A giant thumbs down to IBM and AOL, both of which screwed with their 401(k) matching policy in a nefarious way:
When IBM changed its 401(k) system in 2012 to hand out employee matches in one lump sum at the end of the year, there was an uproar. Those who left the company before Dec. 15 would not see any matched dollars unless they were retiring. And employees would also miss out on all the compounding throughout the year from the contributions.
Retirement experts warned that with IBM setting the example, other companies would follow suit.
Sure enough, this year another major firm is making the change: AOL.
The tweak was subtle, buried in the company’s summary of its 2014 benefits, and it’s arguably even worse than the IBM change.
In order to receive the company match, the employee must be “active” on Dec. 31, 2014. In addition, the contribution will be allocated as a “one time lump sum after the end of the Plan Year.”
In other words, employees will have to stay through the end of the year to get the match, and then the contribution won’t even come during 2014. In a year like last year, where the stock market was roaring, the difference for an employee who left in December could amount to thousands of dollars in pay and added savings.
So AOL and IBM can claim to their employees (not to mention their recruits) that they have a generous 401(k) matching policy, while burying that important disclaimer somewhere in the footnotes. Genius! I hope nobody was counting on dollar cost averaging.
The net effect is to maintain the perceived value of the 401(k) match while reducing the amount actually paid out. This is exactly the kind of gimmickry marketers use all the time. That’s why, for example, most credit card rewards don’t automatically go back to your account. You have to redeem them first since banks know a certain percentage of the population will forget to redeem. Lower expenses, value proposition retained: a marketing win!
Likewise, AOL and IBM can predict pretty accurately what percentage of their employees will leave before the end of a given year, so they know how much a move like this reduces their matching costs. Also, if they find themselves needing to reduce expenses in November or December, layoffs now look that much more appealing.
You expect to see this sort of adversarial behavior in a credit card offer, but certainly not in your employer’s 401(k) matching policy. If IBM and AOL are pulling a stunt like this, you have to wonder what other sort of shenanigans they’re up to.