The IBM 401(k) Plus Plan. Invest today for what you hope to accomplish tomorrow

Transcription

1 The IBM 401(k) Plus Plan Invest today for what you hope to accomplish tomorrow

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3 The IBM 401(k) Plus Plan Dollar-for-dollar company match, automatic company contributions, broad range of investment options and special features make this plan one of the most innovative in the country With its dollar-for-dollar company match and automatic company contributions for all eligible employees, IBM s 401(k) Plus Plan sets a benchmark as one of the most innovative and flexible savings plans in the country. The 401(k) Plus Plan offers IBMers a valuable resource for building future financial security. Here are plan highlights: Dollar-for-dollar IBM match on eligible pay (see table on this page for details) Automatic contributions from IBM of 1% of eligible pay, regardless of your savings level Three ways to save before-tax, after-tax through a Roth 401(k) option, or after-tax or in a combination of all three Broad range of investment options including Target Date Funds and Life Strategy Funds for investors who want to simplify and automate their savings investment strategy Unique optional features, like setting up automatic savings increases, to help you maximize your savings 401(k) disability protection, a unique form of insurance that can help you continue to build savings even if you are unable to work. This brochure is designed to provide you with a convenient quick-reference look at all aspects of this important plan. More detailed information can be found in the IBM 401(k) Plus Plan Summary Plan Description available on NetBenefits and on IBM s intranet (w3). Read on for more on how the IBM 401(k) Plus Plan works. IBM s investment in your future Dollar-for-dollar match and automatic contributions regardless of your savings level If you save some of your own pay in the 401(k) Plus Plan, IBM will match your before-tax and Roth 401(k) savings dollar-for-dollar on eligible pay. In addition, IBM will make automatic contributions of 1% of eligible pay to your 401(k) Plus Plan account, even if you do not otherwise participate in the plan. All of the contributions made to your account by IBM are immediately vested. Generally, if you have completed the service requirement and are employed on Dec. 15 of the applicable year, IBM match and automatic contributions for which you are eligible, will be made to your account once annually on the last business day of the year. Population Service Requirements IBM 401(k) Plus Plan: IBM Contributions Regular employees hired on or after Jan. 1, 2005 One year of service Up to 6% = 100% match on up to 5% of pay + 1% automatic contribution Application Development Specialist job family employees hired on or after April 15, 2013 Two years of service Up to 3% = 100% match on up to 2% of pay + 1% automatic contribution 1

4 Saving Through the 401(k) Plus Plan Building your future financial resources With the IBM 401(k) Plus Plan, you have at least three ways to save. You can save before-tax, after-tax through a Roth 401(k) option, or after-tax or in a combination of all three. Each option has different advantages for you, and different tax consequences. Savings are automatically deducted from your paycheck, and you determine how to invest them. Save before-tax Subject to an Internal Revenue Service annual contribution limit that can change each year, you can save up to 80% of your eligible pay before taxes are deducted. In 2013, the IRS annual contribution limit (how much you can save in a 401(k)) is $17,500, or $23,000 if you will be age 50 or older by the end of the year. When you use this savings feature you lower your current taxable income plus, IBM matches your savings on eligible pay, if you meet all eligibility requirements. Generally, if you have completed the service requirement and are employed on Dec. 15 of the applicable year, IBM match and automatic contributions for which you are eligible, will be made to your account once annually on the last business day of the year. You will pay income tax on this savings, and any investment growth, when you withdraw your money. Save after-tax through a Roth 401(k) This feature allows you to save on an after-tax basis now but any investment growth on your contributions is completely tax-free when you withdraw the money at a later date, assuming certain requirements are met. (Your Roth 401(k) account must be at least five years old when you withdraw it, and you must take the money after you reach age 59½ to qualify for this tax savings.) If you are eligible, you may receive IBM match on your Roth 401(k) contributions. Generally, if you have completed the service requirement and are employed on Dec. 15 of the applicable year, IBM match and automatic contributions for which you are eligible, will be made to your account once annually on the last business day of the year. The IBM match on the sum of your before-tax and Roth 401(k) contributions cannot exceed the match level for which you are eligible. Withdrawals of IBM matching contributions are not tax-free. Together, the sum of your Roth 401(k) and before-tax 401(k) contributions cannot exceed the maximum IRS annual contribution limit (in 2013, the limit is $17,500, or $23,000 if you will be age 50 or older by the end of the year). Certain IRS rules apply to the use of the Roth 401(k), so make sure you understand them completely before choosing this option. You can find more information on Roth 401(k) in IRS Publication 4530 ( Save after-tax To provide further savings flexibility, you can also save up to 10% of your eligible pay on an after-tax basis. You do not need to have first reached the IRS savings limit on 401(k) contributions to use this option. With this feature, you contribute after taxes have been deducted and any investment growth on those amounts is tax-deferred. That means you will not 2

5 owe taxes on any investment gain until you withdraw it, when it is taxed as ordinary income. After-tax contributions are not eligible for the IBM match, so you will want to make sure you receive the maximum company match on your before-tax and/or Roth 401(k) savings before you use this feature. Two ways the 401(k) Plus Plan lets you save more automatically With the plan s Deferral Maximizer, you can sign up to save as much as the IRS allows each year IBM automatically calculates your per-paycheck contribution. Enroll online before June 30. You can schedule automatic contribution increases so your future 401(k) Plus Plan savings rate increases automatically each year, to levels you select in advance, and subject to the IRS annual maximum contribution amount. Enroll online. Additionally, there is a limit on the amount of contributions that can be added to your 401(k) Plus Plan account in a calendar year. You will want to keep this limit in mind when you are choosing your after-tax contribution rate so that you do not miss out on your own taxfavored contributions or IBM match or automatic contributions. Please see more on this in the Summary Plan Description in the after-tax contribution section. A special note: protect yourself and your family That is why IBM offers 401(k) disability protection, a unique form of insurance (separate from IBM s long-term disability coverage) that can help you continue to build savings even if you are unable to work. With IBM s optional 401(k) disability protection, you choose to purchase coverage for: Your own before-tax contributions IBM s matching contributions IBM s automatic contributions You can elect one, all, or any combination of these. You cannot purchase coverage for Roth 401(k) and after-tax contributions. This insurance provides coverage in the event that you become disabled in the coming year, and the premiums for coverage are based on your age and on the dollar amount you insure. You can purchase 401(k) disability protection during the annual benefits enrollment period (usually held in the fall). Coverage takes effect on the January 1 following the enrollment period during which you sign up. You must be actively at work on the first workday of the year for new coverage to become effective and there is a preexisting condition exclusion. You cannot cancel your enrollment in the 401(k) disability protection after such coverage has become effective until the next annual benefits enrollment period. Please be sure to read the information in the Summary Plan Description and the Certificate of Insurance. Sign up to continue your 401(k) savings if you become disabled and unable to work Disability insurance replaces part of your working income if you become disabled but it generally does not provide for you to set aside savings for your future. 3

6 Investing Through the 401(k) Plus Plan A broad array of investment options 4 IBM 401(k) Plus Plan offers a broad array of investment fund options to respond to a wide range of investor preferences and to provide different levels of investment risk/return. Fund options include a category of Tier 1 - Life Cycle Funds balanced funds that invest in a diversified mix of stocks, bonds, and commodities geared to a particular life stage or investment style. Life Cycle Funds could serve as a sole or core investment for participants who prefer to have a professional asset allocation. The most important characteristic of this Tier is that they provide diversification over broad asset classes. Tier 1 also provides the flexibility to choose a Life Strategy Fund, which is a portfolio that maintains a fixed allocation, or a Target Date Fund which gradually and automatically shifts to a more conservative asset allocation over time. For those who prefer to mix their portfolios themselves, the 401(k) Plus Plan also offers a wide range of investment options, plus optional access to about 165 brand-name mutual funds through the Mutual Fund Window. You have the flexibility to change how you want new contributions to be invested as often as you wish, and you can transfer funds within the existing options at any time, subject to any excessive trading or other trading restrictions that may be in place. The plan s range of funds are grouped into four categories, or tiers, that allow you to refine your investment mix in keeping with your preferences and financial goals. Tier 1: Life Cycle Funds The Life Strategy and Target Date Funds offer a simple, one stop approach to retirement investing. These funds are balanced funds that invest in a diversified mix of stocks, bonds, and commodities geared to a particular investment style or life stage. All Tier 1 funds invest in the Plan s Tier 2 funds plus the Balanced Exposure* and Commodities* funds to attain their given asset allocation. These blended funds can make it easier for you to diversify your holdings and are designed to be the primary investment in your portfolio. They also offer the convenience of periodic rebalancing in order to ensure that each fund retains its targeted investment mix. This Tier also provides the flexibility to choose a Target Date Fund which gradually and automatically shifts to a more conservative asset allocation over time, or a Life Strategy Fund, which is a portfolio that maintains a fixed allocation. *Please note the Balanced Exposure and Commodities Funds cannot be invested in directly. Target Date Funds: The Target Date Funds offer portfolios with targeted retirement dates for the years 2005, 2010, 2015, 2020, 2025, 2030, 2035, 2040, 2045 and These funds offer a convenient low-cost way to achieve a sophisticated diversification strategy, professional money management, and periodic rebalancing. In addition, Target Date Funds offer another great advantage: Investment experts stress that the mix of stocks, bonds, and short-term reserves in your portfolio should be adjusted regularly to keep your asset allocation on track for retirement. Target Date Funds make this adjustment automatically by shifting semiannually toward a more conservative allocation as you approach the target date. All you have to

7 do is select the fund that most closely matches the year you hope to retire, or the year you expect to start drawing on your retirement assets. If your risk tolerance is higher or lower than the fund s allocation, adjust your selection accordingly. Details about each investment option are available at netbenefits.com/ibm. Here are the steps: 1. Log in to netbenefits.com/ibm. 2. Select the Quick Links drop down box. 3. Select the Plan Information and Documents link. 4. Open the Fund Flyers link. You can also call the IBM Employee Services Center at (TTY ). Service Center representatives are available Monday through Friday (excluding New York Stock Exchange holidays) from 8:30 a.m. to 8:30 p.m. Eastern time. When you choose a Target Date Fund*, your contributions are invested in a broad spectrum of stocks, bonds and commodity investments. As the target date approaches, the associated fund will gradually become more conservative by reducing its allocation to stocks. Each fund s reduction of stock investments continues through its target date for another 10 years, until the fund s allocation and risk profile matches that of the Income Plus Fund. This differs from the Life Strategy Funds, which rebalance monthly to continue offering a fixed asset allocation. Life Strategy Funds: Each of the four Life Strategy Funds Income Plus, Conservative, Moderate, and Aggressive has a preset mix of stocks and fixed income investments to give you a broad diversification to the financial markets, both in the U.S. and abroad. All you have to do is select which of the four Life Strategy asset allocations may suit you best, by considering your life situation, time to retirement, investment objectives, and risk tolerance. Keep in mind, though, that over time you may want to shift on your own from more aggressive life strategy funds to more conservative ones. Income Plus seeks returns that modestly, but fairly consistently, outpace inflation. Generally invested 25% in stock investments and 75% in bond investments. Conservative seeks returns that moderately outpace inflation over the long term. Generally invested 50% in stock investments and 50% in bond investments. Moderate seeks relatively high returns at a moderate risk level. Generally invested 65% in stock investments and 35% in bond investments. Aggressive seeks high returns over the long term, while assuming higher risk levels. Generally invested 90% in stock investments and 10% in bond investments. Please note for the purpose of these investment allocation descriptions, exposure to the Balanced Exposure and Commodities funds are considered part of the allocation to stocks. Most investment advisors recommend adjusting your investments to reflect the time remaining until you retire or need access to your savings. The longer you have until you expect to use your savings, the more investment risk you may be able to take because you have time to recover from any short-term losses. The closer you are to retiring or another financial goal, the less investment risk you may be able to assume. * Principal invested is not guaranteed at any time, including at or after the fund s target dates. Tier 2: Core Funds These basic building blocks offer a way to build a diversified investment portfolio for investors who want to customize their own portfolio. Interest Income Fund seeks to provide income similar to an intermediate-term bond with low volatility and to preserve principal. Total Bond Market Fund seeks to track the returns of the overall U.S. investment-grade bond market. 5

8 401(k) Plus Plan: Investment Funds Tier 1: Life Cycle Funds Target Date Life Strategy Income Conservative Moderate Aggressive Note: Tier 1 funds are composed of Tier 2 funds plus the Balanced Exposure and Commodities funds that cannot be invested in directly. Tier 2: Core Funds Interest Income Total Bond Market Inflation Protected Bond Total Stock Market Index Total International Stock Market Index Real Estate Investment Trust Index High Yield & Emerging Markets Bond International Real Estate Index Tier 3: Expanded Choice Funds Long-Term Corporate Bond Large-Cap Value Index Large Company Index Large-Cap Growth Index European Stock Index Pacific Stock Index Small-Cap Value Index Small/Mid-Cap Stock Index Small-Cap Growth Index Emerging Markets Stock Index IBM Stock Tier 4: Mutual Fund Window 6 families, about 165 funds 6 Inflation Protected Bond Fund seeks to match the return of the market for inflationindexed securities issued by the U.S. Treasury. High Yield & Emerging Markets Bond Fund seeks to modestly exceed the returns of a customized composite benchmark of U.S. high yield and emerging market bonds issued in both local currencies and U.S. dollars. Total Stock Market Index Fund seeks long-term growth of capital and income by attempting to match the returns of the overall U.S. equity market. Total International Stock Market Index Fund seeks long-term capital growth and income by attempting to match the returns of the overall non-u.s. equity markets. Real Estate Investment Trust Index Fund seeks to match the returns of the U.S. market for publicly traded real estate investment trusts (REITs). International Real Estate Index Fund seeks to match the returns of the non-u.s. markets for securities of companies principally engaged in the real estate industry. Tier 3: Expanded Choice Funds This category of funds offers more specialized funds, to help participants create fully customized investment mixes for their 401(k) Plan accounts. Long-Term Corporate Bond Fund seeks a high and sustainable level of interest income by investing primarily in a widely diversified group of long-term bonds issued by corporations with investment grade credit ratings. Large Company Index Fund seeks long-term growth of capital and income from dividends by holding all the stocks that make up the Standard & Poor s 500 Index, an unmanaged index of 500 widely held U.S. equity securities. Large-Cap Value Index Fund seeks long-term growth of capital and income by attempting to match the performance of value-oriented stocks of large and medium U.S. companies. Large-Cap Growth Index Fund seeks long-term growth of capital by attempting to match the performance of growth-oriented stocks of large and medium U.S. companies. Small/Mid-Cap Stock Index Fund seeks long-term growth of capital with a market rate of return from a diversified group of mediumand small-company U.S. stocks.

9 Small-Cap Value Index Fund seeks longterm growth of capital by attempting to match the performance of value-oriented stocks of small U.S. companies. Small-Cap Growth Index Fund seeks long-term growth of capital by attempting to match the performance of growth-oriented stocks of small U.S. companies. European Stock Index Fund seeks longterm growth of capital by attempting to match the performance of stocks of companies in European countries. Pacific Stock Index Fund seeks long-term growth of capital by attempting to match the performance of stocks of companies in developed markets in the Asia/Pacific region. Emerging Markets Stock Index Fund seeks long term growth of capital by attempting to match the performance of stocks of companies in emerging market countries in Europe, Asia, Africa, and Latin America. IBM Stock Fund invests in IBM stock and holds a small, interest-bearing cash balance for liquidity purposes. Tier 4: Investing through the Mutual Fund Window The Mutual Fund Window expands the plan s investment options to include about 165 brandname mutual funds, most of which are actively managed, from six leading investment firms. This feature gives more choice to participants who are interested in investing in brand-name funds, or in having a broader range of investment options from which to choose. Get MoneySmart IBM MoneySmart, the company s comprehensive financial education and planning program, provides confidential, one-on-one personal financial planning and counseling to help you build personal financial security. Have you thought about How to make the most of your IBM 401(k) Plus Plan and its savings options? How to determine whether you will have enough income in retirement? How to manage debt or save for a home? IBM MoneySmart can help you answer these questions and more. Here s how to get started. Register on the MoneySmart Portal (w3.ibm.com/hr/us/moneysmart). Call a MoneySmart Coach Call (TTY: ), Monday through Friday, 9 a.m. to 8 p.m., Eastern time. Visit the MoneySmart Portal Find a broad array of educational and planning resources, including tools that allow you to create a consolidated view of your financial information (e.g., mortgage payment, car payment, utility bill, credit card bill), as well as calculators and modelers. Investment transactions completed by the earlier of 4 p.m. Eastern time or the market close on days the market is open will be effective on that day. The funds offered through the Window have their own fees and expenses. Because most of the funds available through the Window are actively managed, individual fund s fees and expenses generally are significantly higher than those for the plan s tier 1, 2 or 3 funds. However, for some of the funds, the Window offers lower fees and expenses than individuals can obtain outside the plan. Before you invest, be sure to read all information carefully, including individual fund prospectuses available at netbenefits.com/ibm. 7

10 401(k) Plus Plan When You Leave How to use your savings when you need it When you leave IBM When you leave IBM, you decide how your 401(k) Plus Plan account should be paid out and when. You have several options. You can decide to: Keep your account balance in the plan until a later date (subject to IRS rules that generally require you to begin withdrawing your funds after reaching age 70½). Take your entire 401(k) Plus Plan balance with you in a lump sum or, if eligible, in a series of installment payments made over a fixed period of time. Roll your eligible funds into another eligible plan (for example, another employer s plan) or Individual Retirement Account (IRA) or Individual Roth Account. Turn all or a portion of your account balance into an annuity, a stream of regular payments for your lifetime, by using the rollover IRA annuity opportunity. Withdraw your after-tax savings at any time. Withdraw your Roth 401(k) money (including investment earnings) free of income taxes if you are at least 59½ and meet the five-year holding requirement. In general, when you take money from the IBM 401(k) Plus Plan, you must take it in cash. Most payments (other than qualified Roth withdrawals) are subject to federal and applicable state taxes, unless you roll over the payments directly into another eligible plan or IRA. With direct rollovers, taxation depends on how and when you receive the withdrawal or distribution. Consider the rollover IRA annuity opportunity IBM was one of the first companies to introduce a way for 401(k) participants to roll over all or part of their accounts into an IRA annuity at retirement, available at lower institutional, not retail, prices. When you buy an annuity with your plan savings, your money goes to an insurance company that, in turn, provides you with a stream of payments for as long as you live, or for some other specified term as you select. Other rules also apply: You can generally receive distributions without incurring an early distribution penalty, if you are age 55 or older in the year you leave IBM. However, in certain circumstances, those who withdraw money before reaching age 59½ may be subject to penalties for early withdrawal in addition to any applicable taxes. If your IBM 401(k) Plus Plan account balance is $1,000 or less, your account will be automatically distributed in a single lump sum payment. You will receive written notification and may request a rollover of your account balance to another employer s eligible plan or an IRA before the distribution is made. If you have a balance in the IBM Stock Fund, withdrawals may be taken in stock or cash. There may be tax advantages to taking your IBM Stock Fund distribution in stock. Partial shares will be paid in cash. 8

11 Because the rules governing the way money can be taken from a 401(k) plan can be complicated and vary from state to state, you may wish to consult a personal financial planner or tax advisor before deciding how and when to receive payment of your 401(k) Plus Plan account balance. MoneySmart Coaches are a good source for this information, as well. Access to your 401(k) Plus Plan savings while you are actively employed The IBM 401(k) Plus Plan is designed to help you accumulate savings for retirement, and letting your account accumulate over time without withdrawals or interruption is the best way to achieve that. However, at times you may want access to your account while you are still working. IBM s plan allows for: Age 59½ Distributions Once you have reached age 59½, you may withdraw a minimum of $500 from your account up to four times a year with no early distribution penalty even if you remain actively employed by IBM. You must comply with special rules in order to realize the tax advantage of the Roth 401(k). Loans At any time, you can borrow up to 50% of your account balance, generally up to a maximum of $50,000 less your highest loan balance within the last 12 months. You can have up to two loans outstanding at a time, and your total loan balance cannot exceed these limits. As you repay the loan, you pay yourself back the principal and interest you pay are deposited directly to your IBM 401(k) Plus Plan account through payroll deductions. There is a $50 service fee to initiate a loan. Flexibility for your family As a key financial resource, it s important that the IBM 401(k) Plus Plan fit your needs and those of your survivors in the event of your death. The plan offers flexibility to plan beneficiaries including: Your surviving spouse can maintain an account balance. Your domestic partner beneficiary may be able to maintain an account balance. Beneficiaries may be able to take advantage of certain rollover rules similar to those previously available to spouse beneficiaries only. Hardship Withdrawals In the case of extreme financial hardship, as defined by the Internal Revenue Service, you may be able to withdraw funds from your IBM 401(k) Plus Plan account. You must have exhausted all other financial resources (including taking a plan loan), and you can only withdraw money you have contributed. A hardship withdrawal is subject to an early distribution penalty. Please note that IRS rules require that you may not make future contributions to the IBM 401(k) Plus Plan for a period of six months following your withdrawal and may not make contributions to other employer-sponsored deferred compensation plans, such as the Employee Stock Purchase Plan, for a specified period of time. After-Tax Withdrawals Special rules apply. While you can take withdrawals from your after-tax balance without meeting hardship requirements, reaching age 59½ or terminating employment, IRS regulations require that your distribution include both original invested principal (contributions) as well as earnings, in proportion to their representation in the after-tax portion of your account. The principal contributions will not be taxable, but the earnings on the contributions will be subject to ordinary income tax and may be subject to a 10% federal penalty tax on early distributions if you receive the distribution prior to reaching age 59½. 9

12 If You Are a Puerto Rico Employee Because of local tax law and regulations, certain provisions of the 401(k) Plus Plan differ for participants who reside in Puerto Rico. The special provisions that apply to Puerto Rico residents are summarized below. Restrictions on 401(k) Plan Contributions In 2013, local government requirements limit you to a maximum annual deferral amount of $17,500, or $19,000 if you will be age 50 or older by the end of the relevant year. This limit is subject to change. After-tax and Roth contributions are not permitted for participants employed in Puerto Rico, and Puerto Rico employees are not permitted to sign up for the Deferral Maximizer. Rollover balances into the 401(k) Plan from Puerto Rico sources are not accepted. Special Considerations for Withdrawals and Distributions Your request for a withdrawal or distribution from your account balance may be delayed so that the Plan Administrator can determine the applicable tax treatment. These materials are intended to provide an overview of certain plans and programs in which you may participate. These materials are neither an official Summary Plan Description nor a formal plan document, and do not provide full details. Complete details are found in the formal plan documents, which are the complete and exclusive statement of IBM s obligations under the plan. The official plan document shall govern in the event of a conflict between the information contained in these or other documents or statements. The plan administrator retains exclusive authority and discretion to interpret the terms of the benefit plans and programs described herein. IBM reserves the right, in its sole discretion, without notice, to amend, change, suspend, or terminate any benefit or other plan, program, practice or policy of IBM at any time. IBM does not have any obligation to, and nothing contained in these documents shall be construed as creating an express or implied obligation or promise on the part of IBM to, maintain, continue to offer, or make available such plans, programs, practices or policies. Eligibility to participate in a plan or program or receipt of benefits does not constitute a promise or right of continued employment or render any person an employee of IBM. These materials are not intended to and do not create a contract of any kind between IBM and any employee or other person. Any statements in these documents that refer to the performance of, or rates of return on, certain investments are for illustrative purposes only and are not indicative of expected current or future rates of return. All information in these materials is developed specifically for and limited to employees of domestic U.S. IBM operations, unless specifically indicated otherwise. The information contained herein has been provided by IBM and is solely the responsibility of IBM. July IM-C-742B.111