Starting this year, AOL has changed how it distributes its matching 401(k) contributions for all employees, which could put a sizable dent in the retirement accounts for workers who part ways with the company before the end of 2014.
The company, which owns TechCrunch and, it goes without saying, employs me, matches 50 percent of up to 6 percent of our pre-tax income (or a 3 percent maximum match, for the non math-majors). Until recently, AOL would make its matching contributions each pay period. For employees who take full advantage, this means all year long you would be working with an additional 3 percent of your salary in the market, gratis. Not bad for a year like 2013 when all three major stock market indices enjoyed double-digit gains.
In the new changes, which were included in the 2014 AOL employee benefits summary, the match amount remains unchanged, but instead of being paid out throughout the year, it will be received as a lump sum after the end of the year. Perhaps worst of all, employees who leave AOL before Dec. 31 will forfeit the company match altogether. This means an employee could lose potentially thousands of dollars in retirement savings if the match is forfeited.
AOL is not the first big U.S. tech company to do this. IBM made the same move in 2012, and a Wall Street Journal report cautioned that it could start a trend among big companies looking to trim their retirement account budget line. Four months after the retirement account changes, IBM announced it would be laying off thousands of workers as part of a global restructuring plan, Bloomberg reported at the time. In January, AOL sold off controlling interest in its long-hemorrhaging hyperlocal journalism effort, Patch (which, disclosure, I also used to be part of) to investment firm Hale Global, laying off several hundred employees in the process.
However, AOL has not announced any plans for further layoffs.
Overall, AOL has been doing well. It beat Wall Street estimates on its latest earnings report, announcing a 6 percent increase in revenue to $561 million for Q3 last year, largely on the strength of its video advertising business, which included several high-profile acquisitions in 2013. For the year, shares in the company soared more than 50 percent, last month hitting their highest price since the split from Time-Warner in 2009.
Now, for some perspective, many companies, even ones I’ve worked for, abandoned their matching contribution policy long before the Great Recession. Matching contributions and other monetary perks are always low-hanging fruit when the economy turns. The fact that AOL offers a match at all is a privilege, and I acknowledge it as a privilege. However, if the purpose of company matching contributions is to encourage employees to save money, this new policy, which effectively renders the match conditional, blunts that “we’re all in this together” feeling typically associated with it.
I personally have maxed out on the company match since I started working for AOL, and the bi-monthly matching contributions coupled with a rebounding stock market has made for a modest but adequate cushion, which has been, frankly, invigorating to watch grow. It not only gives me peace of mind knowing I’m some semblance of “on track” to retire comfortably, but it takes the sting out of putting aside 6 percent of my pay seeing AOL’s contribution side-by-side each pay period.
With the decline of pensions in America, and every worker decades from retirement wondering about future of Social Security, the 401(k) has essentially become the investment vehicle for working people. Every dollar I lose out on today translates to multiple dollars lost from my retirement coffers.
We’ve reached out to AOL for comment and will update when we hear back.
*Final disclosure, as part of the employee stock purchasing program, I currently own two (2) shares of AOL stock.
