IBM to book $5.9b non-cash charge to transfer its pension liabilities

IBM will book a one-off non-cash pre-tax pension settlement charge of $5.9 billion in its calendar Q3 after handing pension duties to two life insurance businesses. As per the agreement, IBM and pension plan administrator State Street Advisors Trust Company, said the acquisition of annuities from Metropolitan Life Insurance …

[Gordon 10]

So…

They maybe 112% funded now. (Which given the depressed state of the markets is probably pretty good) What happens if the markets tank further and they become underfunded. Who has the short fall

liability - IBM, the Insurers or the Pension holders?

[Anonymous Coward]

Re: So…

The US government for US workers, via the Pension Benefit Guarantee Corporation (PBGC). Yet another way pension holders (mostly government workers these days in the US) get a better deal than real working stiffs, who are dependent on self-managed 401k's, 403b's & IRA's.

This is IBM showing what it really thinks of it's workforce by ducking it's fiduciary responsibilities. Some MBA-type probably gets a big bonus for this scheme.

[DS999]

Re: So…

PBGC coverage comes with a lot of strings attached as far as how the pension is managed, permitted types of investments, etc. If such coverage was offered for 401K/IRA plans but came with the same strings I'm sure a lot of people would loudly complain "it's my money I should be able to invest it however I want!"

If you want the freedom to put your retirement into bitcoin or use that account to buy options, it should be on you to deal with the consequence of that decision.

By contrast if you have a pension you have zero control over how the money is invested, so it shouldn't be your loss if bad investments are made with your money.

Maybe laws could be changed to allow some sort of pension-like scheme that money could be permanently transferred into from an IRA or 401K, with strictly limited returns in exchange for a similar PBGC-like safety net. But they don't need to be because the option already exists - using your IRA or 401K funds to buy an annuity that begins paying out at retirement age.

[Anonymous Coward]

Re: So…

At least they had a pension plan. Does your company have one? If not, why not? There is nothing that says that a company with a 401k can't also have a pension plan. You should consider unionizing and collectively bargaining for one.

I have only worked for one company in the years before IRAs that had a pension plan and they didn't administer it either. Pension plan management is a complicated and competitive business and outsourcing it isn't shirking your fiscal responsibility.

[Uncle Ron]

Re: So…

"At least they had a pension plan..."

1) For this reason, it will be hard to get any sympathy from -anyone- if this goes down the drain. Almost nobody has one anymore. They don't care. IMO, neither does IBM.

2) Fidelity Investments has -always- "administrated" IBM's pension plan. This is different. This isn't just changing administrators. IBM is actually SELLING off the whole thing to a third party. During "The Big Short" period, many, many companies in Prudential's industry don't exist anymore. If Prudential goes away for some reason, what happens to my pension?

I would like to see the T's & C's of this sell-off. Will the IBM pension assets be somehow fenced off from Prudential's other money playground? "I have a bad feeling about this."

[DS999]

Re: So…

If Prudential goes away for some reason, what happens to my pension?

That's what the PBGC is for. Insurance premiums that (mostly) support its operations are paid by companies operating pensions, so IBM now and the two new 'owners' of its pension plan later.

[DS999]

Re: So…

Wow. That shouldn't be legal in any way. Obviously someone paid off congressmen to pass a law allowing it.

[Anonymous Coward]

Re: So…

I joined IBM in 2010 and at that time they were no longer offering a pension plan of any kind to new employees. So this kind of benefit is a thing of the past at IBM. On the other hand collegues that had joined a few years earlier seemed to have a really generous pension - so thats most of the $5.9 billon - not applicable to anyone under 60 years old now, I would guess.

[Uncle Ron]

One More Arm in the Length

I view this as IBM placing it's remaining pension plan participants at a further arm's length--maybe completely detaching them. If something bad happens, the announcement will come from Prudential or some nameless third party, and not IBM. Don't bother contacting IBM any more if you have an issue, problem, or complaint. Call Prudential. Good luck with that. IBM avoids any bad publicity, law suits, and acrimony. Fidelity Investments manages the IBM pension plan now and, IMO, does a good job. I assume the assets now are still owned by IBM. I also assume that IBM is "selling" the assets to Prudential or whoever and the whole shootin' match will now be O&O by Prudential. This looks like very bad news to me.

[GruntyMcPugh]

Re: One More Arm in the Length

The IBM pension does seem to be doing quite well, makes me think I should have paid bit more in while I was still blue, but we made the decision to overpay on the mortgage, so swings and roundabouts, savings vs debt, pay off debt first, etc. If things start to look bad, I guess I can get a lump sum out of the IBM pension next year and stick it in my current local govt pension, time will tell.

[A.A.Hamilton]

What are the implications for retired UK employees ?

[Gordon 10]

Total guess - But I suspect this is the US pension pot only.

[Peter Gathercole]

I'm sure that I had a letter in the last year or so that said that IBM UK have already done something similar, although it may be that they were just transferring the administration of the plan and not the assets.

Can't seem to find the letter in my unfiled paper mail, which means that it has been squirrelled away in the filing system somewhere.

[davebarnes]

Same for HPE

My DEC pension (which became an HP pension and then an HPE pension) went to Fidelity for administration. Worked well. Now, it is at and owned by Prudential. So far, so good.

But, it is only $405/mo (no COLA) for the next 30 years (spousal survival).

Thankfully, not critical to our retirement.