McDonald's Supersized Retirement Plan
The fast-food giant is persuading more African American workers to enroll in
401(k)s. Can McDonald's keep talent by helping families save?
By Lauren Young
Inside the McDonald's (MCD)
off Interstate 270 in suburban St. Louis, manager Sadie Travis is hustling. Amid
the beeping and buzzing of fry timers, Travis at any given moment is voiding
orders at the register, handing out cups for drinks, wiping trays, or stuffing
toys into Happy Meal boxes.
If only the fast-food titan could get more people like her to run its 6,700
company-owned restaurants. While an average McDonald's grosses $2.2 million a
year, seasoned managers who motivate employees and keep customers coming back
can add more than $200,000 to that total. "Restaurant managers are in the most
important position in our company," says Richard Floersch, McDonald's chief
human resources officer. Yet despite generous salaries—up to $62,000 plus bonus
and company car, say insiders—turnover is a constant concern in an industry that
typically sees 43% of its staff leave each year.
To stanch the bleeding of valuable talent, McDonald's in 2004 began offering
a rich retirement savings perk. Employees who put 5% of their salary in the
company 401(k) receive a company match of as much as 11%, turbocharging their
savings right off the bat. To make sure employees take advantage of the program,
McDonald's has made enrollment automatic. And to ease the pain of automatically
deferring 1% of pay, the company gave managers a one-time, 1% salary increase.
But persuading prized employees that the benefit is reason enough to stay
with McDonald's for the long term is an ongoing challenge. Skepticism about
investing runs especially high among African Americans, who make up 15% of the
company's manager pool. Research shows that blacks, in the aggregate, are
reluctant to save. According to a 2008 study by Ariel Investments and Charles
Schwab (SCH),
blacks save an average of $169 a month for retirement, while comparable whites
(in terms of household income) contribute about $249 a month. Race and ethnicity
trump gender—and even salary—in the factors that predict whether a person will
save for retirement.
Why don't blacks save more? The reasons are complex, but the underlying theme
is cultural. "African Americans are distrustful of the financial system because
it has excluded them for generations," says Andrés Tapia, chief diversity
officer at Hewitt Associates, the benefits-consulting giant. Hewitt's research
shows that African Americans consistently put home ownership and college ahead
of retirement goals. Owning a home and educating children become a huge
priority, explains Tapia, "if you are the first person in your family to do it."
Preparing for the future can also be controversial in the black community.
"If your Mama lives with you—and others in your extended community are
struggling to get by—putting aside money that you can't touch for the next 15 to
20 years feels selfish and inappropriate," Tapia says.
Indeed, for many blacks, retirement is more a dream than a priority. The
Ariel-Schwab survey found that African Americans under the age of 50 are nearly
twice as likely as comparable whites to say they want to retire by 60, but they
are half as likely to cite retirement as their most important savings goal.
Adding to the skepticism, the great market meltdown of 2008 showed that even
the most carefully crafted retirement plans can be ruined by forces beyond a
person's control. "This is a big setback that will affect all people," says
Mellody Hobson, president of Ariel, the largest African American-run money
manager. "In our community, which has had less exposure to the market, people
are especially nervous" about investing. Such reticence has made McDonald's
efforts to sell its perk to employees all the more difficult.
GENEROUS INDUCEMENTS TO SAVE
Few employers offer 401(k) plans as lavish as the one at McDonald's. In fact,
many companies have been cutting back on their matching contributions in recent
months as the recession deepens. McDonald's corporate match is especially
extravagant at lower levels of saving: employees who put just 1% of their salary
in the plan get $3 for every $1 they invest. (Most companies won't even match a
contribution until an employee puts in at least 3%.) McDonald's then makes a
dollar-for-dollar match on the next 4%. After that there's a potential
profit-sharing match of up to 4%. All told, workers who save 5% of their pay can
see the total swell to 16%.
But corporate 401(k) plans aren't an if-you-build-it-they-will-come kind of
benefit. Companies can send out pamphlets, but the burden of persuading
employees that the plans are worthwhile ultimately falls on people like Kenny
Sanders, who heads human resources for the "Heartland" region of McDonald's,
overseeing 76 company-owned stores. Like Travis, Sanders, 44, started working at
McDonald's in St. Louis when he was a teenager. Over the past 28 years he has
risen through the ranks beyond store manager to corporate management.
McDonald's crew members don't sit in front of computers all day, leaving
little opportunity to check 401(k) balances or make tweaks to asset allocation
plans at work. So Sanders spends much of his time out in the field talking to
employees about their financial future. "My goal is to get people to understand
that this is more than a job. You can put away a nice nest egg for you and your
family, depending on how long you stay at this company," Sanders says.
FROM PAYCHECK TO 401(k)
Sanders' main goal is to keep people like Travis, who oversees one of the St.
Louis area's most profitable McDonald's restaurants, interested in saving.
Everything Travis knows about building a nest egg she learned at McDonald's—most
of it gleaned during the four years since the retirement program began. "Before
that, I didn't realize that putting money in the bank and saving for retirement
is not the same thing," she says. "It's a real eye-opener to learn that
McDonald's will match what you put in," Travis says. "It helps relieve a lot of
stress."
Sanders was the first person Travis turned to for investment advice when she
looked at her September retirement account statement and saw that her balance
was down almost $11,000 for the year. Sanders recalls assuring her. "You lose a
little here, and then you gain a little there."
Saving for the future has been a luxury that Travis, 47, could not afford
until recently. For most of her life the divorced mother of two "was just making
ends meet," she says. Travis had her son, Lamar, at 20. Her daughter, Latisha,
came along when she was 29. Buying a home, paying for braces, helping her
elderly parents with living expenses—all those things derailed her plans to save
for the future. "I know you have to have a security blanket, but I was living
paycheck to paycheck when I had my first baby," Travis says.
That's why Travis connects so well with Ebony Henderson, a second assistant
manager at the same McDonald's, who gave birth to a boy named Jeremiyah in
August and has a toddler son named Quian Jr. "We each had babies young," Travis
says. "But I'm not about collecting money from the state. I'm a person who wants
to make money and keep stability. That's how Ebony seems to me."
When Henderson, 26, joined McDonald's at age 15 to earn money for school
supplies and clothes, she never thought it would be a serious career path. Today
she eyes the golden rung of store manager and plans to start the interview
process this month. "I'm doing good now, but I want to be where Sadie's at in
the future," says Henderson, whose tinted hair matches her red cable-knit
sweater. "I don't want to be working all my life with nothing to show for it."
Despite the market downturn, Travis says she remains on track for retirement.
She's confident she'll be able to leave the work force in 10 to 15 years with a
$200,000 nest egg. "I don't want to shoot for a million," she says. "I don't
want to be greedy."
Others aren't so sure about the future. Since the stock market began to
unravel last fall, Sanders says, more than 100 employees have asked him for
investment guidance, often brandishing their retirement account statements. "I'm
not an adviser, so I can't really tell them what to do," Sanders says. He looks
over statements to make sure employees are well diversified and usually
recommends the financial advisory services McDonald's offers to employees. "But
I always say that staying the course is the right thing for me," he says.
Amid the market turmoil, it's more important than ever for Sanders to reach
out to workers. After all, he says, "What's good for employees is good for
McDonald's."
Young is a
Personal Business editor for BusinessWeek .
Copyright 2000-2009 by The McGraw-Hill Companies Inc. All
rights reserved.