IBM UK snuffs 'final salary' pensions

IBM UK has shelved its "final salary" pension plan, pulling this prime benefit out from under about 28 per cent of its workforce.

With an email sent to employees at about 5:30pm UK time - after most employees had likely gone home for the day - IBM UK and Ireland general manager Brendon Riley announced the end of the company's Defined Benefit pension scheme, which would have guaranteed retired employees a predefined portion of their final salary.

"In the wake of a volatile economic environment, pension schemes around the world and here in the UK are being assessed by many companies for affordability and long-term sustainability," the email reads. "For IBM UK also, the rapidly-rising costs and liabilities associated with the provision of Defined Benefit pensions is placing pressure on our long-term ability to invest for future growth and operate in an intensely competitive global market.

"Recent trends in the economic environment have now accelerated the need for IBM UK to take further steps to mitigate the impact of these external factors and enable the Company to retain its leadership position moving forward."

IBM UK did not immediately respond to our requests for comment. But we contacted the company after UK business hours. IBM US pointed us back to the UK.

The company retains its Defined Contribution or "money purchase" plan, where employees contribute portions of their salaries to a pension fund where they assume the risk - not IBM. There's no guarantee on how much they'll eventually get out of it. About 28 per cent of the company is still on the Defined Benefit plan, and the remaining 72 per cent is on Defined Contribution schemes.

The Defined Benefit plan will be closed to further accrual - i.e. employees can no longer build up additional benefits under the plan - in April 2010. And until then, salary increases will no longer count towards the plan. Once they end their Defined Benefits memberships, employees have the option of joining the Defined Contribution plan.

With his email, Riley also said IBM would improve the Defined Contribution plan. Currently, if an employee contributes three per cent of his salary, IBM will contribute eight per cent. The "proposal" for the future matching scheme would see IBM contribute "up to 2% on top" of that eight per cent. "For example, if an employee elects a contribution of 4%, IBM will contribute 9%," Riley says. "If an employee elects a contribution of 5%, IBM will contribute 10%." This will not affect some employees already on the plan.

According to an IBM UK employee speaking to The Reg, IBM UK has already reduced the final salary percentage the Defined Benefit plan would pay out. "This was supposed to make the scheme 'safe,'" says this employee, who's under the final salary plan, "so they've effectively gone back on their word."

"I'm fuming," he adds. "It has totally thrown our futures into doubt."

But IBM sees this as a future upgrade. "I understand that the proposed changes that I am announcing today will be sensitive and difficult for many," Riley writes. "However, I believe that these proposals are both responsible and necessary for IBM UK at this time, in order for us to achieve sustainable progress against our Productivity objective, strengthen our long-term competitiveness and ensure our future industry leadership."

Earlier in his email, Riley blames the change on a "recent trends in the economic environment." But Big Blue is one of the few tech giants still churning out profits on par with with pre-Meltdown financials.

Update

IBM has sent us the following statement:

Taking action to maintain competitiveness in the marketplace and introduce greater predictability to long-term pension provision costs, IBM UK communicated to its employees initiation of a consultation process regarding a package of pensions-related proposals. These proposals include enhancements to the defined contribution plan for all IBM UK employees, and closure of the defined benefit plans for existing members.

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