4:55am

Tue February 11, 2014
Business

AOL Reverses Changes To Retirement Contribution

Originally published on Tue February 11, 2014 1:28 pm

Transcript

STEVE INSKEEP, HOST:

AOL drew much criticism after it fumbled the rollout of changes to its employee retirement plan last week. The protests grew so loud the company had to reverse itself, and the CEO issued an apology.

From member station WNYC, Ilya Marritz reports.

ILYA MARRITZ, BYLINE: AOL got in trouble, not so much for the changes it tried to make, but for its explanation for why those changes were necessary.

TIM ARMSTRONG: As a CEO and as a management team, we had to decide, do we pass the $7.1 million of Obamacare cost to our employees or do we...

MARRITZ: AOL chief Tim Armstrong told CNBC last week that rising healthcare costs from the Affordable Care Act forced him to reduce retirement benefits.

ARMSTRONG: And I have a town hall meeting today with all the employees, I'm going to bring the subject up and talk about it.

MARRITZ: In that meeting, Armstrong got more specific. Part of the problem, he said, was babies. Two babies of AOL employees whose medical complications at birth cost the company $1 million each. In Armstrong's telling, the very youngest people in the AOL family were messing with everyone else's plans to retire with a healthy nest egg.

That got immediate attention when word leaked to media organizations. Then, Deanna Fei stepped forward. She's the mom of one of the babies whose medical care had been so expensive. She told her story, first on Slate, and later on NPR's Here and Now.

DEANNA FEI: You know, what I do take issue with is this singling out of any individual for using their health plan in a situation like the one we faced, which was a catastrophe.

MARRITZ: Fei also posted photos of her now healthy, adorable 1-year-old climbing a slide in a playground. With every click on Fei's article, the American public delivered a rebuke to AOL's Tim Armstrong.

Almost immediately, Armstrong issued an apology. And he went one step further: He dropped the plan to change retirement benefits. Bruce Elliott from the Society for Human Resource Management struggles to think of a precedent for this.

BRUCE ELLIOTT: Very, very unusual. I don't know that I've ever seen something quite like that.

MARRITZ: Elliott says Armstrong was trying to save AOL money. And he took a novel approach. Many companies that offer 401(k) retirement savings plans match their employees' contributions, and they do so every pay period.

AOL wanted to change that system, and make its contribution just one time a year. Same total amount. Just once a year. That may not sound like much of a change, but Elliott says it is.

ELLIOTT: That means that you have to be actively employed on that day. If you leave a day before or a week before or a month before, that employee's going to leave that money on the table, and it's that much less that the company has to contribute.

MARRITZ: This has been done before. In 2012, IBM became probably the first major company to switch to a once a year contribution. At the time, some predicted IBM would be a trendsetter.

But Aon Hewitt's Alison Borland says the companies she advises haven't shown that much interest.

ALISON BORLAND: Changing the timing of the match, while it is without question a cutback, it's a small cutback in the grand scheme of things considering these are voluntary plans.

MARRITZ: If you really want to save your business money, she says, then reduce the matching level, or drop the match altogether. Many companies did just that in the recession. With the economy now improving, some companies are restoring their match.

But Teresa Ghilarducci, an economist at The New School, says this highlights another problem - widespread national retirement anxiety.

TERESA GHILARDUCCI: Most voters when asked about what their major issues are cite retirement insecurity as their most important economic issue.

MARRITZ: Everyone knows Social Security doesn't pay enough to live on, Ghilarducci says. And for the foreseeable future, many of us will depend on employer-sponsored retirement plans.

For NPR News, Ilya Marritz, in New York. Transcript provided by NPR, Copyright NPR.