In a significant move last November, IBM made the decision to shift away from the traditional company match for its employees' 401(k) plans. Instead, the tech giant chose to reopen the cash balance component of its previously frozen defined-benefit plan. This strategic maneuver raises the question: which other companies will follow suit?

IBM's Transformation

IBM's bold step involved ending its 5% matching contribution and 1% automatic contribution to employee 401(k) accounts. In place of these contributions, IBM now automatically directs a 5% contribution to a "Retirement Benefit Account" for each employee. This account essentially serves as a virtual account within the cash balance component of the company's defined-benefit plan.

The decision to tap into the $5 billion surplus in its overfunded defined-benefit plan allows IBM to cover its annual retirement contributions of $530 million without dipping into its corporate cash reserves typically allocated to its 401(k) plan. This shift not only streamlines operations but also enhances the company's cash flow statement.

The Landscape of Corporate Retirement Plans

Following IBM's groundbreaking move, industry analysts have turned their attention to other potential frontrunners in revamping their retirement benefit structures. A closer look reveals that key players in the banking sector are likely candidates to adopt a similar approach.

Untapped Opportunities: Identifying Potential Contenders

To discern which companies might emulate IBM's redefined approach to retirement benefits, certain criteria come into play. Prospective followers typically possess a substantial defined-benefit surplus primed for strategic reallocation and sizable 401(k) contributions capable of positively impacting cash flow.

An initial focus on entities with defined-benefit obligations exceeding $10 billion serves as a solid foundation. Further scrutiny zeroes in on organizations with closed or frozen plans exhibiting a funded ratio surpassing 100%. This meticulous evaluation process narrows down the pool of potential candidates poised for a transformative shift in their retirement plan structures.

Evaluating Company Pension Plans

This exercise revealed the top eight companies based on various factors, as detailed in Table 1. Along with the funded ratio, the table also considers the surplus in the company's defined-benefit plan, contributions to the 401(k) plan, and two additional measures that could influence their decisions.

IBM Leads the Way

Unsurprisingly, IBM stands out with high rankings on the incentive measures. The nation's leading banks, Bank of America and JPMorgan Chase, also feature at the top with significant pension surpluses that raise questions about potential alternative uses. Citigroup, despite a funded ratio of 110%, lags behind in defined-benefit surplus and 401(k) contributions compared to its peers.

Similar Situations

Honeywell International and Deere & Co., ranking third and fourth, share similarities with IBM in terms of surplus sizes and 401(k) costs. Deere's recent closure of its defined-benefit plan for new hires and enhancements to its 401(k) match suggest a wait-and-watch approach for now.

Diverging Paths

General Motors and Ford appear unlikely to follow IBM's lead in reopening their defined-benefit plans. In recent negotiations, both companies opted to boost their 401(k) contributions instead of revisiting their fully funded pension plans.

The future actions of these companies remain uncertain, making it an intriguing situation to monitor closely.