lawsuits
the 3 years of 6% interest sounds good, though. But after that it sounds like it could be a lot lower.
URL looks wrong: https://old.reddit.com/r/IBM/login/
Correct URL might be one of:
https://old.reddit.com/r/IBM/comments/17lcfxe/401k_is_being_...
https://old.reddit.com/r/IBM/comments/17lc4jz/is_ibm_replaci...
Correct URL might be one of:
https://old.reddit.com/r/IBM/comments/17lcfxe/401k_is_being_...
https://old.reddit.com/r/IBM/comments/17lc4jz/is_ibm_replaci...
Yes, I’m not sure why but the link got swapped out when I posted the story
It's because our software uses the canonical URL when it finds one, and the link you posted lists https://old.reddit.com/r/IBM/login/ as its canonical URL. I've changed it back now.
The link was replaced again.
Ahh - I misread the log - the problem is that the submitted URL redirects to a login page.
Let's use https://old.reddit.com/r/IBM/comments/17lcfxe/401k_is_being_... as suggested by neilv above.
Let's use https://old.reddit.com/r/IBM/comments/17lcfxe/401k_is_being_... as suggested by neilv above.
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.
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.
Yes this is true, "the conversions did not generally work in their (employee) favor, although the old old timers were allowed to stay on the pension".
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.
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.
> "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."
If this is true, is there anyone reading this who'd accept an offer to work for IBM?
If this is true, is there anyone reading this who'd accept an offer to work for IBM?
Hell, I already wouldn't take an offer to work for IBM based on the 401k fuckery that this article is about.
And when I was at IBM (left ten years ago), they had just put in a change to the 401k match where they didn’t contribute the match every pay period but rather all at once on December 31st... assuming you were still employed on December 15th of that year. Quit or get fired before that, kiss your 6% (some of the older folks had 8% I think) goodbye!
I was there during that time too, drove me crazy when they announced that change. Pay wasn't competitive and now you're messing with our retirement? I'm sure someone in finance got rewarded for making it sound like benefits weren't changing but actually paying out significantly less averaged over the whole work force. I ended up finding another company in the area doing my same work for double the salary, but it costs me 10 months of 401K matching!
They just reverted that change last year and went to monthly matching. shame that that only lasted a year
https://www.reddit.com/r/IBM/comments/17lc4jz/is_ibm_replaci... link to the thread. Not sure why the link got replaced
I can't wait until IBM eventually declares that the RBA, as a pension fund, is unsustainable for them and that they're going to move to a 401k or look at cash outs.
> IBM is able to provide a benefit to IBMers that also helps diversify their retirement portfolios.
How is this helping diversify a retirement portfolio?
(Compared to the usual advice of total-market stock and bond index funds.)
How is this helping diversify a retirement portfolio?
(Compared to the usual advice of total-market stock and bond index funds.)
This is wonderful. Workers have it too easy.
Think of the poor shareholders. They need money too!
Think of the poor shareholders. They need money too!
The shareholders are poorer than they were 10 years ago. This company is an employment program for incompetent executives.
That talk Jobs did about businesses that fail because they promote sales and incompetence (because promoting competence leads to needing to fill roles).
IBM is a case study for that.
Also being a top heavy business with managers that protect their jobs through incredibly massive process (forget node_modules, IBM process is the only thing heavier than a black hole, in fact).
There was a time when we were 18 managers for 24 employees.
IBM is a case study for that.
Also being a top heavy business with managers that protect their jobs through incredibly massive process (forget node_modules, IBM process is the only thing heavier than a black hole, in fact).
There was a time when we were 18 managers for 24 employees.
Well, at IBM, maybe they do.
Revenue is heading steadily down. Profit is down 50% over the past five years. All during a massive tech-fueled economic boom. What are they doing over there?! [valustox.com/IBM]
Ideally, all workers should be invested in their own company and a diversified set of other public companies. Most already are.
Revenue is heading steadily down. Profit is down 50% over the past five years. All during a massive tech-fueled economic boom. What are they doing over there?! [valustox.com/IBM]
Ideally, all workers should be invested in their own company and a diversified set of other public companies. Most already are.
At the current rate, they're gunna need to find the next Red Hat (money spinner) to buy sooner rather than later.
Exactly finally someone thinking of the poor executives and shareholders. These lazy workers I remember back in the days of my youth when a man would work for 23 hours a day with the only break being the 3 minutes you'd have to fish the bodies out of the molten steel before it set.
Those were the days. remembers in Mr. Burns
Those were the days. remembers in Mr. Burns
Looking at the stock chart for IBM, I think someone should start thinking of them... But this is not likely move the needle.
Why did pensions go away? Is the dynamic nature of 401ks that much better? I always found it quite strange that not only am I expected to be an expert in my field, but also must be a near expert in financial investing to not end up being homeless in my old age.
This was covered well in a PBS Frontline documentary, "The Pension Gamble":
https://www.pbs.org/wgbh/frontline/documentary/the-pension-g...
And also in their followup, "The Retirement Gamble":
https://www.pbs.org/wgbh/frontline/documentary/retirement-ga...
Both can also be found on YouTube.
I rewatched both just a few months ago, to understand the history a bit better. The short answer is that eliminating pensions was part of a larger restructuring in corporate America, wherein major companies that became megacaps in the 20th century used the Chapter 11 bankruptcy rules as a shield to eliminate employee pensions, while the burgeoning consumer finance industry of the 1980s and 1990s was all too eager to create a new fee-generating monster in the form of 401ks.
These days, employer-matched 401ks with low-fee index funds are the only sane retirement tool available to middle-class workers, but much like US employer-sponsored healthcare, the system is about 10x more complex and 10x more precarious than it otherwise could be, and it benefits all sorts of ridiculous middleman paper-pushing rent-seeking corporations along the way. The news from IBM is ironic because employees will rightly revolt against this "pension" because now that Vanguard-style low fee funds have become ascendant in 401k accounts, a number of new unscrupulous financial actors are pitching "pension plans" to companies which are really opaque fee- and cash-grabs for employee retirement accounts.
https://www.pbs.org/wgbh/frontline/documentary/the-pension-g...
And also in their followup, "The Retirement Gamble":
https://www.pbs.org/wgbh/frontline/documentary/retirement-ga...
Both can also be found on YouTube.
I rewatched both just a few months ago, to understand the history a bit better. The short answer is that eliminating pensions was part of a larger restructuring in corporate America, wherein major companies that became megacaps in the 20th century used the Chapter 11 bankruptcy rules as a shield to eliminate employee pensions, while the burgeoning consumer finance industry of the 1980s and 1990s was all too eager to create a new fee-generating monster in the form of 401ks.
These days, employer-matched 401ks with low-fee index funds are the only sane retirement tool available to middle-class workers, but much like US employer-sponsored healthcare, the system is about 10x more complex and 10x more precarious than it otherwise could be, and it benefits all sorts of ridiculous middleman paper-pushing rent-seeking corporations along the way. The news from IBM is ironic because employees will rightly revolt against this "pension" because now that Vanguard-style low fee funds have become ascendant in 401k accounts, a number of new unscrupulous financial actors are pitching "pension plans" to companies which are really opaque fee- and cash-grabs for employee retirement accounts.
My wife worked at Boeing for seven years in the 1980s, in management. We tracked down her pension recently, hoping for a huge payout after it had been invested for 35 years. It turns out that she will get $96/month. We are very disappointed in the Boeing pension managers.
Pensions went away because for most they were worse. If you stay at the same company from 25 to 65 and live to 105 they are better than a 401k. However if you found a different job (including because you got laid off) the amount you got was severely reduced (not to zero, but my dad could have got $.75 month starting at 65, if he had joined a pension at 22 when he started in 1975 until 1985 when the nearly bankrupt company finally laid him off. In 1985 he got a job with a company that instead offered a 401k, and there got a small nest egg. If he had stayed at that company until 65 he would have got something like 1000/month, which sounded great in 1973, but there was a lot of inflation in the next decade.
I don't remember exact years or numbers above, but they are close enough for discussion.
I don't remember exact years or numbers above, but they are close enough for discussion.
Republican political philosophy.
Company-administered pensions offered little to no opportunity for a financial services middleman to collect a percentage, and involved employers promising their employees things that might (might) cause some pain to the employer to deliver.
So a story was made up that "you can do better on your own investing in the market", thus allowing Fidelity et al. to collect their cut, and to let employers off the hook.
And of course, like all other Republican political policy that asserts that you are responsible for yourself and nobody else is, it has all turned out swimmingly, don't you agree\?
Company-administered pensions offered little to no opportunity for a financial services middleman to collect a percentage, and involved employers promising their employees things that might (might) cause some pain to the employer to deliver.
So a story was made up that "you can do better on your own investing in the market", thus allowing Fidelity et al. to collect their cut, and to let employers off the hook.
And of course, like all other Republican political policy that asserts that you are responsible for yourself and nobody else is, it has all turned out swimmingly, don't you agree\?
They also involved a not-insignificant risk to the employee in the event of bankruptcy, or losing their job before eligibility for full retirement. A close relative put in more than 20 years at Eastern Airlines.
He collects less than 10 cents on the dollar from the PBGC backstop since Eastern went bankrupt.
> So a story was made up that "you can do better on your own investing in the market"
In his case, that story was true. After Eastern, he took a job at FedEx. FedEx killed their pension plan and the employees largely had to save for retirement via 401k accounts. He lives off of that money quite nicely now. The Eastern pension buys him a nice dinner once a month or so.
He collects less than 10 cents on the dollar from the PBGC backstop since Eastern went bankrupt.
> So a story was made up that "you can do better on your own investing in the market"
In his case, that story was true. After Eastern, he took a job at FedEx. FedEx killed their pension plan and the employees largely had to save for retirement via 401k accounts. He lives off of that money quite nicely now. The Eastern pension buys him a nice dinner once a month or so.
This is an issue with the way corporate pensions are/were run, not the basic concept. The fact the the pension fund members got shafted in favor of other creditors is a detail that also stems mostly from, well, not exactly Republican political philosophy, but capitalism itself (in the sense that it is a system predicated on the concept that the rewards of human ventures go primarily to those who invest capital rather than labor or ideas).
Certainly the facts are not contestable: plenty of corporate bankruptcies left their employee's pension funds screwed in a way that does not happen with a 401k plan. But it didn't have to be that way, it was a choice (of our legal, political and economic system). Other countries have made different choices, for examples.
Certainly the facts are not contestable: plenty of corporate bankruptcies left their employee's pension funds screwed in a way that does not happen with a 401k plan. But it didn't have to be that way, it was a choice (of our legal, political and economic system). Other countries have made different choices, for examples.
Sure, if the facts were totally different, the resulting circumstances would be different as well. But they aren't, and your thesis that these circumstances were principally caused by Republicans is supported by no evidence that I can find.
If you look at the history of the 401k, specifically, which you originally claimed was some sort of republican conspiracy to generate asset management revenue for financial firms, you'll see more Democrats than Republicans involved. For instance, the law that created section 401(k) of the internal revenue code was passed by a congress where Democrats maintained a majority in both houses, and was signed into law by a Democrat (Jimmy Carter.) In the intervening years, every single Democratic president has supported (or strengthened) the status quo. Bill Clinton signed SIMPLE plans into law, Obama championed the "MyRA" thing bolted onto the side of IRAs, etc.
If you look at the history of the 401k, specifically, which you originally claimed was some sort of republican conspiracy to generate asset management revenue for financial firms, you'll see more Democrats than Republicans involved. For instance, the law that created section 401(k) of the internal revenue code was passed by a congress where Democrats maintained a majority in both houses, and was signed into law by a Democrat (Jimmy Carter.) In the intervening years, every single Democratic president has supported (or strengthened) the status quo. Bill Clinton signed SIMPLE plans into law, Obama championed the "MyRA" thing bolted onto the side of IRAs, etc.
Yes because it’s much better to let the company be responsible for your retirement and depending on the viability of your company.
How many times have you changed jobs in your career? I’m on #9.
How many times have you changed jobs in your career? I’m on #9.
I'm nearly 60. I've been self-employed for the last 25 years. I worked at precisely two jobs that offered any sort of pension funding at all.
Next month, I'll be forced to cash out the pension funds from a multinational corporation I worked for for 18 months back in the mid-1980s. $14k. I'll take it :)
The point you're making is predicated on the idea that there are only two options: company-owned-and-managed pension plans (typically defined benefit) and individually directed investment based strategies (i.e. 401(k)).
However, the problems with both of these (and yes, there are problems with both of them) can be addressed by socialized pension schemes. Make them opt-out (opt-in if you must): the vast majority of people will opt in, the plans will have enormous financial stability (some would argue based on too much economic power, which we can already see said about e.g. Vanguard), and people would not be forced to grapple with investment questions they are generally ill-equipped to answer. For those that really think they can do better by themselves - go for it.
Next month, I'll be forced to cash out the pension funds from a multinational corporation I worked for for 18 months back in the mid-1980s. $14k. I'll take it :)
The point you're making is predicated on the idea that there are only two options: company-owned-and-managed pension plans (typically defined benefit) and individually directed investment based strategies (i.e. 401(k)).
However, the problems with both of these (and yes, there are problems with both of them) can be addressed by socialized pension schemes. Make them opt-out (opt-in if you must): the vast majority of people will opt in, the plans will have enormous financial stability (some would argue based on too much economic power, which we can already see said about e.g. Vanguard), and people would not be forced to grapple with investment questions they are generally ill-equipped to answer. For those that really think they can do better by themselves - go for it.
Because Social Security has been so well managed…
How has it been badly managed?
Really? In the next 20 years less money will be taken out for current employees than needed to meet current obligations. The “trust fund” is a lie.
Either taxes will have to be raised on workers or benefits cut. Social security taxes have been used as part of the current general budget since the 70a
Either taxes will have to be raised on workers or benefits cut. Social security taxes have been used as part of the current general budget since the 70a
Also, see myth #4 here: https://www.ssa.gov/history/InternetMyths.html
and myth #5 here: https://www.aarp.org/retirement/social-security/info-2020/10...
and myth #5 here: https://www.aarp.org/retirement/social-security/info-2020/10...
Well, I said it was a myth that it was trust fund. The fact is that if you look at current demographics, the number of working age people to retirees that there is no mathematical way that current tax rates can support the commitments.
And why would you want more of your taxes going toward current government spending that you have no control over like social security does?
And why would you want more of your taxes going toward current government spending that you have no control over like social security does?
This was known from the beginning.
I'm not a fan of the PR that surrounded the introduction of SS in the USA, but the technical aspects of how it was intended to work have not changed, and have worked as intended thus far. Fixing the demographic issues is relatively easy: just remove or increase the cutoff for SS taxes.
I'm not a fan of the PR that surrounded the introduction of SS in the USA, but the technical aspects of how it was intended to work have not changed, and have worked as intended thus far. Fixing the demographic issues is relatively easy: just remove or increase the cutoff for SS taxes.
So it’s easy, just give the government more of your money instead of controlling it yourself?
You know if you increase the amount of income that is eligible for social security that means you also increase the benefit amounts.
How is paying more taxes that the government can use for whatever it wants better than saving your own money?
You know if you increase the amount of income that is eligible for social security that means you also increase the benefit amounts.
How is paying more taxes that the government can use for whatever it wants better than saving your own money?
I don't understand why "you control your investment" is such a selling point. If I put $X in and get $Y out, I don't care whether I "control" it or not. Does the ability to choose between dumping your money into Fund A that pays 7% with 0.1% fee or Fund B that pays 7.1% with a 0.2% fee really make you feel like you're empowered?
All other things being equal, I'd rather not have to control it. One less web site to have to log into to micromanage something that should just be done for me. Let a index fund manager or the government get me my 7%. I really don't care at all.
I guess some people just hate on principle the idea of government doing anything for them, so for them, owning the account gives them a warm fuzzy feeling. I don't get it.
All other things being equal, I'd rather not have to control it. One less web site to have to log into to micromanage something that should just be done for me. Let a index fund manager or the government get me my 7%. I really don't care at all.
I guess some people just hate on principle the idea of government doing anything for them, so for them, owning the account gives them a warm fuzzy feeling. I don't get it.
Where is the money going to come from for you to get $y? In 20 years, the government is already going to have to raise taxes to meet then current obligations. How much more do you think they are going to have to raise taxes to meet increase obligations.
> Where is the money going to come from for you to get $y?
I. Dont. Care.
Maybe some government retirement agent can pick the index fund. They should feel free to knock themselves out geeking out over it. They'd probably just contract it out to Vanguard or whatever. Great and fine. I don't want to do it.
Our insistence on privatizing and individualizing everything just makes more busywork for everyone. I have an HDHP and HSA and it's frankly awful having to log in all the time and look for claims and pay the doctors from it and all that on top of the Explanation of Benefits form that comes from the insurance company and the separate bills from each doctor and me in the middle having to tell customer support from hospital X to talk to insurance provider Y over line item Z arrrrggggghhhhhhhh! I just want to go to the doctor!
Somehow voters keep optimizing for the geeks. Yes, there are a handful of people out there who enjoy spending their valuable time hunched over a spreadsheet looking at investment funds. They get their way with these hyper-individual 401(k) accounts. Screw the rest of us who just want to live their lives and then retire.
I. Dont. Care.
Maybe some government retirement agent can pick the index fund. They should feel free to knock themselves out geeking out over it. They'd probably just contract it out to Vanguard or whatever. Great and fine. I don't want to do it.
Our insistence on privatizing and individualizing everything just makes more busywork for everyone. I have an HDHP and HSA and it's frankly awful having to log in all the time and look for claims and pay the doctors from it and all that on top of the Explanation of Benefits form that comes from the insurance company and the separate bills from each doctor and me in the middle having to tell customer support from hospital X to talk to insurance provider Y over line item Z arrrrggggghhhhhhhh! I just want to go to the doctor!
Somehow voters keep optimizing for the geeks. Yes, there are a handful of people out there who enjoy spending their valuable time hunched over a spreadsheet looking at investment funds. They get their way with these hyper-individual 401(k) accounts. Screw the rest of us who just want to live their lives and then retire.
> Where is the money going to come from for you to get $y ?
Where does it come from in a 401k plan? The obvious answer is "growth in asset values", but what does that mean? It means you took ownership of something that is worth more at the time of sale than at the time of purchase. That's an investment (aka "gambling") strategy and it MUST come with a disclaimer that returns are not guaranteed.
By contrast, socialized pension systems (of which SS is an example, albeit not a particular awesome one) are NOT investment strategies. Their goal is to provide a guaranteed income for people in retirement. It follows that they must be designed and work quite differently. One part of the strategy was termed "pay as you go", in which current workers pay for the outlays of current retirees. There's nothing inherently wrong with this approach, but as you note it can run into demographic bubbles. However, the idea that handling the one we are in/facing right now needs some sort of massive tax cut is false: just remove the cap on income subject to SS taxes, and there is no issue.
Corporate pension plans were/are a strange middle ground. Behind the scenes the fund manager would be following an investment strategy, but as far as the employee was concerned, the plan offers a guaranteed return. This was supposed to be able to work because the corporate pension plan offered a modest guaranteed return and behind the scenes, a more volatile but hopefully more substantial value was associated with the fund. This would, in theory, allow the company to make the payouts that formed part of the contracts it had agreed to with employees, but way too many companies failed to even manage that. And of course, it turned out that many had dipped into "their" pension funds to provide general corporate revenue or, even more brazenly, had simply not paid in the contributions they were contractually obliged to (I am not aware of a single company that has ever been sanctioned for this insanely illegal behavior).
Where does it come from in a 401k plan? The obvious answer is "growth in asset values", but what does that mean? It means you took ownership of something that is worth more at the time of sale than at the time of purchase. That's an investment (aka "gambling") strategy and it MUST come with a disclaimer that returns are not guaranteed.
By contrast, socialized pension systems (of which SS is an example, albeit not a particular awesome one) are NOT investment strategies. Their goal is to provide a guaranteed income for people in retirement. It follows that they must be designed and work quite differently. One part of the strategy was termed "pay as you go", in which current workers pay for the outlays of current retirees. There's nothing inherently wrong with this approach, but as you note it can run into demographic bubbles. However, the idea that handling the one we are in/facing right now needs some sort of massive tax cut is false: just remove the cap on income subject to SS taxes, and there is no issue.
Corporate pension plans were/are a strange middle ground. Behind the scenes the fund manager would be following an investment strategy, but as far as the employee was concerned, the plan offers a guaranteed return. This was supposed to be able to work because the corporate pension plan offered a modest guaranteed return and behind the scenes, a more volatile but hopefully more substantial value was associated with the fund. This would, in theory, allow the company to make the payouts that formed part of the contracts it had agreed to with employees, but way too many companies failed to even manage that. And of course, it turned out that many had dipped into "their" pension funds to provide general corporate revenue or, even more brazenly, had simply not paid in the contributions they were contractually obliged to (I am not aware of a single company that has ever been sanctioned for this insanely illegal behavior).
> Company-administered pensions offered little to no opportunity for a financial services middleman to collect a percentage
This comment is laughable with it's "blame the Republicans". It's incredibly misinformed.
Who do you think manages the pension fund? Do you know how much money they make? If anything, getting rid of the pension fund eliminates the middleman.
The answer is easy - there is no long-term financial liability with a 401k match. The company gives the money and their obligations stop.
Pensions are notorious for creating future liabilities that companies can't predict. So they end up taking a hit to their financials in 2020 for a pension they awarded back in 1995.
This comment is laughable with it's "blame the Republicans". It's incredibly misinformed.
Who do you think manages the pension fund? Do you know how much money they make? If anything, getting rid of the pension fund eliminates the middleman.
The answer is easy - there is no long-term financial liability with a 401k match. The company gives the money and their obligations stop.
Pensions are notorious for creating future liabilities that companies can't predict. So they end up taking a hit to their financials in 2020 for a pension they awarded back in 1995.
Changing from defined benefit plans (pensions) to defined contribution (401k/403b) plans shifts the risk of poor investment performance from the employer to the employee.
Really? You would want your retirement tied to your employer? You would want to have to stay committed to one employer your entire career?
You don’t have to be an expert. Most 401K plans have index funds and target date funds.
You don’t have to be an expert. Most 401K plans have index funds and target date funds.
Pensions are expensive and susceptible to interest rate swings. Defined contribution plans like 401ks are easier (for companies) to budget for.
The American experience is not designed for people like us, workers, to succeed. It is designed for a capitalist to extract more capital from us.
Does anyone know if Red Hat employees are equally screwed? They were exempt from the IBM 401k-match-only-at-end-of-year game.
Our 401k (and health insurance, etc.) is completely separate from IBM so I doubt it.
That’ll change, although IBMs playbook is usually to grandfather people.
The reason they do this is to create divides between employees.
At some point, if you’re a late retiree, you’ll be one of that last on the better plan, and all the younger guys will actively support measures to get rid of you, cause of course your more expensive pension is totally the reason why raises cannot go out.
The reason they do this is to create divides between employees.
At some point, if you’re a late retiree, you’ll be one of that last on the better plan, and all the younger guys will actively support measures to get rid of you, cause of course your more expensive pension is totally the reason why raises cannot go out.
Gotta keep those profits going up, no matter what. Eventually everything gets liquidated for the sake of the shareholders, exactly as the shareholders intend.
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Are you a shareholder?
> By introducing this retirement benefit within IBM’s Personal Pension Plan, which is stable and well-funded,
This corporate communication sounds slimy, but I'm wondering about the "stable and well-funded" part: is this new infusion of money propping up the pension plan?
This corporate communication sounds slimy, but I'm wondering about the "stable and well-funded" part: is this new infusion of money propping up the pension plan?
Propping up, probably not. Enriching IBM directly and indirectly, probably yes.
Crypto.
https://news.ycombinator.com/item?id=38101464 additional thread/Boggleheads Forum
IBM (and spinoff Kyndryl's) 401k Match only at the end of the year and only if you are still an active employee (or retired) was already bad enough. At least Kyndryl increased the match to 6% instead of only 3%. I left in 2023 from Kyndryl and due to the match only at end of year will not receive 401k matching contributions for 2023. This just makes their 401k even shittier than it already was.
IBM is zombie that needs to just die.
Why any single person would choose at this time to still work at IBM is beyond me. Talk about a company that saw its best days half a century or more ago
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Does anyone really consider how much 401K matching an employer does when considering a job?
So those who want pensions can get pensions and those who want a 401k can get that. Seems fine.
Personally, I applaud this decision. It should be illegal only offer a fund-based retirement account. Company provided 401k funds are nothing but kickbacks to Wall Street.
I wish I could specify which financial provider I wanted to use for managing my accoiunt, provide info similar to ACH info for direct deposit, and go from there (ditto with HSA). Instead, I have to remember to roll-over 401k account assets after I change jobs, something I cannot do immediately and easily forget about.
> (ditto with HSA)
For HSA, you can do a variation of that: open a separate HSA anywhere you want and set up recurring monthly trustee-to-trustee (i.e. direct) transfers of your payroll contributions plus any employer contributions from one HSA to the other. This can all happen while you're employed.
You still need to make sure to adjust the transfer amounts any time you or your employer contributes less to the employer-affiliated HSA, generally avoid overdrawing either account, and make sure to count your contributions only once per year at tax time. But there are no other downsides.
For HSA, you can do a variation of that: open a separate HSA anywhere you want and set up recurring monthly trustee-to-trustee (i.e. direct) transfers of your payroll contributions plus any employer contributions from one HSA to the other. This can all happen while you're employed.
You still need to make sure to adjust the transfer amounts any time you or your employer contributes less to the employer-affiliated HSA, generally avoid overdrawing either account, and make sure to count your contributions only once per year at tax time. But there are no other downsides.
I get that what you're describing would be "better" but sounds like a very small deal. How often are you switching jobs that rolling all those 401ks is a real burden?
The reality behind it is that 401k administration is a heavy and expensive process and the reason it's all pooled together at one provider is that. Obviously once you're done, you can take it anywhere into an IRA.
The reality behind it is that 401k administration is a heavy and expensive process and the reason it's all pooled together at one provider is that. Obviously once you're done, you can take it anywhere into an IRA.
> I get that what you're describing would be "better" but sounds like a very small deal. How often are you switching jobs that rolling all those 401ks is a real burden?
It's not just the rollovers when you switch jobs. It's also being locked into whatever funds (and fees) the plan your company selected offers. Especially given you can go standup a full 401k for yourself if you are self employed for free (at Fidelity amongst other places).
It's not just the rollovers when you switch jobs. It's also being locked into whatever funds (and fees) the plan your company selected offers. Especially given you can go standup a full 401k for yourself if you are self employed for free (at Fidelity amongst other places).
When I just started a new job. They told me to go anywhere and set up an HSA and give them a form
The fund is based on 10Y treasury bonds which have significantly underperformed the S&P historically. First 3 years, you get a 6% guaranteed return. The remainder, you get only 3% guaranteed. For reference, my HYSA yields 4% a year.
Presumably IBM invests this money and pockets the difference. What a scheme - your employee retirement plan is actually a profit center. Fucked up that this could be allowed to happen.
The financialization of IBM is now complete, as they attempt to make as money off their own employees as possible.
Plus most importantly it's non-portable. You're dependent on their good will (hah!) for the ability to retrieve it from them in the future at whatever (partial) rate they decide they can get away with.
I thought they were criminals for going to lump sum match. This is net level stuff...
I thought they were criminals for going to lump sum match. This is net level stuff...
Their email calls it immediately vested + portable. Why/how would it be non-portable?
In 3 years, if IBMs fund is paying 3%, your HYSA is going to be the same or less. HYSA's are just a treasury fund minus a few bips
Fair, just giving a point of reference
I wish there weren't as many tax law distortions that make employer-sponsored healthcare and retirement a thing at all.
And you’re comfortable with being tied to your company in retirement? Are you comfortable with not being able to easily transfer your money when you change jobs?
I agree with you but this isn’t a true pension. It’s just an investment strategy that offers yields that barely cover inflation. If it were a true pension with x% of your take home monthly after you retire till death I would be on board with your comment. In this case the 401k is the lesser of the two evils.
The investment fees on a 401k are very low. My index funds are at 0.03% right now. Fancier bond or emerging market funds are even then only at 0.40%
But look at Calpers. They have $500 billion in management and an annual budget of $2.5 billion. That's a huge amount just to run the damn thing.
And then they go and invest in private equity, hedge funds, and VC funds, all charging their variation of 2/20 on top of everything.
401ks and pensions are ultimately invested in the same thing. The equity and debt of businesses. But 401ks have much lower fees.
But look at Calpers. They have $500 billion in management and an annual budget of $2.5 billion. That's a huge amount just to run the damn thing.
And then they go and invest in private equity, hedge funds, and VC funds, all charging their variation of 2/20 on top of everything.
401ks and pensions are ultimately invested in the same thing. The equity and debt of businesses. But 401ks have much lower fees.
> So they are not replacing 401k, they are offering RBA separately. You are still able to contribute to your 401k. However they are not contributing to the 401k anymore. They will be contributing 5% of your salary to your RBA with no employee contribution needed. After 3 years of 6% interest (starting 2027) it will equal the 10 year US treasury yield. Where IBM will guarantee it’s no lower than 3% per year.
That doesn't sound like a good deal at all.
Anyone know what is prompting this change?