Young workers miss out on matches

According to the Washington-based Employee Benefit Research Institute, 71% of full-time workers 21 to 24 weren't enrolled in their employers' retirement savings plans in 2006. That was a slight improvement over 2005, when 74% of workers in that age group opted out of retirement plans.

The findings were contained in a study on retirement trends released by EBRI late last year. Overall, just 53% of full-time workers 21 to 64 participated in an employer-based retirement plan in 2006.

Not participating in a company match 401(k) or 403(b) DC plan can be a huge missed opportunity for young college graduates entering the work force, said Brian Jones, vice president of Fairfax, Va.-based CJM Wealth Advisors Ltd., which manages $400 million in assets.

While he acknowledged the challenge in persuading workers in their 20s to think long term while living from paycheck to paycheck, he said that many of his clients understand the importance of investing while they are young.

"Some of your best investment years aren't in your 50s; they're in your 20s, and it's a shame they are being wasted," said Mr. Jones, referring to the results of the EBRI study.

Workers in their 20s make up about a quarter of his clients, and he places special emphasis on giving them a head start on a retirement plan despite the additional expenses they incur after college, said Frederick John Deyeso, a 31-year-old certified financial planner and founder of New York-based financial filosophy.

He added that he urges the younger clients to borrow from their parents, if necessary, in order to be able to take care of non-discretionary expenses while allowing for retirement plan participation.

"Our job as financial planners is to get younger clients in the mind of saving," he said. "If they don't take [the employer's retirement plan benefits], they are throwing money away."

Mr. Deyeso's three-year-old firm manages $2 million in assets.

Jill Gianola, principal of Gianola Financial Planning LLC of Columbus, Ohio, said that for those fresh out of college, taking advantage of a company match program can be a good first step in overall financial planning.

She said that though many young people are hesitant at first, she helps them set up a budget that includes all expenses and paves the way for them to participate in the DC plan.

"If they can get a match or any kind of free money, you don't want to leave that on the table," Ms. Gianola said. "It's never too early to start."

AUTO-ENROLLMENT

Under the provision, workers have to ask specifically not to be included.

"I would think there will be a huge expansion [of younger participants in retirement plans] when the data reflects the 2008 experience," said Jack VanDerhei, research director at EBRI's fellows program and a professor at Temple University's Fox School of Business in Philadelphia.

Even with automatic enrollment, advisers suggest that young workers save as much as they can.

"Three percent is better than nothing, but more is better," said Mr. Jones, referring to the typical amount automatic plan participants contribute, unless they designate a greater contribution.

Mr. Deyeso, who also likes automatic enrollment, urges clients in their 20s to take a proactive look at their savings plan to make sure they are including sound investments in their retirement portfolio.

Ms. Gianola said she hopes that with automatic enrollment becoming more common, younger employees don't give up responsibility for paying attention to their retirement savings.

"[Automatic enrollment] provides a great opportunity to learn about investing and asset allocation," she said. "It gets them on the right track."

Andrew Coen can be reached at acoen@crain.com.