Last week, the Wall Street Journal reported that in 2013 International Business Machines ("IBM") will begin making 401(k) matching contributions once a year on December 31. And, employees who leave IBM prior to December 15 will not qualify for the match unless they retired. As the article points out, because IBM is a leader in employee benefits, this plan change may be followed by other large companies to the detriment of plan participants. (See, "Benefit Leader Reins in 401(k)s" – by Kelly Greene).
When matching contributions are not made more frequently, the plan participant losses the benefit of a dollar-cost-averaging investment strategy and may experience increased investment risk when a lump sum is deposited at year-end in a down market. Although this strategy permits companies to retain matching contributions until the very last moment, it is a troubling development in the 401(k) space. Having replaced the defined benefit pension plan as the primary retirement vehicle for most employees in the United States, the advent of the 401(k) plan required employees to assume responsibility for the investment risk associated with their retirement savings account. Because of the potential impact across the plan spectrum, we will continue to monitor this developing story.