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Look for a boost over the next few years in the number of so-called Generation Xers contributing to 401(k) plans, prodded by their employers, who need to make sure participation in the plans is even across the board.
Businesses will sell the idea of retirement savings to the younger segment of the workforce in a big way because the companies are concerned about running afoul of Internal Revenue Service rules. Known as the "top heavy" regulations, these require a balance between high-paid and lower-paid employees, to make sure 401(k)s aren't benefiting only those in upper income brackets.
Employers will find they need a new arsenal of marketing weapons to deliver a retirement-savings message to a generation weaned on MTV. "This is the generation with the short attention span," says Riggs Griffith, a managing director with PricewaterhouseCoopers.
Members of the under-40 crowd also may be hard to win over because they tend to be more independent and cynical than the norm. Many of them are children of divorce or lived in a household where both parents worked, according to Armando Llanes, vice president for communication and educational services for Merrill Lynch. In addition, they've lived in a booming economy for most of their lives and may assume that the good times will continue, obviating the need to save for a rainy day.
Thus, employers intent on getting their message across will need to forget about the three-page memo describing the 401(k) in detail and opt instead for a short, pithy sales pitch that may be delivered via print or through videos, the Internet or other media. "You've got to hit them hard and hit them often," says Griffith. "Think MTV commercials." Similarly, Llanes says employers should "use sound-bite communications and show what's in it for them."
Llanes also suggests getting a little creative with the content of the message. For example, one employer headlined its 401(k) materials with the question "So, you want to be a millionaire?"-in part to capitalize on the popularity of the television show "Who Wants to Be a Millionaire?" It also deliberately avoided mentioning the word "retirement" but focused instead on the idea of building wealth, a concept that would appeal more to younger workers.
Other ways employers can make 401(k)s attractive to young workers:
- Stress that the employee can start small. If employees are avoiding the 401(k) because they think they can't afford it, make sure they know a contribution can be as low as 1% of pay.
- Make sure employees understand they aren't completely prohibited from getting at the money in their 401(k). By borrowing from the plan, they can use the funds if they need them without incurring tax penalties applicable to withdrawals.
- Get rid of that six- or 12-month waiting period for new hires and let them into your plan right away, so they're used to saving from day one.
- Offer employees an incentive to sign up, such as an increased company match for the first month or two they're in the plan.
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