The Opinion Pages|Editorial Making Retirements Less Secure By THE EDITORIAL BOARDFEB. 14, 2014 The chief executive of AOL, Tim Armstrong, was roundly criticized for wrongly connecting the expensive health problems of two babies born to his employees and the health care reform law to the company’s rising health care costs. He eventually apologized for those remarks. Just as wrongheaded was his plan to deal with higher costs by changing the way the company contributes to retirement accounts. AOL, which employs about 5,000 people, said that to compensate for the rising costs of health and other employee benefits it would start contributing to the 401(k) retirement accounts of its employees in one lump sum at the end of the year, instead of every time it pays workers. In doing so, the company was following the example of several large companies, like IBM and Charles Schwab. About 17 percent of employers matched 401(k) contributions in an annual lump sum in 2012, up from 12.9 percent in 2009, according to the Plan Sponsor Council of America. It is easy to see why companies are switching to lump-sum contributions: It saves them money. They get to keep until the end of the year the money they would have ordinarily put into workers’ accounts every week or every two weeks. Businesses that choose this approach also get to keep the money that they would have contributed to the retirement accounts of workers who leave for other jobs or are unfortunate enough to be laid off before the end of the year. But these gains come at the expense of working families that face an increasingly insecure retirement. Studies show that most Americans are not putting aside enough money for retirement, and these new 401(k) policies make it that much harder for them to do so. Lump-sum payments expose workers to potentially greater financial risk, because retirement funds that would have been invested in stocks and bonds over the course of a year when companies matched contributions with every paycheck will, under these new policies, be invested all at once at the end of the year. If stocks are rising, as they have been in the last few years, that means the lump sum will be invested in the market when stocks are more expensive than if they were purchased throughout the year. Last Saturday, Mr. Armstrong, along with apologizing, did the right thing in announcing that AOL would reverse the change in its 401(k) policy. Other companies using this kind of contribution approach or considering adopting it should think twice about the damage it does to employee retirement plans. Meet The New York Times’s Editorial Board » A version of this editorial appears in print on February 15, 2014, on page A20 of the New York edition with the headline: Making Retirements Less Secure. Order Reprints|Todays Paper|Subscribe
Posted on: Sat, 15 Feb 2014 06:17:27 +0000
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