IBM CIO Rick KluteyIBMCIORickKlutey

In the retirement-savings arena, Big Blue is a Big Deal.

The combined assets within IBM’s defined benefit and defined contribution plans are well over $100 billion globally, and the company’s recently announced decision to reopen its DB plan made news across the corporate-retirement landscape.

It’s all overseen by chief investment officer Rick Klutey, an IBM veteran with previous experience in the company’s treasury and audit departments. We spoke with Klutey to get his thoughts on the state of the economy, IBM’s decision to reopen its DB plan, and a handful of other topics.

How did you get started in the investment-management industry?

I’ve been at IBM for about 20 years and in this role for about five. IBM encourages people to move around into different roles to get broader experience, and I first spent six or seven years in our treasury department. In the last few years in that department I was overseeing our capital markets activities – debt and CP issuance, foreign exchange and other derivatives trading – so it was very market oriented but not investment per se. And I have had a number of other jobs, some with more of an external focus, others more internal. Prior to taking the CIO job I was the company’s chief audit executive. But the CIO role is immensely interesting to me, and I love the challenge. 

Can you offer your broad views on the market backdrop and the Fed’s ongoing efforts to tame inflation?

At IBM we have a relatively static asset allocation in each of our global DB plans; we’re not making tactical bets about, say, the Chinese economy or the Fed’s next move. We hedge our liability and fundamentally it’s something we have stuck to over time. The US economy does seem to have stabilized at the moment, and I think the Fed’s done a capable job of navigating things. There may be an element of ‘priced to perfection’ when you consider all the geopolitical uncertainty – whether it be our inability to get things done legislatively in the US, tensions abroad, the election, etc. But I think the Fed has a firm hand – they missed the initial spike in inflation but have managed things well since then, and I don’t think they’ll be too quick to cut rates. I think the US economy is in a pretty good place. 

Talk about your thoughts on the importance of active vs. passive in such a volatile market environment.

As an individual investor I had generally chosen to be passively invested, but in my role here I’ve seen our active managers consistently generate alpha over time. We see that in fixed income, equity and in our absolute return and infrastructure portfolios. That’s not to say every manager in every period is beating our benchmark, but we are always willing to change managers who underperform over a sustained period. So our plan’s track record has made me a strong proponent of active management. And I do think when you’re in a higher rate environment there is probably even more value to have active managers in fixed income. 

IBM recently made news by reopening its defined benefit plan. Can you discuss some of the key points related to that move?

We’ve created something called a Retirement Benefits Account, where the company credits employees monthly in a cash-balance account within our existing DB plan. We believe the new benefit complements employees’ contributions to the 401(k) plan. Employees can continue to contribute to their 401(k), but in the Retirement Benefits Account they’re still getting the benefit of tax-deferred growth with the added comfort that their balances will never decline. For the next three years, employees will be earning 6% returns and afterwards it’s the 10-year Treasury rate subject to a floor through 2033. Participation is automatic so even employees who were not contributing to their 401(k) plan before are now getting a full credit from the company. Like any cash balance plan, it’s portable when employees leave the company, and it can also be converted into an annuity. One of the challenges we’re all thinking about as it relates to 401(k) plans is how you provide retirement income from a portfolio that is primarily focused on growing or preserving assets. This new benefit allows employees to choose an annuity when they are at retirement age.

Are there any legislative changes on the horizon that could significantly impact the retirement landscape, or any that you would like to see?

Across the spectrum, there is legislative inaction in many areas where regulators haven’t tackled pressing issues. Retirement planning is one area – with Secure 1.0 and 2.0 – where there actually has been a lot of legislation and where I think they’ve generally been proactive and put positive proposals in place. I do think many CIOs would like to see some clarity around ESG, as each new administration offers different guidance on ESG as it pertains to ERISA plans. It’s not fundamentally going to change what we do at IBM, but nevertheless it would be useful to have more consistent guidance.