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The Principal Financial Well-Being IndexSM Index Trending Summary - Fourth Quarter 2007

The Principal Financial Group®, one of the nation's 401(k) leaders1, commissioned Harris Interactive® to conduct online research with employees (ages 18+) of small and midsized (SMB) U.S. businesses (firm size 10 - 1,000 employees) about their attitudes and perceptions regarding their financial well-being and their current employee benefits. To compare responses, Harris Interactive also interviewed a group of retirees. Harris Interactive conducted The Principal Financial Well-Being Index survey online among 1,154 employees and 514 retirees from October 22-October 30, 2007. Data were weighted to be representative of the entire population of adult employees working for small to midsized U.S. businesses and retirees on the basis of age by gender, age, education, race/ethnicity, region, income and propensity to be online. With a probability sample size of 1,154 and 514, one can say with 95% probability that the overall results would have a sampling error of plus or minus 2.71 percentage points and plus or minus 4.21 percentage points respectively. Sampling error for data based on sub-samples may be higher and may vary. However, that does not take other sources of error into account. This online survey is not based on a probability sample and therefore no theoretical sampling error can be calculated. This is one in a series of quarterly studies to identify and track changes in the workplace of small and mid-sized (growing) businesses. The first Principal Financial Well-Being IndexSM survey was conducted in the United States in 2000.

Key Findings

  • Holiday Spending – Employees and retirees were asked about their intentions for spending in the upcoming holiday season. Twenty-nine percent of employees and retirees plan to spend less money this holiday season than last year. Fifty-nine percent of employees and 64% of retirees plan to spend the same amount as last year.
  • New Year's Resolutions – Employees and retirees were given a list of potential financial resolutions and asked which they intended to make for 2008. Nearly half (49%) of the retirees responded they don't intend to make any financial resolutions compared to 23% of the employees. The top two resolutions selected by employees were paying off credit card debt (40%) and putting a set amount of money into savings each month (39%). The resolution selected by the most retirees (17%) was to pay off credit card debt.
  • Personal Credit – When asked how many credit cards are in their name for personal use, 34% of retirees and 29% of employees reported 5 or more. On average, employees have 3.7 credit cards in their name for personal use and retirees report significantly more (4.4). However, when asked how many of these cards they use on a regular basis, only 5% of retirees and 2% of employees report using 5 or more. The average number of cards used by retirees regularly is 2.0, while the average for employees is 1.7.
  • Personal Debt – Two-thirds of retirees report having no credit card debt that they carry over from month to month, compared to a third of employees. One in ten employees report having between $5,001 and $10,000 in credit card debt, while 10% of employees have over $10,000. Employees and retirees were asked about other forms of personal debt (e.g., student loans, cars, etc.). Nearly two-thirds (64%) of retirees report having no other personal debt; significantly fewer employees (29%) report no other personal debt. Fourteen percent of employees have over $20,000 in personal debt.
  • State of the Economy – Nearly half of retirees (48%) and employees (50%) fear we are heading in the direction of a recession. At least one in five retirees (24%) and employees (21%) think we are currently in a recession. When asked what they would likely do if they had to reduce their spending due to an economic slow down, the most frequently selected actions included eating fewer meals at restaurants (49% of retirees; 76% of employees), spending less on clothing or other consumer goods (49% of retirees; 69% of employees), and cutting back on entertainment (39% of retirees; 63% of employees).
  • Future of Social Security – Nearly half of employees (49%) and a third of retirees are very or extremely concerned about the future of Social Security. Significantly more employees than retirees are extremely concerned about the future of Social Security. If Social Security fails to provide their expected levels of retirement income, employees are most likely to remain in the workforce longer (40%) and to phase into retirement (26%). Nearly half (49%) of retirees said the system has not failed to provide their expected level of retirement income. Retirees who have had lower than expected income levels have been most likely to manage by lowering their standard of living (22%).
  • Social Security Benefit Collection – Most employees (61%) plan to collect their Social Security benefits after reaching their Full Retirement Age. In contrast, the majority of retirees (67%) began collecting Social Security benefits prior to reaching their Full Retirement Age. Many of the retirees (62%) have not continued to work after they began collecting Social Security. Unlike retirees, the majority of employees (74%) plan to work at least part-time after they begin collecting Social Security.

Additional Employee and Retiree Comparisons

  • Housing – Half of retirees (51%) have their homes completely paid off. Nearly a third (32%) of employees does not own a home. Almost three in ten employees (29%) owe over $100,000 on their home. Employees are less likely to own a home than retirees and they are significantly more likely to owe more on their home than retirees. Sixteen percent of employees and 10% of retirees have seen rising mortgage payments in the past year, while another 8% of employees and 3% of retirees expect to see increases over the next year.
  • Financial Well Being – Employees (72%) are significantly more likely to be concerned about their long-term financial future than retirees (44%). Half (50%) of the retirees are extremely happy about their current financial well-being compared to 30% of the employees. Just over a quarter of employees (27%) have not yet planned for retirement savings and security.

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Employees Only

  • 401(k) Hardship Withdrawal – Only 5% of employees with a company sponsored retirement plan reported taking out a loan against their contributions in the past 6 months. The top reasons for taking such a loan included to pay for medical expenses and to pay their monthly mortgage.
  • Job Security – Job security continues to top the importance chart when compared to long-term financial future and challenging work. Over a third (37%) of employees expressed some level of concern over their personal job security. This number is up significantly from the second quarter of this year, when only 22% of employees expressed such a concern. Also, one fourth of employees are concerned their company will reduce the number of employees (25%). Just over half of the employees (53%) have no concerns about the future of their company.
  • Benefits – Employees continue to rate health insurance as the most important benefit, followed by defined contribution and dental insurance. Health insurance is the benefit most employees would like to see improved. The availability of free parking and flex-time has decreased since 4th quarter 2006.
  • Health Plan Options – Forty-two percent of employees have more than one health plan option available. The percentage of employees (11%) reporting that they have no health plan options available is up significantly from the percentage reported in 2006 (8%). The larger the firm, the more likely there are multiple health plans available. Firms with 10 to 500 employees are significantly more likely to offer no health options or only one option. In contrast, firms with 501 to 1,000 employees are more likely to offer 3 health plan options or 4 or more health plan options.
  • Anticipated Medical Insurance Changes – Employees who are offered health insurance were asked what they anticipate will happen with their insurance in 2008. Sixty percent expect their premiums will increase, over a third (38%) expect their deductibles will increase, 21% expect their plan options will change, and the same percentage expect their coverage will be reduced.

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1) The Principal ranks number one in the total plans for all asset sizes among fully bundled 401(k) providers—2006 Spectrem Group analysis of fully-bundled 401(k) providers (companies that provide both administrative and investment services).

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