IBM Freezes Pension Plan

IBM's move to freeze its pension plan is significant. Unlike companies reducing benefits because of looming bankruptcy or harsh competitive conditions, IBM has reduced benefits to its employees by $450 to $500 million per year by stating that "it is the prudent, responsible thing to do," while earning over $8 billion last year. The willingness to freeze the plan demonstrates that 1) employees do not adequately understand the value of a pension plan versus a savings plan (a detrimental "out of sight, out of mind" example), 2) companies viewing the problems with the auto manufacturing industry have concluded fixed cost liabilities are too dangerous to maintain and 3) that IBM, which has used its pension assumptions to massage earnings, does not see any more such "rabbits in the hat." (Gretchen Morgenson of the New York Times has written extensively on Big Blue's tricks.)