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AOL Reverses Course On 401K Match; CEO Apologizes
An anonymous reader writes "When we last checked in with Tim Armstrong, the AOL CEO was demonstrating 'Leadership with a Capital L' to employees of the company's Patch local news subsidiary by summarily firing an employee in the middle of a conference call for taking photos. Armstrong continued to serve up tasty material for tech bloggers this past week, blaming $7.1 million in extra expenses from Obamacare, and for $2 million in expenses for 'two AOLers that had distressed babies', for a decision to hold all matching funds for employee 401K programs until the end of each calendar year. After a small firestorm in the press, and a petition from AOL employees unhappy with both the policy change and the way it was presented, Armstrong reversed course, reinstating the per-period match and apologizing for mentioning the individual employee cases (TechCrunch is an AOL subsidiary). Incidentally, Armstrong was originally following in the footsteps of IBM, which made similar changes to its 401K program that went into effect last year."
Sounds like the ideal candidate.
I like AOL. It started the internet super-highway after all, and if not for it, we would all be on modems, gets our software by CD, yada-yada-yada.
How does this lead to two million dollars in expenses? Is he running his own insurance company for the employees?
It's possible. Self-insurance is a thing a lot of companies do. Granted that typically doesn't happen in health insurance, but it is possible.
It's slightly more likely that their insurer jacked up it's rates due to increased costs, or jacked up rates for no reason and claimed it was due to those costs.
What's most likely is that somebody told him about the "distressed babies," and he used that as a rationalization for being a dick on the 401ks.
Um, yes. It's called "self insurance". For a large company, they will often outsource the administration to a regular insurance company but they pay the medical bills out of the company pocket. It makes sense because with ten thousand employees, you have enough of a pool to lessen the statistical variation percentage wise. So some years you spend a few percent more and some a few percent less. Insurance charges for this statistical pooling so the company can save money. I guess there were a couple of outlier expenses that broke the average. CEO shouldn't complain - while he expected cost savings, he agreed to take the risk.
Yoghurt
um whoever is doing submission checking should at least check that your not copying the ENTIRE summary from techcrunch... hence the subsidiary notice
Guys sort it out otherwise your going to get in trouble with lawyers and users !
John Jones
It's really easy for them to go away when a couple companies (like IBM) get cheap, the rest else declare the new cheapness to be the industry standard; and everyone gets screwed. If the CEO is sufficiently dickish you can win one or two battles like this one; but unless every single job applicant asks about a specific benefit before taking the job they might change their minds; and if the government forces them to stop cutting benefits they will; but most of the time that shit just doesn't work. Hell most beneficiaries of 401ks probably don't know whether their company matches their contributions annually or per pay period.
OTOH if there's just one government program (like Social Security or Medicare), then everyone knows exactly what Congress is doing about it, and you can't screw beneficiaries without everyone knowing it.
There are some who argue that the 401k is a bad investment option.
http://www.fa-mag.com/news/the...
But note that by only disbursing matching funds on December 15th, IBM twists the arms of its employees to plan separation from the company at the most difficult time of transition. Right during the holidays and then a dead point for hiring in mid winter. They also incentivize employee harassment and unfair terminations prior to Dec 15th in order to cut costs by keeping what would have been 401k disbursements. And of course the funds are kept in an interest bearing or investment account controlled by the firm for a year, meaning those gains are lost to the employee.
I'd call that a terrible policy and one that any potential employee should carefully consider. Not only does it represent lost potential 401K gains, but much worse, it's an indication of how poorly management at the firm views its employees. Real 'company store' type stuff.
So glad I no longer live and work in the US
Je ne parle pas francais.
I believe there are companies that are using the excuse of the Affordable Care Act to lower benefits and thus save costs. If AOL hadn't used the excuse of the AFA then it would have been some other excuse. I don't suppose anyone saw the interview withe AOL CEO? Jeez that was an aweful looking work environment. There must have been a thousand people all sitting in from of keyboards on row after row of very long tables. The only interaction a person seems to have are to the person left or right of themself. I also noticed nearly everyone seemed to have their lunch in front of them (evidenced by take-out bags, a dish etc in view). Many tech workers any more are being asked to work like senseless drones at their jobs. I don't know where AOL employee satisfaction ranks but I see that AOL is NOT listed in the top 100 companies to work for in 2014: http://jobs.aol.com/articles/2...
Um, yes. It's called "self insurance". For a large company, they will often outsource the administration to a regular insurance company but they pay the medical bills out of the company pocket. It makes sense because with ten thousand employees, you have enough of a pool to lessen the statistical variation percentage wise. So some years you spend a few percent more and some a few percent less. Insurance charges for this statistical pooling so the company can save money. I guess there were a couple of outlier expenses that broke the average. CEO shouldn't complain - while he expected cost savings, he agreed to take the risk.
http://safetynational.com/company.html?coinfo=Self-Insurance%3A+How+it+works All states allow and most require them to purchase coverage that "limits the amount a self-insured pays for claims from any one occurrence." So state regulations actually prohibited the AOL CEO from taking on too much cost risk in this area. TL;DR - he's a bleeding liar to suggest the two events were related.
On Gawker, Sam Biddle points out that while AOL claimed it couldn't afford its old retirement plan, it is able to afford "Shingy," who Biddle describe as a "professional nothing". Shingy's job title is "Digital Prophet," which means "he's gloating about the fact that he has a make believe job at AOL, unlike most tech charlatans, who try to conceal it":
This Man Is Representing AOL on Live Television
CEO pay is also an outlier, what's his plan about it?
he got an immediate bonus for saving so much (?) money by coming up with the idea of delaying employee 401k matching funds. That must be why CEOs get paid so much to play golf with their buddies from other companies... like IBM.
Actually, it's a great idea, especially if layoffs are in your bonus generating toolkit for the coming year. Those employees who get laid off won't get the 401k matching because they won't make it to the end of the year, thus saving even more money and generating an even bigger bonus for the CEO.
And no doubt the shareholders will see these brilliant moves as reflecting the can-do mind-set of the CEO and will bid up the share price accordingly.
The pundits on CNBC will be pounding the table about it because that's the sort of leadership that America needs at the top of her largest corporations. Hey, if he is too dumb to take care of himself, you sure don't want him running the company! Gee, maybe that goes for Washington, too...
Eat the rich!
"CEO shouldn't complain - while he expected cost savings, he agreed to take the risk."
He also shouldn't complain because it makes him look incompetent (not that he is likely to even capable of experiencing the feeling of being seen as incompetent, of course). Apparently AOL has something in the neighborhood of 5,500 employees. I suspect that they skew young and reasonably healthy; but modest yearly changes in who's on chemo in a given year could trivially add up to 2 million+ swing. It's a big scary number; but it's only about a dollar per employee per day, across a population of that size.
If that qualifies as big, scary, risk, either you suck at risk management, your company has near-lethal liquidity problems, or various other bad things.
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From the WSJ:
The compensation of AOL Inc. AOL +0.28% 's chief executive, Tim Armstrong, nearly quadrupled in 2012 to $12.1 million, from $3.2 million in 2011
So by cutting his own pay by $10M, he could more than compensate for the $9.1M in extra expenses he claims. It would also bring his compensation into line with global standards. US CEO pay is somewhere around 400x the average employee's. The UK is a very distant second with around 45x. In almost every other developed country, it's between 10x and 20x. Very generously assuming that average employee compensation at AOL is $100k, $2.1M would put him at the generous end of global standards.
I believe this is talking about the company *matching* your contributions.
Obviously. Did anybody say otherwise?
In IBM's case, when I worked there, they matched up to 6% which is pretty damn generous.
6%. God bless their generosity. Wanna compare that to what it used to cost them for a defined benefit pension plan? Keep squeezing the peasants and they start to accept it as the new normal.
BTW, did you get laid off, or did you choose to leave? If you chose to, was it because you saw the handwriting on the wall?h
Actually, most large companies are self insured. They will farm out the “operations” part (billing, negotiating rates, etc.) to a insurance company but will pay all of the costs out of their own pocket.
I guess I was wrong. Sorry.
Interesting, he raises his own pay by 10 million dollars and then blames Obamacare for 7 million dollar increase in "costs". Even if what this inveterate liar is saying is true, it works out to less than 2 bucks a day per employee.
sed -e 's/Chuck Norris/Rajnikant/g' joke > fact
That thing still around?
Here's the citation, for anyone interested: http://online.wsj.com/news/articles/SB10001424127887324103504578372342066362234
The best thing about UDP jokes is I don't care if you get them or not
So that a smug overpaid CEO of a sinking remnant of a company could not complain about employees receiving "too much money" for the healthcare for their family. Incidentally, this douche's compensation is north of 25 million dollars. That would pay for a dozen families health needs.
It's the other way around. Now the government owns the losses (funding the insurance subsidy, Medicaid expansion, etc.) and private insurers, drug-makers, hospitals, etc. keep the profits.
That's not socialism*. It's corporate welfare.
* (At least, not socialism as it was defined before Fox News took over the duty of defining "socialism and "communism" to mean "anything Obama does").
BTW, did you get laid off, or did you choose to leave? If you chose to, was it because you saw the handwriting on the wall?
Can't speak for the other poster, but I got sold to another corporation like the chattel the CEOs think we are.
It's fashionable these days to pretty it up by inventing the new-speak "acquihire", but its still CEOs buying and selling what they view as their property.
It sounds to me like AOL and IBM need a union. Bonus; if they trick some poor guy from India into coming over and working for them on a H1B, I bet the union could figure out how to hold the H1B if he ever decides to try to find other work.
I'm trying to teach myself to set people on fire with my mind... Is it hot in here?
I've always enjoyed how the named the opposite of a defined benefit plan a 'defined contribution' plan instead of an 'undefined benefit' plan...
Yet another tiresome example of the first class pig also known as Tyrannosaurus Executivus Capitus Vugaris. The greed of this disgusting species is breathtaking.
What I do is seek a contract, then through my own LLC provide a solo 401(k), provide my own healthcare, etc. My benefits won't vanish on someone else's whim, and I have access to all the funds offered by my favorite investment manager. Plus my clients don't have to supply the benefits they would otherwise offer, and only have to pay for the hours I work (and I only have to be around when there is work).
Then again, there's kind of a seller's market for people with multiple computer science degrees, so YMMV. Maybe I wouldn't be saying this if finding contracts were harder.
I like AOL. It started the internet super-highway after all, and if not for it, we would all be on modems, gets our software by CD, yada-yada-yada.
AOL spared users the complexities of the Internet Suite of the '90s.
I still have the boxed set of manuals from Delrina. Clients for Telnet and BBS services, FTP. Archie Veronica, Gopher, IRC Chat, Usenet, a Browser, basic photo editing tools, compressed file management and so on.
AOL's clients were written for use by ordinary mortals. They played nice with third party software like mIRC.
GUI. Automatic updates. Fixed price monthly billing. Thousands of local access toll-free numbers. There was a lot to like about AOL and it is past time the geek got off his high horse and admitted it,
Loser.
putting the 'B' in LGBTQ+
So you have 1 friend. Big deal.
Sleep your way to a whiter smile...date a dentist!
Good point.
Oliver's law of assumed responsibility: If you're seen fixing it, you will be blamed for breaking it.
I'd appreciate hearing from Google employees about their impressions of Mr. Armstrong while he was an executive at Google. Is this a case of a competent upper level executive proving themselves too flawed to run a company as CEO?
it's not even necessarily just large companies that do this. my mother is a partner in a small CPA firm with about a dozen partners total, and about 50 employees total. now granted it is a total disaster because of many "distressed" old men in poor health sky rocketing their costs, but they do the same thing. they pay for it.
Nice to see my mum's allotment garden on /. :-)
"And the meaning of words; when they cease to function; when will it start worrying you?"
I wouldn't expect anything less.
Oliver's law of assumed responsibility: If you're seen fixing it, you will be blamed for breaking it.
Did he really say 6% ?? Holie shit, that bad. Even back when I was a construction laborer 10 yrs ago, the company matched us dollar for dollar. And that was in a non-union job, all you needed was 3 yrs attendance. The had Oppenheimer manage it, it was a pretty good deal since we were paid really poor to begin with.
C|N>K
It also seems odd that a business with largely white collar employees was providing them with less coverage than the ACA minimum.
I am becoming gerund, destroyer of verbs.
Not to defend this bozo, but the $10 million "raise" was undoubtedly due to appreciation in his stock options, since AOL stock increased from $5 to $45 in 2013.
Have you read my blog lately?
I remember spending hours trying to get one file to actually send to a friends house via ZMODEM. AOL, or AppleLink Personal Edition if you want to go way way back, was much more accessible.
You can also lose quite a bit if
3) The stock market funds where you have designated for your 401K contributions goes up during the calendar year. The S&P 500 went up by 30 percent in 2013.
Of course, the market can go down too, but that happens relatively infrequently on a year-over-year basis.
This isn't why people are pissed. The change is intended to cause any 401K program to extract more money out of the employees pretax earnings and less money out of the company's matching contribution, so that the company pays out less in benefits.
It only works if the people they try to pull it on are too stupid to do basic math and/or are too stupid to do minimal financial preplanning. The people complaining are agreeing that they are too stupid. Or they are just complaining because "we fear change".
I remember spending hours trying to get one file to actually send to a friends house via ZMODEM
I came to despise the geek's impenetrable jargon and his indifference to the "luser." The thick printed manuals that came with the Delrina's WinFax Internet suite were a treasure and remain readable and entertaining to this day.
This is actually a smart idea if you can fund and manage the accounting for it properly. It allows your company to take portions of it's profit pretax and pay itself while investing it under the guise of insuring the employees. Some creative accounting can even juggle losses a bit to create tax benefits.
Of course the problem with bean counters is that not only can they manage it properly, they look for ways to save expenses like getting rid of lower level employees that are using the system too much. But then again, bean counters have done many things in the name of saving a few dollars now that ended up costing a lot more in the long run. Where old roommate works, they used to keep spare parts for the machinery on hand so if something broke down, it could be fixed relatively easily. But the bean counters decided it was a waste of money because spare parts count as income so they only order parts after something breaks and the last time, the entire production line was down for 3 days waiting on a part to be delivered then replaced where if it was already available, it would have been back up and running by the end of the day. So they paid for all the employees to show up and stand around for 3 days and also lost out on the revenue they should have been generating during that time. But it saved them money somehow.
Its not hard to find your old coverage is less than the ACA minimum because things like birth control for Senors of cervical pap smears for your male child are not items commonly sought after in insurance before the ACA. There are also some specific taxes that are imposed on employers as well as insurers built into the ACA. Any number of these things could be why the cost is raising and not necessarily less coverage than the ACA outside of a few things that weren't common before the law.
I believe the 6% means dollar for dollar up to 6% of your annual salary. If you put 10% of your earnings a year into your 401k or whatever retirement scheme they use, they will only match up to the 6% of your earnings mark.
He probably means dollar per dollar up to 6% of gross annual pay.
Jesus was all right but his disciples were thick and ordinary. -John Lennon
Deanna Fei, mother to one of the "Distressed Babies" responds in the following article.
It shows how terribly insesitive Armstong's comments were!
http://www.slate.com/articles/...
You realize that the employer match is not applied to the $17,500 annual limit on 401K contributions, I assume. (Not counting catch up contributions.)
There *is* a combined employee contribution + match limit of about $51,000.... however assuming you contribute the max $17,500 I think one would be hard pressed to find an employer that matches roughly 200% of an employees contributions (however they do exist) with no cap (not sure if that exists) to comprise the needed $33,500 to put you over the edge.
Nobody maxes their 401K; the IRS limits the employer contribution based on the lowest paid eligible employee, so unless everyone is makes huge salaries, it's impossible to max it anyway. The limits are set so that a magic, egalitarian company that might exist in fairyland some day could theoretically fund employee retirement, you know, if it weren't in business for profit.
So the game is not to max out the total 401K contribution, since it's never going to allow you to retire anyway, the game is to max out the extra money you get from the employer by participating in a 401K.
You actually want as little of your own money going into the 401K as possible (there are way better investment instruments than those available in a 401K), and as much of the employers as possible, because, hey, free money that doesn't get taxed as income.
Frankly, you aren't going to be at your employer for 40 years and retire at 65 any more, and that's all going to be rolled over into an IRA when you go on to the next job anyway. Meanwhile, until you do, that tax free extra money is compounding for you until that day comes around.
I think you need to research how government-mandated insurance works... The government doesn't make a dime off the insurance companies.
"The government" may not make any money off of insurance companies, but lawmakers sure do.
How does this lead to two million dollars in expenses? Is he running his own insurance company for the employees?
It's possible. Self-insurance is a thing a lot of companies do. Granted that typically doesn't happen in health insurance, but it is possible.
It's slightly more likely that their insurer jacked up it's rates due to increased costs, or jacked up rates for no reason and claimed it was due to those costs.
What's most likely is that somebody told him about the "distressed babies," and he used that as a rationalization for being a dick on the 401ks.
My previous employer was self-insured, a fact that they liked to remind us of each year when premiums went up. But even self-insured companies can purchase reinsurance to back catastrophic losses.
Well Pablo Picasso fathered Paloma when he was 68, not that he would have used birth control had it been available through his medical insurance plan, but since you mentioned it ..
As for the "cervical pap smears for your male child", would you mind very much if I asked you to provide a citation? This sounds like a very interesting bit of arcania if it is true, though I doubt that it's true.
According to Internal Revenue Bulletin: 2012-14 states in part
http://www.irs.gov/irb/2012-14...
This means that you cannot purchase spare parts or materials in order to defer income for the year. This stops a business from purchasing two months of stock or a back up copier that will sit on a pallet until the current machine breaks in order to create a tax advantage for the year. So yes, this stops the amount paid for the spare parts from becoming an expense for the year they are not used in.
There is no real good reason to move to universal health care. Best guess puts us at 48 million Americans without insurance out of 313 million or roughly 15%. simply expanding Medicare/Medicaid for those who cannot legitimately afford it would be sufficient. getting rid of risk pools by company and mandating they offer any policy sold to a company as an individual policy and perhaps something to ensure preexisting conditions aren't excluded. Looking at the universal system in other countries, they aren't the best unless they are the ones with private systems competing alongside the public system. But depending on where you look, you can find horror stories in all of them. We wouldn't have anything better and likely not anything better then what we have now.
They most certainly are benefiting under the Affordable Care Act. They are guaranteed not to lose money as provisions have been built into the law in order to compensate for any losses.
There are a lot of things in the PPACA that don't need to be there. There are some that do. I guess the question might be do we toss the baby out with the bath water for being evil or not?
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