The IBM Matching Change

Much has been written about IBM’s decision to make their matching contribution annually rather than throughout the year.  While people point this out as some seismic change, this is hardly the same as converting a defined benefit to a cash balance plan.

Clearly for the participant, it’s a lose-lose because as an employee, you would rather have the money now than later. Getting the money later can certainly cut down on a participant’s rate of return because of the postponed date of contribution receipt.

For the employer, it’s a win-win. While giving contributions later allows you to adjust for one lump sum rather than being forced to make a deposit into the plan throughout the year, it’s actually easier on the administration side. I prefer end of year matching contributions because it cuts down on potential plan errors.

The reason that there are many errors when you make the matching contribution throughout the error because participant salary deferrals aren’t fluid. Participants can start, stop, change their rate of deferral, and max out their deferral throughout the year. It’s just natural that the plan sponsor or the third party administrator can make errors in trying to match those changes in deferrals.

So I don’t think the IBM change on how they make the matching contribution isn’t so revolutionary.

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