Pay The Rent Or Feed A 401(k)?

Who would have thought you’d need to convince anyone to take free money? Recent studies have found that only a small percentage of young employees opt to invest in 401(k) plans, even in cases where their companies contribute—sometimes even matching the staffers’ investments.

In what is often a short-lived debate between paying the rent and saving for retirement, most young workers opt for the former. A study by the Employee Benefit Research Institute found that just 9 percent of workers between 21 and 24 years old participated in a retirement savings plan in 2002— the institute’s most recent stats. That number increases a bit when you raise the age range to 25- to 34-year-olds, of which 29 percent contributed. A similar study by Hewitt Associates, a global human resources consultancy, found 53 percent of workers under 30 did not invest a penny in their retirement savings plan last year.

As businesses with a large number of young, creative staffers, advertising agencies in particular should be attuned to the financial foibles and needs of their talent pool, says Ragan Jones, associate vp at recruiting firm Talent Zoo in Atlanta. “A lot of juniors are living paycheck to paycheck. Just having health insurance taken out is a big hit to them,” says Jones. “A lot of employees don’t even know what a 401(k) is, especially in a business like advertising. It’s a very creative industry. We’re not thinking about numbers and stocks.”

As it turns out, some agencies do encourage their employees, especially the young ones, to make investments in their futures. Still, despite research showing younger workers tend to participate in 401(k)’s at a higher rate when automatically enrolled, few companies are that proactive. About 19 percent of large employers automatically enrolled workers in 2004, up from 14 percent the previous year, according to the Hewitt study.

Lori Lucas, director of participant research at Hewitt, explains that automatic enrollment is more successful “because of the power of inertia.”

“Many younger workers are not very investment-savvy, and therefore may hesitate to save and invest in their 401(k) plan because they don’t know how to make the necessary choices,” she says. “By being automatically enrolled, younger workers can start in the plan without having to make a lot of choices. The challenge then, of course, is to encourage younger workers to be proactive investors once they’re automatically enrolled.”

In an effort to encourage all Americans to save more, Congress is considering two bills, one in the Senate and one in the House of Representatives, which encourage employers—by protecting them from employee lawsuits and state laws prohibiting unauthorized paycheck deductions—to offer automatic enrollment in such programs for employees unless they opt out. Such programs also allow employees to step-up their investments automatically at the start of each year.

While Interpublic Group has a holding-company policy of voluntary enrollment, WPP Group’s agencies are free to make their own decision. Omnicom Group did not return calls for this story.

Neiman Group, an independent agency in Harrisburg, Pa., is an example of a smaller shop that has become very active in prodding employees to invest in its 401(k). After an operations meeting revealed low enrollment among employees, the group planned an agencywide meeting on the subject.

To lure staffers to the meeting earlier this month, the agency’s creative team mounted a hidden camera in the cafeteria and glued a $5 bill to the floor. Time and again, staffers stooped to pry the bill off the floor, and walked away defeated. The footage, set to capitalist rock anthem “Money (That’s What I Want)” was spliced together into a 2-minute viral ad sent to the shop’s staffers. The spot ended with green on-screen copy that read, “Free money. You know you want it. Find out how to get more.” The time and place of the meeting was also given, and almost the whole staff showed up, says agency CCO Rudy Banny.

“We have a young crowd, a lot of 25- to 30-year-olds who are thinking, ‘I have to worry about putting food on the table,’ and are not investing money into the 401(k),” says Banny. “But if they had started 10 years ago, they’d have a damn nice chunk of change socked away right now.”

At Bandujo Advertising in New York, founder Jose Bandujo takes a paternalistic approach to ensure that all of his 11 employees invest in the agency’s plan. Bandujo’s staffers are eligible for enrollment after six months on the job, at which time he dons his human resources cap for a talk about retirement benefits. But Bandujo doesn’t stop there. “At their one-year anniversary, we do the very same thing,” he says, adding that he also hammers home his point when raises and bonuses are doled out, encouraging employees to increase their 401(k) allotment each year.

“Nobody ever said I was butting in,” Bandujo says. And while the average age of his employees is 28, he stresses, “I’ve had to have talks with some of the 44-year-olds.”

On the other hand, Mark McGarrah, co-founder of McGarrah/Jessee in Austin, Texas, firmly believes his time is better spent motivating his staff than telling it how to invest. While the agency offers a 401(k) and enlists financial advisors for its staff, far more popular is its profit-sharing system (agency profits are doled out in proportion to its 42 employees’ salaries). As he says, “We’re letting them make the decision as to whether to invest that long term or spend it on beer.”