2 many pensions

1/31/2014 8:04:15 AM

http://www.washingtonpost.com/business/economy/aol-chief-ignites-firestorm-over-401k-cuts-and-distressed-babies-remark/2014/02/07/2116c03a-9012-11e3-b227-12a45d109e03_story.html?hpid=z1

I thought the debacle with AOL was relevant here, as they recent decided to join the likes of IBM and DeutcheBank by contributing to employees' 401k's once a year as a lump sum, instead of contributing every paycheck. The article does a good job of throwing shade at AOL

Quote :

"It should have been a glorious week for AOL chief executive Tim Armstrong. His company’s quarterly earnings, announced Thursday, were the best in a decade. “Olympian,” he declared. Instead, he angered employees, insulted parents with sick babies and shined a light on a practice seeping its way into corporate America that threatens to rob workers of thousands of dollars in 401(k) savings. The strange turn of events began Tuesday, when employees began learning that AOL was switching its 401(k) match to an annual lump sum, rather than distributing the money throughout the year with every paycheck as it had done before. Only employees who remain at the company through Dec. 31 are eligible, meaning that anyone who leaves midyear won’t see any of the pay. A number of companies, including Deutsche Bank and IBM, have been cutting their retirement benefits this way, saving millions of dollars just as more Americans are relying primarily on their 401(k)s because traditional pensions are being phased out. The changes undercut a central virtue of the 401(k) system, which in theory should make it easier for employees to switch companies and take their savings with them. Instead, with people changing jobs more frequently during the course of their careers, the loss in matches can add up to thousands of dollars each time a worker switches employers. “Over a longer time horizon, you’re missing out on a huge percentage of all the appreciation if your money is not in the market,” said Mike Alfred, chief executive of BrightScope, which independently rates the quality of 401(k) plans. Many at AOL did not know about the company’s new 401(k) policy until it was reported by The Washington Post this week. At first, after The Post report, Armstrong blamed the change on the new health-care law during an interview with CNBC. Then, on a conference call with employees, he added another reason: two workers had “distressed babies” in 2012, each costing the company $1 million. “Those are the things that add up into our benefits cost,” said Armstrong, according to an account of the call. “So when we had the final decision about what benefits to cut because of the increased health-care costs, we made the decision, and I made the decision, to basically change the 401(k) plan.” The remarks enraged employees and set off a heavy dose of criticism online. The tech blog Valleywag created a chart showing Armstrong’s salary ($12 million in 2012) as measured in “distressed babies.” An AOL spokesman said the firm does not comment on internal matters. Retirement experts say that the cut in benefits not only hurts those who leave the company midyear, but also those who stay put, because they lose the compounding benefits of having more money put into their accounts throughout the year. Deutsche Bank will pay out matches in 2015 for U.S. employees who are still at the company Dec. 31, according to an internal document obtained by The Post. “We remain committed to continuing to invest in our employees’ retirement and have maintained our 401(k) match,” Deutsche Bank spokeswoman Mayura Hooper said. “With that said, in a rising cost environment, these types of changes are necessary for businesses to stay competitive.” Companies such as Charles Schwab and Advocate Health Care, the largest health system in Illinois, handle 401(k) matches in similar ways. IBM made its change in late 2012, setting off speculation that other companies would follow. The company’s action also spurred a stern letter from the two senators from Vermont, Patrick J. Leahy (D) and Bernard Sanders (I), who asked IBM to reconsider its decision and reinstate the 401(k) matches with every paycheck. IBM’s senior vice president of human resources wrote back, defending the change by saying that it “helps us maintain business competitiveness in an uncertain economic environment, while allowing us to invest billions of dollars in employee compensation and benefits programs each year.” For employees who face the change, the difference can be dramatic, especially during a year such as 2013, when the S&P 500-stock index soared nearly 30 percent. Of course, in a down year, it would have done them a favor. But employees are typically saving during the course of decades. And Alfred, the head of BrightScope, said that in any given year, much of the market’s appreciation can take place in just a few days. With the wrong timing on an investment, an employee can miss out on thousands of dollars of appreciation. This is why getting a lump-sum match flies in the face of standard investing advice that savers should be making regular investments throughout the year, a practice known as “dollar-cost averaging.” The idea is that smaller investments timed every few weeks or months — whether the market is up or down — end up producing better results than throwing a bigger sum of money in once. Charles Schwab’s Web site offers this pointer on dollar-cost averaging: “Best of all, as your investments generate returns, those returns are used to buy additional shares, which are added to your account.” According to Charles Schwab’s most recent audit report, from 2012, the company pays out its match in the first quarter of the following year. Employees also must be at the company through Dec. 31, except in the cases of retirement, death or disability. The firm did not respond to requests for comment. But companies making the change are in the minority, according to Aon Hewitt, which consults on human resources and surveys companies regularly about their 401(k) practices. The vast majority, 86 percent, contribute a match with every paycheck, according to Aon Hewitt’s most recent report. Only 8 percent do an annual lump sum, in line with past years. But Alfred said that it can be hard to tell what companies are doing because most surveys are self-reported and filings to the government don’t always offer much detail. On Friday, AOL’s stock rose slightly after dipping nearly 1 percent the day before. Armstrong, meanwhile, was quiet. There was no word on why a company with about 4,000 employees would not be able to absorb the expenses of two employees with abnormally high medical bills."

2/8/2014 8:25:39 AM

people still use AOL?

2/8/2014 10:48:55 AM

Lol what?

Quote :

"Charles Schwab’s Web site offers this pointer on dollar-cost averaging: “Best of all, as your investments generate returns, those returns are used to buy additional shares, which are added to your account.”"

2/8/2014 11:08:36 AM

^^ I doubt many do. AOL, however, is a brand and parent company that owns other tech ventures

2/8/2014 11:41:21 AM

We just moved to the one-time payout of 401k matching this year.

Pisses me off.

2/8/2014 12:44:51 PM

So the only benefit to the company is keeping people around or not having to pay them if they leave right? It's not like the company actually pays any more per paycheck right?

2/8/2014 12:47:35 PM

Walgreens has been doing this for at least 5 years now, yet nobody has said anything.

2/8/2014 12:52:07 PM

^ I'd imagine the company also get interest off of the $ all year, instead of paying the employee week by week

[Edited on February 8, 2014 at 12:52 PM. Reason : Ff]

2/8/2014 12:52:17 PM

lots of us don't get any employer matching at all, so suck it

2/8/2014 4:46:21 PM

I think that will only encourage people to leave. Surprised they don't do contributions per paycheck but vest on a rolling basis (1 year or something). Basically holding employees hostage.

2/8/2014 5:53:40 PM

sometimes you want to encourage turnover, and for some industries there are certain times of year when you want people to leave as the workloads cycle down.

2/8/2014 8:34:05 PM

http://www.washingtonpost.com/business/aol-chief-reverses-changes-to-401k-policy-after-a-week-of-bad-publicity/2014/02/08/0aec4056-911f-11e3-b227-12a45d109e03_story.html?hpid=z1

AOL reversed their decision on 401ks. Basically the CEO said "oh, I didn't realize that horrible thing I was doing would give me such bad press. Nevermind...."

2/8/2014 8:54:23 PM

Boeing announced they are ending their pensions in 2016

3/7/2014 8:16:23 AM

Pensions are dying out. Hoping that I'll at least be grandfathered into mine if/when Duke decides to stop offering them.

3/7/2014 9:01:57 AM

This much is true.


I know sooooo many people in the industry that are just holding out for a few more years, while their pension grows. For those about 5 years away from retirement, it is starting to get really good for them. IM sure those at Boeing landing just outside the 2016 mark are devastated.

^ if history is any indication, your pension will probably be frozen, and rolled into a 401k

[Edited on March 7, 2014 at 2:11 PM. Reason : kk]

3/7/2014 2:10:12 PM

Most all public sector jobs (including teachers and law enforcement) have a type of pension with their state retirement system. Most of these are very fiscally conservative (planning for 6% interest) and are managed very well and are thus solvent, provided the state kicks in the share that they're obligated to. The problem over the last several years is that some of the states haven't been contributing the amount they're obligated to contribute to the system. This compounds year after year until the state either has to make a substantial payment into the retirement system and/or they change the plans in the system.

Most state retirement systems are actually pretty good as long as they're funded as prescribed by the legislature.

3/8/2014 12:06:55 AM

So...my company recently announced they were freezing the pension, and transitioning to another 401K model by 2020.
I know.... Surprise surprise.

7/3/2014 8:11:54 AM

Still got mine and just got a nice 14%+ pay bump which will grow it quite bit faster. I'm pretty much in the last group to get grandfathered in so I'm hoping it doesn't get frozen any time soon.

7/3/2014 12:31:22 PM