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IBM Cutting Major Employee 401(k) Benefit

IBM currently matches at least 6 percent of an employee's pay. So if you earn $150,000 a year and contribute 6 percent of your salary to your IBM 401(k), you contribute $9,000 and IBM contributes $9,000. That's the kind of immediate return you can't find anywhere other than a 401(k). Normally, this works in each paycheck. Every other week, $346 is deducted from your paycheck and $692 is moved into your 401(k). When you accept a job offer, you keep this in mind as part of your compensation when you evaluate your decision.

With the change, you will only receive your additional $9,000 at the end of the year. There are two big disadvantages to the employee. The first is the smaller of the big disadvantages: you don't get to take advantage of the stock market on that money throughout the year. So if the stock market or whatever you happen to invest in with your 401(k) goes up, you lose a bit of that increase. In the same vein, if your intend investments decrease throughout the year, you could end up buying more shares at a lower price by waiting until the end of the year. But over the long term, investments tend to go upwards, so looking at the bigger picture, this is a worse deal for employees.

The second disadvantage is the most harrowing. How many people do you know leave their jobs, either by their own choice or by their company's choice, on January 1, right after they'd supposedly receive the matching contribution from the full previous year? People leave jobs at any time during the year, and now when they do, they'd forfeit the matching contribution for the portion of the year for which they've already worked. The company now has an incentive to let employees go right before the company distributes its matching contributions.

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