IBM 401k plan change
There is a spat of news from December that has caused me to think about 401k a lot lately. IBM, one of the largest, employer made a big changes in their 401k plan.
In short, the company used to pay out the matching contribution with each paycheck bi-monthly but starting in 2013, those contribution is paid only once a year in lump sum on December 31 and only if the employee is still employed on December 14. The employees will still receive their own contributions per paycheck in their 401k account.
Nonetheless, it’s good news to company’s bottom line and also shareholders but all bad news for employees because of these cons:
- loss of the automatic dollar cost averaging over the year
- loss of potential gain during the year
- postential loss of all company contribution for the year due to quitting/layoff/firing right before December 14
Before such news, I think there is no question that any person employed in a company that provides matching contribution, he should definitely contribute up to the percentage to receive all those matchings. Now it becomes a bit debatable… though I can see someone may argue, if the employee plans to stay the whole year, contribute to get the matchings. Anyways… It’s important to keep an eye on this and give it some thoughts because IBM is a pioneer in setting the trend for this kind of policy change so stay tune to other companies to follow suit. Just 9% of companies has said policy now.
Outside of the changes mentioned above, if a company is still providing matching contribution, it still makes sense to contribute to receive those.
This goes to show that we should not make 401k our only tool in planning our retirement but instead, treat it as a supplamentary tool. We must combine it with saving and investment plans using our own smart and diligence.