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AOL changing 401k contributions
Old 02-08-2014, 02:30 PM   #1
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AOL changing 401k contributions

Don't know if others are following the AOL story this week re: AOL changing its employee 401k match from bimonthly contributions to a lump sum contribution on December 31. Coincidentally, our family friend was recently hired by AOL (he is here on a H1b visa and is close to gaining citizenship) and last weekend he mentioned he wanted help figuing out what funds to invest in in his 401k. He is in his late 30s and has no retirement savings. Instead he has been making extra principle payments on his house, as in his native country (much recent political volatility in is homeland) real estate is the sole means of investing for retirement.

Anyhow, I told him to still put money in the 401k at least up to the (lump sum) match.

But I was thinking about AOL's decision to change this employee benefit. Effectively it means that employees are tied to the company to get the annual match. Also, they lose the benefit of dollar-cost-averaging. Sometimes the biggest market gains happen over a few days in a given year. If your match money isn't there - you lose out.

I hope AOL's decision doesn't spread across corporate america. Most of us have lost out on pensions, and the 401k is our primary retirement vehicle.
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Old 02-08-2014, 02:56 PM   #2
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Other companies have been making similar adjustments and it does lower the company cost, while they still get to say they have an X% match. Similar to plans with high cost funds, the cost is not borne by the company so anything that reduces expenses seems okay with them. I hope employees vote with their feet, but in general people are so disconnected with details of their retirement savings, it probably will make little difference to most people.
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Old 02-08-2014, 06:35 PM   #3
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Other companies have been making similar adjustments and it does lower the company cost, while they still get to say they have an X% match. Similar to plans with high cost funds, the cost is not borne by the company so anything that reduces expenses seems okay with them. I hope employees vote with their feet, but in general people are so disconnected with details of their retirement savings, it probably will make little difference to most people.
You are correct most folks are so disconnected with their retirement plans. Megacorp had a legacy profit sharing plan, in addition to 401k.

They contributed a good percentage every year. It was in a private retirement equity fund, well managed(by well known fund managers), with a 1% ER. Megacorp picked up the 1% for active employees. Couple years ago Megacorp quit picking up the 1% ER. Talking with long term employees, none of them understood what happened to them. For me it was a 5% salary cut, I know some took bigger hits, but didn't have a clue.
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Old 02-08-2014, 07:31 PM   #4
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Not that big of a deal. While it's better if employee match occurs throughout the year, many other details of the plan are much more significant than when the employer match is posted. It would not change my participation very much at all, but I might look at having the match put into a stable value fund and systematically xfer into equities, bonds etc in the following year. The brightscope rating on the plan is decent.

AOL Inc. 401k Rating by BrightScope

My big concern would be whether this is part of a gradual erosion of employee benefits and/or increased intimidation by management.
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Old 02-08-2014, 07:35 PM   #5
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It seems that AOL has changed their mind and is going back to the old way.

Distressed by Baby Controversy, AOLís Armstrong Reverses 401(K) Policy | Re/code

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The leadership team and I listened to your feedback over the last week. We heard you on this topic. And as we discussed the matter over several days, with management and employees, we have decided to change the policy back to a per-pay-period matching contribution.
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Old 02-08-2014, 07:41 PM   #6
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Not that big of a deal. While it's better if employee match occurs throughout the year, many other details of the plan are much more significant than when the employer match is posted.
Agreed in the specific case, but more generally it's death by a thousand paper cuts, IMO.
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Old 02-08-2014, 07:43 PM   #7
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Good to know!

Perhaps this will be a sign to other megacorps not to pursue this erosion of retirement benefits.
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Old 02-08-2014, 08:25 PM   #8
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I hope this does not spread . But AOL employees need to evaluate their long term employment goals. My father always said "you may be employed by somebody else, but always work for yourself." Amazing how wise he gets as I get older.
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Old 02-09-2014, 07:46 AM   #9
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And the CEO blames the initial decision on Obamacare and sick employee babies. What an idiot.
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Old 02-10-2014, 08:25 AM   #10
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It seems that AOL has changed their mind and is going back to the old way.

Distressed by Baby Controversy, AOLís Armstrong Reverses 401(K) Policy | Re/code
I am involved in a small employer 401-K plan (150 - 200 employees) and have found that the IRS drives a lot of decisions. Seems that every time I want to change something with the plan, we can't - we would fall out of the IRS "safe harbor" rules and could have to submit the plan for review and "approval"... etc. For instance, I wanted to have a vesting period before new employees would be eligible for a match. No, can't do that or we will not qualify for the safe harbor. So, can we wait until the end of the year before we pay the match? Probably not.

AOL might have determined that fighting with IRS is not worth the effort - more than being concerned about dollar cost averaging.

The Internal Revenue can be really intrusive.
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Old 02-10-2014, 08:30 AM   #11
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I hope this does not spread . But AOL employees need to evaluate their long term employment goals. My father always said "you may be employed by somebody else, but always work for yourself." Amazing how wise he gets as I get older.
I love your father's quote. Think I'll borrow in the future. Thanks.
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Old 02-10-2014, 08:34 AM   #12
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The company I work for went the other way - we used to have an annual match (paid in February for the previous year) but now we get the match on the same schedule as our paychecks (biweekly). The annual match was up to 6% but wasn't guaranteed. It depended on company performance. The new match is only 3% but it is guaranteed. Overall, we get a smaller match (the old match almost always paid out) but I do like the assurance of getting it right away.
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Old 02-10-2014, 08:56 AM   #13
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But I was thinking about AOL's decision to change this employee benefit. Effectively it means that employees are tied to the company to get the annual match. Also, they lose the benefit of dollar-cost-averaging. Sometimes the biggest market gains happen over a few days in a given year. If your match money isn't there - you lose out.
This is what happened with my old company about a year before I left. After they switched from cash to company stock for their 401k matching funds, they then switched the date of giving out the company stock from the last day of the quarter to the first day of the next quarter. While this one day change might not seem like much, it meant a lot because that is when they had an outside auditor determine the quarterly value of the (privately held) company stock. So, with a quickly rising company stock value, the company could now give out far fewer shares to meet its company match obligations. With only 4 big market "gains" per year due to the quarterly company stock evaluations, we always lost out on one of them for each company match payment due to this one-day change.
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Old 02-10-2014, 08:59 AM   #14
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My megacorp went the annual lump sum match route a couple of years ago. I liked the "per paycheck" method as it ensure dollar cost averaging. Now I am at the mercy of whatever the market is doing on the day of the match. OTOH, since I won't be tapping that money for a decade or more, it doesn't matter much in the grand scheme of things.
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Old 02-10-2014, 09:24 AM   #15
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I am involved in a small employer 401-K plan (150 - 200 employees) and have found that the IRS drives a lot of decisions. Seems that every time I want to change something with the plan, we can't - we would fall out of the IRS "safe harbor" rules and could have to submit the plan for review and "approval"... etc. For instance, I wanted to have a vesting period before new employees would be eligible for a match. No, can't do that or we will not qualify for the safe harbor. So, can we wait until the end of the year before we pay the match? Probably not.

AOL might have determined that fighting with IRS is not worth the effort - more than being concerned about dollar cost averaging.

The Internal Revenue can be really intrusive.

The problem you might have is that you are probably under a global plan by an investment company and they just do not offer what you want as an option... I am pretty sure AOL has their own and they can change it easily... as long as they are abiding by the law... and the match change they proposed is not against the law...
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Old 02-10-2014, 04:44 PM   #16
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I saw the news piece on this and didn't think it was that big of a deal -- the company match. Now if the company was planning to hold the employee contributions 'till the end of the year before turning over to the custodian, that would be different.

The last place where I was employed paid the company match in the first quarter of the following year, usually about the last business day of March. That was a safe harbor 401K. That is a very good place to be from.
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Old 02-12-2014, 05:08 AM   #17
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And the CEO blames the initial decision on Obamacare and sick employee babies. What an idiot.
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