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

Published on NewsOK Modified: February 14, 2014 at 1:15 pm •  Published: February 14, 2014
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NEW YORK (AP) — 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.

So far, the predictions haven't come true.

"Overwhelmingly, businesses have told us that 'we are unlikely to do this,'" says Rob Austin, director of retirement research at AON-Hewitt.

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, as company pensions and profit-sharing agreements have fallen by the wayside in the last 30 years.

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

Switching from a per-paycheck match to an annual match hurts employees a few different ways. For one, it punishes employees who leave a company before the end of the year. Also, the employee's 401(k) funds wouldn't fully benefit from any stock market gains or dividend income during the year.

Let's say an employer contributed $1,000 to an employee's 401(k) last year. If the contributions were made on a monthly basis throughout the year and invested in an index fund that tracks the S&P 500, by the end of the year the value of that contribution would have grown to $1,245 because of increases in the index and income from dividends.

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