AOL Is Reducing 401k Contributions Because of Obamacare, 'Distressed Babies'
AOL's Chairman and CEO Tim Armstrong said Thursday that everyone at the company can blame their new, objectively worse 401K policy on Obamacare, according to The Huffington Post, an AOL company.
AOL's Chairman and CEO Tim Armstrong said Thursday that everyone at the company can blame their new, objectively worse 401K policy on Obamacare, according to The Huffington Post, an AOL company. "Obamacare is an additional $7.1 million expense for us as a company, so we have to decide whether or not to pass that expense to employees or whether to cut other benefits," Armstrong told CNBC.
(Update: Apparently, saving sick babies had something to do with the benefits cut as well. During a company wide conference call, Armstrong said the decision to cut costs was spurred by the healthcare costs of two female employees in 2012. According to Capital New York:
"We had two AOL-ers that had distressed babies that were born that we paid a million dollars each to make sure those babies were OK in general. And those are the things that add up into our benefits cost. So when we had the final decision about what benefits to cut because of the increased healthcare costs, we made the decision, and I made the decision, to basically change the 401(k) plan."
Understandably, a few people were "shocked" that Armstrong would single out two women like that. But this is the same guy who fired a staffer for taking a picture of him.)
Earlier this week, The Washington Post reported that AOL was "leading the way to make 401(k)s worse for everyone" by matching retirement contributions in one lump sum, instead of throughout the year. IBM was the first major company to enact this policy, back in 2012. Through the lump sum approach, employees lose out on the year's compounded interest. Worse, employees who leave IBM before December 15 get nothing. AOL's new policy is even worse, since employees have to be "active" through December 31 of this year to get their 2014 contribution sometime next year.
AOL and IBM may be the only major companies to restructure the retirement plans, but they join a growing list of companies that changed their benefits because of the healthcare law, either by ending spousal benefits (UPS) or pushing part-time employees onto the private exchanges (Target, Trader Joes). And while Obamacare is a good excuse, given the way the law is perceived, reduced benefits is part of an ongoing trend. "An increase in costs of a few percent isn't enough to cause widespread changes in benefits," said Larry Levitt, senior vice president at the Kaiser Family Foundation, told CNN in September. According to Aon Hewitt, a benefits expert, only eight percent of major firms do lump deposits, which hasn't changed in recent years.
And as The Post noted Thursday, this could also be part of an effort to cut costs overall. Though Armstrong told investors the recent quarter was "Olympian," the company recently laid off hundreds of Patch employees. Those layoffs will cost $13.2 million.