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

Sanders wants "to get people to understand that this is more than a job" Stefan Hester

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.