Despite AOL news, 401(k) matches are not changing

AOL CEO Tim Armstrong announced last week that instead of contributing to an employee’s retirement each paycheck, the company would give a lump sum payment at the end of the year, a move that could lower costs but potentially hurt employees’ savings.
Modified: February 14, 2014 at 10:25 pm •  Published: February 14, 2014
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— If you like your company’s 401(k) match, you can keep it.

Despite a scare that AOL gave its employees recently, Corporate America isn’t scaling back 401(k) programs, surveys and employee benefit experts say.

AOL CEO Tim Armstrong announced last week that instead of contributing to an employee’s retirement each paycheck, the company would give a lump sum payment at the end of the year, a move that could lower costs but potentially hurt employees’ savings.

The backlash was immediate, forcing Armstrong to backtrack within days.

While AOL’s announcement made headlines, employees who have a 401(k) shouldn’t worry. AOL’s announcement doesn’t reflect a growing trend, employee benefit experts say. Only eight out of every 100 large U.S. companies wait until the end of the year to make contributions, according to a 2013 survey by AON-Hewitt, a large global human resources consulting firm. That level hasn’t changed in two years.

IBM also generated headlines in late 2012 when it announced changing its 401(k) to an annual match, making it the largest company to use such a program. Some experts argued that a switch by IBM, one of the largest employers in the U.S. with more than 430,000 employees, could cause a shift in how employers handled retirement plans.

A popular benefit

So far, the predictions haven’t come true.

The 401(k) remains one of the most popular employee benefit programs in the country. Nine out of 10 mid-size to large companies offer a plan for employees. It’s also the primary way employees save for retirement.

AOL would have been the first large company since IBM to switch to this type of match program, and the publicity was highly negative.

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The reality is that the 401(k) is not being accessed for 20, 30, 40 years, so an annual match would smooth out over that course of time. It’s the employees leaving the organization that are taking a hit, and it especially hurts employees who are laid off.”

Bruce Elliott,
Manager of compensation and benefits for the Society for Human Resource Management

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