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Staffers Unhappy With 401(K) Changes and "Distressed Babies" Remark Sending AOL's Armstrong a Message

There's no question that the issues around healthcare are very sensitive and emotional, as this Internet CEO is about to find out.

There’s no question that the issues around healthcare are very sensitive and emotional, especially as companies and employees struggle with a range of tough choices in the arena, as well as with other rising benefits costs.

Despite turning in an impressive financial performance today, AOL’s Tim Armstrong is now facing such a possible buzzsaw, due to remarks he made today on CNBC — a Re/code news partner — and also at an internal meeting at the company.

In his explanation of why the New York Internet Web giant made changes to its 401(k) that cuts some employer-matching contributions and rising healthcare costs, first reported in the Washington Post last week, he said to the cable news show:

“As a CEO and as a management team, we had to decide, do we pass the $7.1 million of Obamacare costs to our employees? Or do we try to eat as much of that as possible and cut other benefits?”

More problematic, though, were remarks he made related to those healthcare costs on a company-wide call, in which he referred to the difficult and costly pregnancies of two employees as an example of the conundrums faced.

Here’s what he said via a rough transcript of the Armstrong remarks sent to me from an AOL employee, which were also reported by Capital New York (great job!):

We had a $7.1 million bill from the Obamacare act in general and we had multiple other things that happened at the company healthcare-wise. Two things that happened in 2012 we had two AOLers that had distressed babies that were born that we paid a million dollars each to make sure those babies were okay in general. And those are the things that add up into our benefits cost. So, when we had the final decision about what benefits to cut because of the increased health care cost, we made the decision and I made the decision to basically change the 401(k) plans because all companies are going in this direction, number one, and number two is it was a choice between having all the individual AOLers probably pay a couple hundred dollars a month in additional cost out of your paycheck or to basically have people who are leaving the company to not extend the benefit, which is a benefit, not all companies give 401(k) matching programs to people who are leaving the company.

It is entirely clear from this that Armstrong was trying to make a fair point about making choices — and that paying to ensure the health of the babies was more important than the investment plan — and was not using it as an excuse either. What he seemed to be trying to do — not well enough, though — was to explain that the benefits support a lot of different constituencies and there to be difficult choices.

Nonetheless, it still rubbed some the wrong way — the Huffington Post also covered the issue as a news story — and those unhappy with the way the changes were communicated expressed it clearly.

Said one email I got sent among some Huffington Post employees: “His comments during the earnings call, specifically blaming the policy change in part on the costs associated with the birth of two ‘distressed’ babies by AOL employees, were completely outrageous. Almost unbelievable.”

Thus, a letter is on its way to him, presumably to be signed by some AOLers, discussing the way the news was delivered and more:

To Whom It May Concern:

We were alarmed to read in The Washington Post on February 4 that AOL Inc. had reduced our compensation by delaying the delivery of matching 401(k) payments to a single lump sum to be paid after the year in which the benefit is earned. While the company did technically disclose this information to employees, the notification of the unconventional new methodology was buried deep in annual benefit materials. Many of us only learned of the change from the Post article.

We strongly object to the new 401(k) matching practice and encourage the company to reverse its policy. Single lump-sum 401(k) contributions are an unnecessarily risky investment strategy and deprive workers who leave the company of retirement benefits they have earned. According to the Post, IBM is the only other major corporation to make use of lump-sum 401(k) payments, and AOL’s version of the policy — which delays the payment into the following calendar year, results in a deeper pay cut than IBM’s policy.

We also object to the manner in which this practice was disclosed to employees. Significant changes in compensation, especially changes that result in effective pay reductions, should not be buried in fine print, but discussed openly with employees by a company manager. We all love this company and enjoy working here, and do not believe the way we were notified of this change is consistent with the positive and respectful working environment AOL has cultivated since acquiring The Huffington Post in 2011.

Thank you for your time

We’ll see if Armstrong will clarify more — I have asked him to — to what is most obviously a hornet’s nest.

Until then, here is Armstrong on CNBC:

[Update: Here is an internal memo to staffers by Armstrong in response.]

This article originally appeared on

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