AOL Cuts 401(k) Benefits, Blaming Obamacare and "Distressed Babies"
NEW YORK (MainStreet) The man who impulsively fired an employee for taking a picture during a meeting with thousands of employees has done it again. Tim Armstrong, CEO of AOL, has irked employees with his announcement of benefit changes and it wasn't just the news that roiled the rank and file, but the manner in which it was given.
Armstrong blamed Obamacare, as well as rising medical costs, for a modification to the company's 401(k) match, which will now be issued annually after the end of each year, rather than with each pay period. The move deprives employees of 12 months of potential interest, dividends and appreciation for investments that would have been purchased from the proceeds of the matching contribution.
"As a CEO and as a management team, we had to decide, do we pass the $7.1 million of Obamacare costs to our employees? Or do we try to eat as much of that as possible and cut other benefits?" Armstrong said in an interview with CNBC.
Later, in a town hall meeting with employees, Armstrong attributed the retirement benefits changes to rising healthcare costs, using the example of the problematic pregnancies of two employees.
"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 O.K. in general. And those are the things that add up into our benefits cost," Armstrong said, according to employee reports.
Many employees felt the remarks were inappropriate and began saying so publicly. One email published by Re/Code.com and said to have been "sent among some Huffington Post employees" read: "His comments during the earnings call, specifically blaming the policy change in part on the costs associated with the birth of two 'distressed' babies by AOL employees, were completely outrageous. Almost unbelievable."
Huffington Post is owned by AOL.
AOL has aggressively cut expenses and just reported its "most successful year in the last decade," according to Armstrong. TheStreet's Jim Cramer says he is optimistic about the company's TV projects and believes Armstrong is moving the company in the right direction. Cramer notes AOL's drop in expenses from $340 million in 2009 to $40 million in 2013. Revenue grew 23% year-over-year in the fourth quarter, while third-party network revenue increased 63%.
IBM made the same modification to its 401(k) match a year ago.
--Written by Hal M. Bundrick for MainStreet