Golden Arches Preps Staff for Golden Years - Closes Gap in Minority 401(k)Participation

October 19, 2007

The path to higher retirement savings by minority employees at McDonald's Corp. began with a simple question from a director. John W. Rogers Jr., a money manager and director, asked the Oak Brook, Ill., fast-food chain four years ago about minority participation in retirement savings.

The other board members were surprised by the data: Half of black store managers contributed to their 401(k) plans.

In fact, retirement savings by the company's restaurant managers overall, a group weighted to minorities and women, also was low. Mr. Rogers, founder of Ariel Capital Management LLC, had suspected the results would be bleak. In fact, participation by white restaurant managers was modestly higher. But Mr. Rogers was "pleasantly surprised," he said last week, at the change -- both for minorities and overall -- that his question has wrought.

McDonald's embarked on a revamp of its 401(k) program -- including education programs and a boost of the company's matching contribution. Today, 95% of African-American restaurant managers contribute to the plan. Participation of white managers rose to a level nearly as high as that of black managers.

McDonald's is one of a small but increasing number of companies making a concerted effort to help minorities and workers in general better prepare for retirement. America's shift from pensions to defined-contribution plans such 401(k)s has meant that employees, not companies, shoulder the burden of saving for retirement -- and many employees don't do well at saving.

The retirement problem is more severe for minorities. A report released yesterday by AARP, the senior citizens group, found that without Social Security nearly half of older African-Americans would live in poverty. "When you overlay race on the retirement crisis, you have a new dimension," said Mellody Hobson, president of Ariel, which last week issued with Charles Schwab Corp. its 10th annual Black Investor Survey.

The study found that even when demographic factors such as income and education are held constant, whites are nearly twice as likely as African-Americans to be investors. The average retirement savings for blacks after demographic adjustments were $48,000 compared with $100,000 for whites. Self-interest compels some companies to boost worker participation in retirement plans.

Russ Fradin, chief executive of Hewitt Associates Inc., a global human-resources company in Lincolnshire, Ill., said 401(k)-plan sponsors have a fiduciary responsibility to get workers to participate. "It's not just a nice thing to do," he said. "Part of what a fiduciary does is to make sure that there are adequate resources for retirement."

Hewitt has been working with a small number of Fortune 500 companies, including McDonald's, to analyze employee 401(k) participation by ethnicity. Andres T. Tapia, chief diversity officer/emerging work-force solutions leader at Hewitt, said Latinos as well as African-Americans don't invest in their 401(k) plans nearly as much as their white and Asian colleagues. Many companies, Mr. Tapia said, "were not aware that the gap existed."

After McDonald's discovered the gap in its 401(k) participation, it implemented automatic enrollment for restaurant managers and gave them a one-time raise of 1% to contribute to the 401(k), unless they chose to opt out or select a higher contribution rate.

McDonald's now supplements the employee's 1% contributions with a 3% company match, which climbs to a 7% match when the employee contributes 5%. Based on company profits, an additional discretionary match of up to 4% can be given to employees contributing to the retirement program.

(END) Dow Jones Newswires

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