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Technology Stocks : IBM -- Ignore unavailable to you. Want to Upgrade?

To: George W Daly, Jr. who wrote (5143)	5/7/1999 10:12:00 AM
From: George W Daly, Jr.	Respond to of 8220

The link in my previous post must have been updated over night and is now broken. Here was the article I was trying to link: 05/04/99- Updated 02:41 AM ET IBM retools pensions By Stephanie Armour, USA TODAY Say goodbye to the gold pocket watch and time-honored retirement plans. Something new is taking hold. IBM, long regarded as a leader in employee benefits, became the latest employer Monday to abandon its lifetime pension program in favor of a more flexible plan that lets workers take their retirement money with them from job to job. It's called a cash-balance plan, and it's a phenomenon sweeping Corporate America. Employees who aren't familiar with it will probably be hearing about it soon: The move by IBM is a clear sign these benefit plans have hit the mainstream. IBM, known for its cradle-to-grave care of employees, made the change because today's workforce is dominated by employees who job hop and see less value in traditional pensions, a spokesman says. The company also says it will save $200 million a year. About 140,000 of the company's U.S. employees learned of the change today through e-mail announcements and internal Web sites. Cash-balance plans are controversial. Critics say they can hurt older workers by depriving them of retirement money they had expected under a traditional pension plan. And because the money can be paid out before age 65, workers may spend it rather than investing it for retirement. Or those who lack financial savvy may invest poorly. "The only caution would be human nature," concedes Burke Stinson, a spokesman at AT&T, which has a new cash-balance plan. "People may see six figures set aside and spend it and think they've won the lottery. It's not meant to be taken to the track." Still, more cash-balance plans are expected to crop as other companies follow Big Blue's lead. "It's the way of the future, so get used to it," says Ken McDonnell, a research analyst at the Employee Benefit Research Institute in Washington, D.C. "All these companies like IBM are adopting this. It's a trend catching on and it will definitely be growing. It's all because the nature of work is changing." Companies such as AT&T, Bell Atlantic, Cigna, Cincinnati Bell, MCI Worldcom, Chase Manhattan, Xerox and others already have embraced the plans. Citigroup is converting to a cash-balance plan. Some unions want the plans. Studies by benefits consultant Hewitt Associates show the number of employers with cash-balance plans grew from 5% in 1995 to 12% last year. How cash balance works Under a traditional defined-benefit pension, retirees typically get monthly payments until they die. The amount is based on the retirees' years at the company and highest pay in the five years before retirement. Employees have to stay with a company most of their careers for the pension to be worth much. But under cash-balance plans, money accumulates steadily over time. Employers generally contribute 4% to 7% of a worker's pay each year into an account with a guaranteed rate of return. In most cases, the return is tied to the 30-year Treasury bond, but some companies are giving employees a choice of linking it to the Standard & Poor's 500 index of large company stocks, says Gordon Gould, chief actuary at Towers Perrin. And when employees change jobs, they generally take a lump-sum payment from the cash-balance plan with them. Cash-balance plans are a boon to younger workers. A typical person who works for a company at least five years and quits at age 31 would have pension benefits worth 37% of her final pay in a cash balance plan, vs. 7% in a traditional pension, according to a study by the Society of Actuaries. By contrast, a typical worker who left at age 61 would have pension benefits worth 147% of his final pay in a cash-balance plan, vs. 213% under a traditional pension, the study says. "Oftentimes older workers do get hurt," says Steven Feinstein, a finance professor at Babson College in Wellesley, Mass. "That issue comes up a lot." The draw of the plans Nonetheless, companies say they are drawn to cash-balance plans because they: Are portable. Employees usually can take the cash in the plan with them when they change jobs. "Employees who move around a lot will benefit," says David Rosenblum, a principal at consulting firm William M. Mercer in New York. "To the younger workforce, the traditional plans weren't very meaningful. If you are 25 and you quit, the promise of an annuity doesn't sound like much." Empower employees. Workers can see quickly, in regular statements mailed out by their employer, how much retirement cash they have. "Our employees seem definitely to pay more attention to it," says Jeff Battcher, at BellSouth, which has had a cash-balance plan since 1993. "They know how much money they have in it." And, in most cases, employees can invest the money as they wish when they leave a company. "Instead of being taken care of in your old age, it gives the responsibility to an individual," says Karen Way, 51, an AT&T management employee in Basking Ridge, N.J., who has a cash-balance plan. "It changes the feeling of retirement." AT&T moved its $10.6 billion plan for management to a cash-balance plan in 1998. Union members also voted to convert to the new program. Help in recruiting. Younger employees tend to like cash-balance plans, experts say, because money accumulates steadily and the value of the benefit seems more tangible. "If I have all young employees, they're going to be interested in cash balance," says Joe Sapora, a vice president with consulting firm The Hay Group in New York. "It's the sizzle on the steak. And we've been seeing huge companies make the change. Traditional plans are declining." Adds Steve Marcus, at Bell Atlantic: "This plan, from our perspective, is more flexible and easier for employees to understand." The transition from traditional pension to cash-balance plans can be painful for some employees. Take Stephen Langlie, who spent nearly 40 years with his employer, Onan, which manufactures power equipment and is based in Fridley, Minn. He says he was told in 1979 that he would pull in between $1,100 to $2,200 under his traditional retirement plan. But the company switched to a cash-balance plan in 1989, he says. Because of that, Langlie says he now draws just $424 a month. He and other employees have sued the company. Onan did not return a call Monday seeking comment. "Instead of a plane trip overseas, we'll have to drive around locally. Instead of buying a new car, it will be used," says Langlie, who had worked as an engineer. "It victimized the older workers and took away benefits they'd been promised under the traditional plan." Many companies try to help ease the transition for older employees. Towers Perrin reviewed more than 100 recent cash-balance conversions and found that, in the vast majority of the cases, employers made transition arrangements to protect employees who would otherwise be caught in the middle. IBM, for example, will let the roughly 35,000 workers with fewer than five years until retirement opt out of the new pension option and stick with the traditional program. Other details: The company will open an account for employees that is equivalent to at least the present value of what they have under the traditional pension plan. They will pay at least 5% of an employee's gross pay into the account each year. Contributions for the 50,000 to 60,000 mid-career workers could be 6% to 9%. The plan will go into effect July 1. The company will save about $200 million a year in pension contributions. But it also is putting $2.5 billion into beefed-up compensation programs, such as stock options. Changing workforce In the USA, about 40% of IBM's employees joined the company in the last six years alone. More than 60% of hiring today is experienced professionals, with the rest coming from university campuses. "We're going to still have programs at the top of the industry," says Josie Tsao, a vice president of compensation and benefits at IBM. "If you look at what's happening in the workforce, a lot of people are moving from place to place." Debate still exists over whether an employee is better off or not under such a plan. The real answer, experts say, is what program a company sets up and why they are doing it. "There is a lot of confusion about cash balance plans," says Carol Quick, a research analyst at the Employee Benefit Research Institute. "Enlightened companies will be honest and tell employees their reasons for converting. If they're doing it to save money they should say so." Contributing: Beth Belton and Christine Dugas