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Once-a-year 401(k) match fails to catch on

– If you like your company’s 401(k) match, you can keep it.

Despite a scare that AOL gave its employees recently, corporate America isn’t scaling back 401(k) programs, surveys and employee benefit experts say.

AOL CEO Tim Armstrong announced this month that instead of contributing to an employee’s retirement in each paycheck, the company would give a lump sum payment at the end of the year, a move that could lower costs but potentially hurt employees’ savings.

The backlash was immediate, forcing Armstrong to backtrack within days.

While AOL’s announcement made headlines, employees who have a 401(k) shouldn’t worry. AOL’s announcement doesn’t reflect a growing trend, employee benefit experts say.

Only eight out of every 100 large U.S. companies wait until the end of the year to make contributions, according to a 2013 survey by AON-Hewitt, a large global human resources consulting firm. That hasn’t changed in two years.

IBM also generated headlines in late 2012 when it announced it was changing its 401(k) to an annual match, making it the largest company to use such a program.

Some experts argued that such a move by IBM, one of the largest employers in the U.S. with more than 430,000 employees, could cause a shift in how employers handled retirement plans.

So far, the predictions haven’t come true.

“Overwhelmingly, businesses have told us that they are unlikely to do this,” says Rob Austin, director of retirement research at AON-Hewitt.

The 401(k) remains one of the most popular employee benefit programs in the country. Nine out of 10 mid-size to large companies offer a plan for employees. It’s also the primary way employees save for retirement, as company pensions and profit-sharing agreements have fallen by the wayside in the last 30 years.

AOL would have been the first large company since IBM to switch to this type of match program, and the publicity was highly critical.

Most companies that use a lump-sum match are banks, where the bulk of an employee’s salary often comes from a year-end bonus.

Switching from a per-paycheck match to an annual match punishes employees who leave a company before the end of the year. Employees who stay year after year would be unaffected.

“The reality is that the 401(k) is not being accessed for 20, 30, 40 years, so an annual match would smooth out over that course of time,” says Bruce Elliott, manager of compensation and benefits for SHRM, the Society for Human Resource Management.

“It’s the employees leaving the organization that are taking a hit, and it especially hurts employees who are laid off.”

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