AOL made headlines earlier this month when Chief Executive Officer Tim Armstrong announced that, as a cost-saving measure, the company was changing its 401(k) matching contributions from per-pay-period to a lump-sum, year-end. Employees were quick to protest and, in an about-face, Armstrong emailed employees stating the company would reverse its decision and continue with per-pay-period contributions.

While switching to lump-sum year-end payments is completely legal, a study by human resources consultant Aon Hewitt puts the number of companies that pay annually at just 8%. In late 2012, IBM switched to lump-sum 401(k) contributions and weathered a public storm of protest surrounding their decision. Yet many other companies have made lump-sum contributions for years and not suffered the same public scrutiny as IBM and AOL.

Rob Austin, director of retirement research at Aon Hewitt, notes that changing the way the matches are paid is better than cutting them. While its hard to argue with that logic, from an employees perspective there are consequences to lump-sum payments.

With a lump-sum contribution, employees lose opportunities to earn interest on those matching funds for the year because receiving the money at the end of the year takes away the compounding effect. There is also the problem that investing all the money at once subjects it to the vagaries of the stock market. Switching to lump-sum payments could add up to thousands of dollars in lost retirement savings for workers.

Lump-sum payments also punish workers who quit before year end, or who frequently change jobs. Employees leaving a company during the year may not get any of that calendar years matching funds. If an employee leaves October 31, with per-pay-period contributions they would receive the matching contributions plus any compounding up to their end date. With lump-sum payments, they would not get any matching contribution.

In the case of AOL, the company stipulated a worker must be active with the company on December 31, 2014 the so-called last day rule. Workers terminating their employment before year-end (by choice or lay-off) would not receive any matching contributions. The loss of a few months contributions several times over the years can amount to thousands of dollars. For the company, there is a cost savings in not paying out these funds, and an incentive for workers to stay (whether they want to or not).

While workers should be concerned about the last day rule, Aon Hewitt confirms that most companies 86% still pay matching funds per-pay-period.

After IBM made the switch, Aon Hewitt asked nearly 400 employers if they would switch to lump-sum contributions. Ninety-three said they were very unlikely or somewhat unlikely. Of those, over half said they preferred for their matching funds to align with savings throughout the year. More than 20% said they were concerned about a negative reaction from employees.

Although 401(k) investments comprise most of the retirement savings for Americans, a study by the Deloitte Center for Financial Services reveals dire statistics on overall retirement planning: 58% of Americans dont have a retirement plan and 20% anticipate Social Security as their sole income for their retirement needs.

As companies look for cost-saving measures, employee benefits are often on the table. Although federal regulations govern the basic administration and protection of employer-provided retirement accounts, companies have the ability to make changes to their plans in ways that can have a negative impact on employees.

Workers are urged to read all employee benefit plans and amendments carefully; the change at AOL was buried deep in the companys summary of its 2014 benefits. No doubt other companies considering moving to lump-sum payments are watching carefully and learning from AOLs mistakes.