IBM Alters 401(k) Policy to Match Employee Contributions Annually Rather Than Each Pay Period

Friday, December 28, 2012

On December 7, 2012 IBM announced that it will no longer match its employee’s 401(k) contributions each pay period, rather it will only match contributions of employees who remain employed through the end of the each Plan Year. This clearly represents an effort on IBM’s part to save money since two things will take place: 1. Employees who terminate prior to year end will forfeit contributions they would have received had they remained through December 15th and 2. IBM will have use of these funds to invest until they are required to match contributions for those who do remain through year end. The point to remember is that the only reason that IBM has a 401(k) plan, or any benefit plan for that matter, is to attract, retain, and motivate its workers.

To what degree with this move impact the “attractiveness” of IBM to potential employees? Top talent always has a choice of where they work and for whom. For those employees who merely want to work for IBM because it is IBM, a 401(k) has little incentive power for them. In an organization as large as IBM, the loss of a few applicants may be of little consequence, unless of course those applicants hold the keys to some new technology which now goes to Dell.

Most benefit plans are designed to “retain” employees by meeting some level of needs (health care) and by building affinity between the employer and the worker. Workers enrolled in multiple employer sponsored benefit plans are more likely to remain with that employer. Long term IBM employees have much to lose by jumping ship after 10, 15 or 20 years; however that attraction may not hold for younger IBM employees with less than 5 years. Once again, top talent has legs and it can walk.

What about the “motivational” factor in this action by IBM? Employee’s like to grouse, if not about their 401(k) match, it will be something else, like the food in the lunchroom, parking or their manager. That is true, but when complaints turn into unproductive and lost production time or workers are distracted from the task at hand, the bottom line will suffer. Who or what is going to be motivating those IBM employees to put out extra effort when it is needed?

One aspect is that some employees will work thru the end of the year, get their contributions, and exit immediately after the first of the year. So IBM may see a spike in turnover near the beginning of each year. This activity is best likened to a Fixed-interval of reinforcement schedule found in operant conditioning. The unintended consequence for IBM may be the same level of turnover but within the first few months of the year. In addition, employees, who hang on until year end just to get the match, may not be the productive employees IBM will want to have.