AOL Backs Off Change to Retirement Plan

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When AOL Inc. (NYSE: AOL) CEO Tim Armstrong said on Thursday that the company was changing the way it paid its 401(k) benefits, he blamed Obamacare and two “distressed babies” born in 2012 for the change. By Saturday, Armstrong had changed his mind and said AOL would not make the change.

The proposed change would have paid employees the company’s 401(k) contributions in a lump sum at the end of the year. The existing policy paid the benefit every month, which gave employees the added benefit of collecting interest on the company’s portion. Following an uproar over the change, Armstrong said on Saturday that AOL would continue paying its contribution monthly.

The justifications Armstrong used for suggesting the change were either wrong or completely tone deaf. He said on Thursday that two employees’ babies cost the company $1 million each, driving AOL’s benefits costs up and forcing the company to rein in benefits costs. According to transcripts of an interview with CNBC, Armstrong said:

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. And those are the things that add up into our benefits cost. … For employees leaving to go to other employers, not matching those programs was probably the last thing on the list for us in terms of employee benefits that we wanted to keep. … In the CEO chair, let me give you an example of the decisions we have to make as a company: Obamacare is an additional $7.1 million expense for us as a company. So we have to decide whether or not to pass that expense to employees or whether to cut other benefits.

Blaming two babies is tone deaf and Armstrong apologized for saying it.

Blaming Obamacare is disingenuous. Has AOL never had its health insurance rates go up before? It’s pretty easy to toss another dart at the bogeyman of Obamacare. It’s not as easy to lay out the real reasons for the increased cost of benefits.

AOL closed Friday at $47.28, up 0.3% on the day and 2.6% for the week. The shares are up 1.4% in 2014 after a 57.4% gain in 2013.

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