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AOL Reverses Change To Employee 401(k) Policy

CEO Tim Armstrong\'s targeting of Obamacare and employee pregnancies as factors in the policy change prompted widespread backlash.
Posted at 5:55 PM, Feb 09, 2014

After his explanation for changing AOL's 401(k) policy sparked public controversy last week, Chief Executive Tim Armstrong is backtracking — apologizing for his remarks and reversing the new policy.

Here's how it went down. Early last week Armstrong cited the Affordable Care Act, or Obamacare, as the reason for AOL pulling back its 401(k) matching payment program in favor of an annual one. (Via YouTube / ForaTV, NBC)

"Obamacare is an additional $7.1 million expense for us as a company. So, we have to decide whether to pass that expense to employees or whether to cut other benefits."

Those comments caused a stir with Obamacare supporters who questioned the accuracy of the statement. 

But it was what Armstrong said during a Thursday company-wide conference call that sparked more widespread employee backlash. (Via HLN)

Capital New York acquired a transcript of the call from an AOL employee, where Armstrong pointed to two staffers' pregnancies as part of the reason the company needed to change its 401(k) policy. 

"We had two AOL-ers that had distressed babies that were born that we paid a million dollars each to make sure those babies were OK in general ... those are the things that add up into our benefits cost."

Employees told Capital New York they were shocked Armstrong would single out two individuals as part of the rationale for implementing a widely unpopular policy, which would force employees to forfeit matched 401(k) payments if they left the company or were fired before the end of the year.  

Armstrong soon sent out a company-wide email later that day clarifying his remarks, writing: "high-risk pregnancy [is] just one of many examples of how [AOL] supports families ... in need."

And then Saturday, he backtracked on the policy change altogether. Sending out another email explaining the company would return to per-pay-period matching contributions. (Via TechCrunch)

Although the controversy lasted less than a week, it's triggered a series of investigations by media outlets over whether or not healthcare costs associated with the Affordable Care Act are unreasonably burdening companies. 

The Wall Street Journal cites sources explaining: "Health-care costs don't directly affect company spending on retirement benefits ... However, companies often consider them in tandem."

A Guardian report which claims it's "Fact-checking" AOL explains the company recorded a "13% revenue increase" with profits of "$36 million" in 2013, while noting Armstrong took home $12 million in 2012 — three times his salary the year prior. 

And The Washington Post explains AOL's Q4 earnings were the highest the company has posted in more than decade. 

Armstrong apologized for singling out the two employees Saturday. AOL has yet to release an official statement regarding its return to the original 401(k) policy.