Bloomberg News

AOL Blames Obamacare for Plan to Reduce Retirement Benefits (3)

February 06, 2014

AOL Inc. (AOL:US) blamed President Barack Obama’s health-care law for its plan to reduce spending on contributions to employees’ 401(k) retirement plans.

AOL, owner of websites such as the Huffington Post, will still match employee contributions to retirement plans up to 3 percent of their paychecks, Chief Executive Officer Tim Armstrong said. Under the new policy, it will make the matching payments in a lump sum at the end of the year, forcing employees who leave before then to forfeit the benefit, he said in an interview today on CNBC.

“Obamacare is an additional $7.1 million expense for us as a company,” Armstrong said. “We have to decide whether to pass that expense to employees or cut other benefits.”

The White House is defending the law from criticism that it causes consumers more economic harm than good. Republicans have seized on a report this week by the Congressional Budget Office, which said Obamacare will reduce the hours Americans work by the equivalent of 2 million full-time jobs in 2017.

Armstrong didn’t specify how the health-care law had increased costs for New York-based AOL. The CEO told employees today that the health-care expenses of two employees in 2012 played a role in his decision on which benefits to cut, Capital New York reported. The two workers had “distressed babies that were born,” costing AOL $1 million each, he said, indicating that he’d rather prioritize health care over retirement among the company’s benefits.

Hours Falling

While he didn’t name the babies’ parents, some AOL employees were upset that Armstrong had discussed the personal situation of two workers, Capital New York said, citing an unidentified person. AOL’s press office didn’t respond to requests for comment.

In a memo to employees, Armstrong said he had mentioned high-risk pregnancy “as just one of many examples of how our company supports families when they are in need.” He said AOL aims to be “open and transparent about the choices we make.”

As a result of the health-care overhaul, the total number of hours worked by Americans will fall about 1.5 percent to 2 percent from 2017 to 2024, the CBO said. The reduction, about twice the agency’s estimates in 2010, is due “almost entirely” to low-wage employees who may choose to give up extra hours of work to avoid losing subsidies or tax advantages under the law, the report said.

The Patient Protection and Affordable Care Act, known as Obamacare, is expected to cover 6 million people through its insurance exchanges this year, according to the report. About 8 million people will enroll in an expansion of Medicaid, the state-run health plan for the poor, under the law. Both figures represent reductions of 1 million from the agency’s estimates before the Obama administration’s faltering rollout of the insurance expansion began in October.

Government Exchanges

The Affordable Care Act marks the largest U.S. expansion of health insurance in more than 40 years. The law was passed by a Democratically controlled Congress in 2010 and many of its major provisions took full effect Jan. 1. The ACA set up government-run insurance exchanges where Americans can buy private health plans with the help of federal tax credits and expanded eligibility in Medicaid.

AOL joins companies including United Parcel Services Inc. in citing the health-care law for cuts to spending on benefits. UPS, the nation’s fourth-largest employer, discontinued health coverage this year to white-collar employees’ spouses who can get it through another company. The 2010 law would increase costs and provide other insurance options for spouses, UPS said in August.

Armstrong’s move to annual 401(k) matching contributions follows a similar decision in late 2012 by International Business Machines Corp. While IBM wasn’t the first company to make such a change, the practice is less common than including 401(k) deposits with each pay period, according to Kravitz Inc., which administers about 1,000 retirement plans.

IBM altered the retirement payments to help keep the company competitive, it said at the time. It didn’t cite the health-care law.

To contact the reporter on this story: Crayton Harrison in New York at tharrison5@bloomberg.net

To contact the editor responsible for this story: Nick Turner at nturner7@bloomberg.net


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