International Business Machines, better known as IBM, is making waves in the retirement industry. Rather than provide a 401(k) match, the tech giant plans to contribute to a retirement benefit account, a type of benefit similar to a pension. Yahoo Finance senior columnist Kerry Hannon explains the plan and why it's shaking up the retirement industry.
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Editor's note: This article was written by Stephanie Mikulich.
video transcript
– I also got my pension back. IBM says goodbye to her 401(k). Instead, employees will have access to plans reminiscent of old pensions. Here, Kerry Hannon from Yahoo Finance explains the details. Kelly.
Kelly Hannon: Well, this is how the retirement industry has been buzzing for a while now. And he started in January, IBM launched this new option. Currently, their 401(k) is not retired. But what they're doing is instead of a 5% match between the employer and your employer, they're transferring his 5% into something like a cash balance account.
And if you already participate in a 401(k), you can continue to contribute to your 401(k). But what this benefit does is if you work there for a year, they will receive 5% of that, but you put 5% of your salary into this account. Please. You also don't have to make any investment decisions.
And if you choose to leave, you can take it home with you. It's portable. You can receive it in bulk. Or you can turn it into an annuity that pays you benefits for the rest of your life. I think this is a very interesting option as it guarantees her 6% return for the first 3 years. And it's tied to the 10-year Treasury.
But what's interesting is that it's trying to solve a problem that people are panicking about: “Can I outlive my money?” And they want a certain thing — a pension in an era when only about 11% of private employer plans have pension options. But they want someone who they know will provide them with some kind of income stream.
So this is a pretty big problem in the industry. I don't know how much more will happen. But I think this is a move that people who have the inertia of starting to save for retirement should pay attention to. And more retirees are getting sick than ever before, with more people turning 65 this year than ever before in history.
As a result, more people will retire. And perhaps this type of lifetime annuity will be a type of this. But guaranteed income is starting to trickle back into retirement scenarios. stay tuned.
