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Starting next year, International Business Machines Corp. will exclude new workers from its contested cash-balance pension plan and offer them only a 401(k) savings plan. The decision comes 10 months after a federal judge ruled the company’s cash-balance pension plan discriminated against older workers because it cut their expected pensions significantly. The company has said it will appeal, but in the meantime agreed to a settlement with some of the workers who sued. The settlement, which is capped at $1.4 billion, is awaiting court approval. IBM said the switch to a 401(k) plan would not affect the approximately 135,000 current employees covered by the cash-balance plan, who also have company-sponsored 401(k)s as part of their retirement investments. Workers who joined the company before 1995 also have traditional pension plans. Employees with the new 401(k) plan will be able to put 6 percent of their pay into a 401 (k), with a dollar-for-dollar company match, up from 50 percent for current workers. The new 401(k) will also include annuity and disability options. “IBM’s new approach, which many companies have adopted, will allow IBM to continue to provide a competitive retirement benefit to new hires in an uncertain pension regulatory climate,” said Kendra R. Collins, a company spokeswoman. Collins said that employees eligible for the new 401(k) won’t have other company-sponsored retirement plans. A memo about the change was posted on the company’s internal Web site. The company did not announce the change publicly, but did notify managers who will be making new hires. The Web site PlanSponsor, a trade publication, first reported the change. Cash balance plans, which mushroomed in popularity in the late 1990s, resemble 401 (k) plans in that they let workers track the growth of their money in a hypothetical individual “account.” Unlike 401(k) plans, however, workers can’t allot their own pay toward the plan or decide how its invested. Traditional pension plans reward workers for staying with the company; often their last years are when their pension increases the most. When IBM made the switch in 1999, some older workers said their pension accounts were significantly lower than they had expected. That led to the lawsuit, filed in federal court in the Southern District of Illinois. IBM had defended the cash-balance plan as a way to attract younger workers who would receive pensions even if they left the company after a few years. The plan also saves the company money because it can contribute less than it would under a traditional pension plan. On Thursday, IBM shares rose 86 cents, or 0.9 percent, to close at $97.51 on the New York Stock Exchange — toward the high end of their 52-week trading range of $81.90 to $100.43. Copyright 2004 Associated Press. All Rights Reserved. This material may not be published, broadcast, rewritten, or redistributed.

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