AOL’s New 401K Program

My all accounts Tim Armstrong (CEO of AOL) should be dancing in the street and rewarding his employee’s for their loyalty that boosted his quarterly earnings higher than they have been in decades. Instead, he choose to rob his workers of thousands of dollars in their 401K savings plans. (Should we mention his $12 million salary here?). He has chosen to change their contribution system to once a year rather than with each months pay, as has been their practice for a long time. So what you say? Consider the following:

- Corporate America is screaming about their difficulty in maintaining highly skilled employees and this is supposed to lure in new talent?
- If an employee leaves a company half way through the year, or even a week before the 401K payout, they loose the entire years matching funds.
- By making the payout once a year, the employee also looses the investment benefit and any interest gains for the 11 previous months, also costing them big bucks over the life of the program.
- Armstrong blames part of this on two “distressed births” that employee’s had in 2012 which cost over $1 million dollars. There was no further explanation why a company with 4,000 employee’s was not able to absorb the expenses of two employees with abnormally high medical bills.

This new trend is the result of actions by Deutsche Bank that first introduced the practice in the US and it is suspected to be picked up by quite a few corporations throughout the US. IBM has also made the change as have Charles Schwab and Advocate Health Care. At this point nearly 8% of those companies having a 401K program do annual payouts while 86% contribute a match with every paycheck.

Combine this information with earlier reports of the Affordable Care Act being an inducement for people to take lower paying jobs to avoid high health costs and one must really wonder what the Captains of industry must be thinking. One has to wonder if any of these folks have taken time to see the difference in productivity between a happy and an angry work force. It will be interesting to see if the larger union’s pick up on this and start marketing their programs to the white collar segments of business. Now would certainly be an ideal to be approaching the folks at AOL, not to mention a few other companies ….