AOL reversed its controversial 401(k) policy. These 4 companies are sticking with it.

February 11, 2014

IBM, led by chairwoman and chief executive Virginia "Ginni" Rometty, continues to distribute its 401(k) as an annual lump sum. (REUTERS/Brendan McDermid)

AOL may have reversed its 401(k) policy, but a number of other companies are sticking to their approach, subtly docking their employees' benefits by paying matches in an annual lump sum, rather than with every paycheck.

The list includes Deutsche Bank, IBM (which drew some attention when it made the change in late 2012), Charles Schwab and Advocate Health Care, the largest health system in Illinois. According to several emails from readers, it seems that the trend has recently caught on among federal government contractors, too.

Charles Schwab is especially striking since the company advises investors to make regular contributions to their investments, a method known as "dollar cost averaging." The firm's web site offers as good an explanation as any for why matching with every paycheck is superior to getting a lump sum.

Charles Schwab dollar cost averaging

Of course, if the market continues to decline for years, this doesn't work as well. But the whole idea around 401(k) accounts is that employees have decades to save, and over the long haul, investing through ups and downs should pay off. This is why for younger employees--the same people who probably don't have traditional pensions waiting for them at retirement--the timing of these 401(k) matches is so critical.

For all workers, the annual lump-sum can also be bad for another reason. Companies that hand out annual matches often require employees to be at the company in December to qualify for the pay, except if they retired, become disabled, or died during the year. But based on recent history, layoffs are most likely to occur in the fourth quarter of the year, right when employees could have the most to lose if their firm pays out its match annually. According to the Bureau of Labor Statistics' survey of mass layoffs (which was discontinued last year because of the sequester), during seven out of the last nine years that there's been data, more workers lost their jobs in October, November and December than in any other three-month period.

It remains to be seen whether other companies that saw what happened at AOL think twice now about making switching their 401(k) matches to a lump sum. There is one lasting lesson for employees, however: read your benefits information carefully every year, not just when you're hired. AOL said in its memo Saturday that workers were told about the 401(k) change, yet many at the company say they were caught by surprise. Companies often bury the information deep in pages of benefits information, leaving only the most eagle-eyed of employees to spot the changes--and understand the implications.

Jia Lynn Yang is a business editor at The Washington Post.
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