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Rating:The Strange Dance of Fido and Big Blue Not Rated 0.0 Email Routing List Email & Route  Print Print
Wednesday, July 3, 2002

The Strange Dance of Fido and Big Blue

by: Tony Pennino

The ongoing relationship between IBM (NYSE: IBM) and Fidelity Investments is truly a little bizarre. Schizophrenic, one might say. Does the left hand know what the right hand is doing at Big Blue?

On the one hand, IBM and the Boston Behemoth entered into an agreement wherein the former will outsource the administration of its pension and health and welfare plans as well as other human resources functions. Those duties will be assumed by the FESCo unit. 450 employees of Big Blue's employee service center will transfer over to FESCo. The pension plan has approximately $40 billion in assets.

On the other hand, IBM has selected a new vendor for is 401(k) plan. So the new provider is Fidelity, right?

Wrong.

The new vendor is -- drum roll, please -- Hewitt Associates, according to an article on PlanSponsor.com. MetLife was the administrator for Big Blue's plan. MetLife exited the business several months ago and recommended that its clients switch to Hewitt. Reportedly, IBM put its plan out to bid but apparently followed MetLife's recommendation anyway.

According to The Money Market Directory, 2002, the 401(k) plan has approximately $20.7 billion in assets and 224,000 participants.

There are no reports that Fidelity was even considered for this search. However, Fidelity enjoys a leadership position in the defined contribution space, and it would be very strange indeed if the IBM management did not know that. Still, the IBM plan may have been a tough one for vendors -- even Fidelity -- to make profitable. Those running the plan have been outspoken in their efforts to hold down costs at the plan, and the bulk of the assets in the plan are indexed. That structure leaves little asset-based revenue on the table for providers. Because of its large size, it is likely that IBM was also aggressive in holding down per-participant recordkeeping fees. 

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