AOL CEO Tim Armstrong, who has come under severe criticism for his "distressed babies" remark, has backtracked on the 401(k) benefits changes after receiving complaints from employees.

Armstrong recently created quite a furor when he announced that AOL was switching its 401(k) benefits from a monthly sum to an annual one. This policy change from AOL implied that only employees who was with the company through December 31 would be eligible and anyone who quit in between would not get the benefits.

From January 1, 2014, AOL halted the process of depositing funds into employee 401(k) accounts every month as part of its new policy. Adding fuel to the fire was Armstrong's reasoning as to why the policy change had been implemented. The CEO held costs arising from two employees' "distressed babies," Obamacare and other healthcare costs, responsible for the pension cut.

"Two things that happened in 2012. We had two AOL-ers that had distressed babies that were born that we paid a million dollars each to make sure those babies were OK 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 healthcare costs, we made the decision, and I made the decision, to basically change the 401(k) plan," said Armstrong on February 6.

The decision had upset several AOL employees as revealed by a letter which expressed their displeasure.

"We strongly object to the new 401(k) matching practice and encourage the company to reverse its policy," AOL employees wrote in the letter. "We also object to the manner in which this practice was disclosed to employees."

Armstrong has now done an about turn on his previous decision, thanks to complaints from employees. On Saturday, February 8, Armstrong reversed the unpopular change to the benefits program which had created quite a bit of stir and media frenzy. He also apologized for singling out the healthcare issues of two families as the cause for the changes.

"I made a mistake," said Armstrong. "I apologize for my comments last week at the town hall when I mentioned specific health care examples in trying to explain our decision-making process around our employee benefit programs."

Armstrong revealed that the company had a change of heart after hearing the employee complaints, which propeled AOL to revert the 401(k) policy to the original monthly payment mode.

"The leadership team and I listened to your feedback over the last week. We heard you on this topic," said Armstrong in an e-mail to employees on Saturday. "And as we discussed the matter over several days, with management and employees, we have decided to change the policy back to a per-pay-period matching contribution."

Armstrong also revealed that AOL's HR team will be in touch with all employees over the week to "explain the change and to answer any other benefits related questions."