Participants in AOL’s 401(k) plan learned last week that their employer match would be delivered in a lump sum in the following year instead of per pay period. But the idea was consumed in the firestorm it ignited, and AOL Chairman and CEO Tim Armstrong quickly recanted.
According to the Washington Post’s Wonkblog, instead of making matching contributions every pay period, AOL decided to provide the 2014 employer match in a lump sum early in 2015. The match would only have been available for employees who are employed as of Dec. 31, 2014; those who separated from service prior to that date would not have gotten the match at all.
It also meant that participants’ 401(k)s would not have grown at as fast a pace, and that the compounding that adds to that growth also would have been less than it would have been if the match were done throughout the year.
Armstrong said on Feb. 6 that the company took that step to save money because of: (1) added costs as a result of the implementation of the Obamacare; and (2) because of the cost of medical care for two “distressed” babies in 2012.
The plan to alter the employee match, and the reasons Armstrong gave for it, evoked a storm of controversy and opposition. As a result, the New York Times reported on Feb. 8, Armstrong sent an email to AOL employees saying that the company would change the policy back to making matching contributions every pay period.
AOL — along with IBM and Deutsche Bank, which switched to annual lump sum matching contributions last year — so far are not exactly at the vanguard of a burgeoning trend. Only 8% of the plan sponsors in a recent Aon Hewitt study provided an annual lump sum match.
What’s your take on AOL’s decision and the way Armstrong handled it? Share your thoughts in the comment box below.
John Iekel is a writer/editor for ASPPA and its sister organizations, including NAPA Net.
