AOL's Miserly New 401k Policy Will Ruin It For the Rest of Us
Buried in AOL's summary of its 2014 employee benefits was a tweak to its retirement policy that the Washington Post says will "make 401(k)s worse for everyone." AOL must agree because an article about the bad corporate precedent was removed from the front page of the Huffington Post yesterday, although not from the website entirely.
The change affects the fairly common corporate perk where employers match part of an employee's retirement savings every paycheck. With this new policy:
In order to receive the company match, the employee must be "active" on Dec. 31, 2014. In addition, the contribution will be allocated as a "one time lump sum after the end of the Plan Year."
In other words, employees will have to stay through the end of the year to get the match, and then the contribution won't even come during 2014. In a year like last year, where the stock market was roaring, the difference for an employee who left in December could amount to thousands of dollars in pay and added savings.
AOL isn't the first tech giant to set a bad example. Retirement experts were alarmed in 2012 when IBM changed its 401(k) policy to only hand out employee matches as one lump sum at the end of the year. The worry was that other companies would follow suit, but the Washington Post says AOL's new policy is "even worse" than IBM's.
The onetime lump sum is particularly troubling because one of the advantages to the 401(k) is that it's better suited than traditional pensions to a world in which workers change jobs multiple times. People can pick up their savings from one company and easily switch to another.
But if more companies switch to matching contributions annually, the system punishes those who change employers mid-year. With every job change over time, the loss of a few months' contributions can amount to years.
What's the opposite of golden handcuffs? Rusted over iron ones?
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