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The Principal Financial Well-Being Indexsm Executive Summary - First Quarter 2003

The Principal Financial Well-Being Indexsm Executive Summary - First Quarter 2003

Summary of Survey Findings

Workers Believe in Long-Term Investing
The American worker's commitment to their long-term financial goals has strengthened since prior to the start of the war in Iraq, according to The First Quarter 2003 Principal Financial Well-Being sm. The latest Index was conducted in late February with supplemental research conducted in late March to address the issue of how the war is currently affecting overall long-term financial plans.

War With Iraq
The latest Index reveals small and midsize U.S. company employees will not let war with Iraq affect their long-term financial plans. Currently, 69 percent of American workers will not change their financial strategy because the U.S. is at war. Twenty three percent did indicate that war is causing them to cut back on expenses and nine percent will change their investment strategy to more conservative options.

However, when first asked in February before the war began, only 49 percent said the war would not impact their financial strategy over the next six months. 39 percent indicated that they would cut back on expenses, and 15 percent indicated they would change their investment strategy to more conservative options.

Currently 70 percent of male respondents and 68 percent of female respondents said the war would not impact financial strategies. When first asked in February 56 percent of male respondents said the war would not impact their financial strategies, compared to 42 percent of female respondents.

The survey also asked employees to reveal their two biggest personal concerns during the current wartime. Overall, long-term financial security (61 percent) was first, with staying employed second (33 percent). Physical safety and security was last at 24 percent.

Retirement Investment Alterations Based on Economic Conditions
Seventy-eight percent of the respondents currently participate in their companies' defined contribution retirement plans. Very noteworthy is the fact that the vast majority (90 percent) have not reduced contributions to their retirement plans over the last six months, despite the continued weak economic climate. The average deferral rate of annual salary to company sponsored retirement plans was 7.6 percent.

The survey did show that employees have increasingly moved their money to more stable investments over the past two years, but have held steady over the past few months. The proportion of employees making changes to more stable investments was 14% in second quarter 2001, but rose to 35% in first quarter 2003.

Some 27 percent of the employees surveyed said they have not yet planned for retirement savings/security, up from 21 percent in the last quarter.

Tax Time
When asked about tax refunds, 83 percent of the respondents surveyed do expect to get a refund this year, and half of those respondents plan on using the money to pay down or pay off short-term debts. An additional 31 percent plan to save or invest the refund. Only 16 percent plan to spend it on a big-ticket item.

Employee Benefits/Perceptions
U.S. businesses continue to offer strong benefits packages to retain and attract qualified employees, and employees continue to place high value on their employer-sponsored benefit programs. Sixty-two percent of employees agree that a good employee benefits program keeps them working for their current employer.

Health insurance, defined contribution retirement plans, and life insurance continue to be the top three benefits that employees consider the most important. The top benefit wished for by employees is a defined benefit retirement plan (17%), followed by a profit sharing/bonus plan and flex-time (both at 11%).

The survey has shown a drop in demand for stock options from second quarter 2001 (conducted in March 2001), when eight percent of respondents most wished their employers would offer stock options; in the current survey, only two percent of respondents most wished their employers would offer stock options.

Survey participants were asked various perception questions about their employers and their current financial well-being. Only 26 percent of the respondents completely/somewhat agree that their employers are concerned about their long-term financial future, compared with 50 percent who disagreed with that statement.

The findings also showed that the larger the company, the less employees felt their employers cared about their financial future (53 percent in 500-1,000 employee firms, compared with 42 percent of 10-50 employee firms). Survey results show that most employees are not content overall with their current financial well-being, and are concerned about their long-term financial future.

Healthcare Coverage
While employees continue to stress the importance of healthcare benefits (88 percent rate healthcare benefits as very important), it is also evident that employees are not satisfied with their coverage (only 39 percent indicated being very satisfied with current healthcare coverage). In the third quarter 2002 Index, most employees noted their desired improvements in healthcare benefits would be in cost; however in the current survey, one in three employees (66 percent) stated that their share of healthcare premiums has increased for 2003.

Seventy-seven percent of larger companies (firms with 501-1,000 employees) said their healthcare coverage costs have increased, compared to 60 percent of smaller firms (10-50 employees). However, the majority of the respondents (65 percent) are resigned to absorbing the cost increase, and will not make any additional changes to their healthcare coverage. Eighteen percent plan to reduce personal expenses and 11 percent will choose a less expensive medical plan.

Salary Increases and Work Week
The survey also revealed that 57 percent of the respondents have already received or anticipate receiving a raise in 2003, at an average increase of 4.3 percent. In addition, the majority of workers (68 percent) are working the same number of hours per week, compared to last year at the same time. However, 22 percent of the respondents did note an increase in the hours they're putting in, with an average of almost ten additional hours per week this year compared to last.

War With Iraq

** The question was asked first in late February with supplemental research conducted in late March.

  • Sixty-nine percent of the respondents said the war is not impacting their current financial strategy, compared to 49 percent when fist asked just prior to the war.

Current Findings

"How is the U.S. war with Iraq impacting your current financial strategy, if at all?" Supplemental Research to First Quarter 2003
It is not impacting my financial strategy. 69%
I am cutting back on expenses. 23%
I am changing my investment strategy to more conservative options. 9%
I am changing my investment strategy to more aggressive options. 3%
Other 1%

Prior to War Findings

"What impact would a U.S. war with Iraq in the next six months have on your current financial strategy? 1 Qtr 2003
It would not impact my financial strategy 49%
I would cut back on expenses 39%
I would change my investment strategy to more conservative options. 15%
I would change my investment strategy to more aggressive options. 4%
Other 4%

Age Breakout - Current Findings

Age Breakout 18-34 35-44 45-54 55+
It is not impacting my financial strategy 75% 70% 67% 57%
I am cutting back on expenses 15% 25% 27% 32%
I am changing my investment strategy to more conservative options. 11% 7% 7% 18%
I am changing my investment strategy to more aggressive options. 2% 3% 4% 0%
Other 1% 2% 2% 0%

Age Breakout - Prior to War Findings

Age Breakout 18-34 35-44 45-54 55+
It would not impact my financial strategy 41% 46% 56% 55%
I would cut back on expenses 44% 42% 36% 32%
I would change my investment strategy to more conservative options. 16% 17% 13% 15%
I would change my investment strategy to more aggressive options. 5% 5% 1% 1%

Gender Breakout - Current Findings

Gender Breakout MALE FEMALE
It is not impact my financial strategy 70% 68%
I am cutting back on expenses 22% 25%
I am changing my investment strategy to more conservative options. 9% 10%
I am changing my investment strategy to more aggressive options. 4% 2%
Other 1% 1%

Gender Breakout - Prior to War Findings

Gender Breakout MALE FEMALE
It would not impact my financial strategy 56% 42%
I would cut back on expenses 31% 47%
I would change my investment strategy to more conservative options. 17% 14%
I would change my investment strategy to more aggressive options. 6% 2%
  • Sixty-one percent of the respondents said long-term financial security is their biggest concern, with staying employed their second biggest concern.

"Of the following, which are your two biggest personal concerns right now?"

Biggest Personal Concerns Right Now Supplemental Research to First Quarter 2003
Long-term financial security 61%
Staying employed 33%
Ability to cover day-to-day expenses 29%
Too much time spent at work and too little personal time 26%
Physical safety and security for me and my family 24%
None of these 8%

Retirement Planning and Investment Strategy

  • Seventy-eight percent of the respondents currently participate in a defined contribution retirement plan, with 93 percent of respondents over age 55 participating.

"Do you currently participate in the defined contribution retirement plan (such as 401k, 403b, etc) offered by your employer?"

By Age Group By Age Group By Age Group By Age Group
1 Qtr 2003 18-34 35-44 45-54 55+
Yes (participate) 78% 70% 79% 78% 93%
No (don't participate) 22% 30% 21% 22% 7%
  • Ninety percent of respondents have not reduced their contributions to retirement plans over the last six months.
  • The average deferral rate of annual salaries into retirement plans is 7.6 percent.
"What percentage of your annual salary do you defer to a company-sponsored retirement plan?" 1 Qtr 2003
1% to 4% 25%
5% to 9% 38%
10% to 14% 21%
15% or more 16%
Average Deferral Rate is 7.6%
  • 58 percent have not yet planned for retirement savings/security.

"I have not yet planned for retirement savings/security."

1 Qtr 2003 4 Qtr 2002 2 Qtr 2002 2 Qtr 2001
Agree (NET) 27% 21% 28% 27%
Neither Agree/Disagree 15% 17% 15% 19%
Disagree (NET) 58% 62% 58% 54%
  • Of the 78% who participate in DC plan, 90% haven't reduced contributions in last 6 months.

"Do you currently participate in the defined contribution retirement plan (I.e. 401k, 403b, etc) offered by your employer?"

1 Qtr 2003
Yes, participate 78%
No, (don't participate) 22%

"Have you reduced your contributions within past 6 months?"

1 Qtr 2003
Yes, reduced contribution 10%
No (have not reduced contribution) 90%

Tax Refunds

  • Eighty-three percent of the respondents expect a tax refund, up from 80 percent last year (second quarter 2002).

"Do you expect to receive either a federal or state tax refund for 2002?"

1 Qtr 2003 2 Qtr 2002
Yes (expect a refund) 83% 80%
No (don't expect a refund) 17% 20%
  • The majority (50 percent) will use the money to pay down short-term debt.
  • An additional 31 percent plan to save or invest the extra money, while only 16 percent plan to spend it on a big-ticket item.

"What do you plan to do with your tax refund?"

Intended Spending From Tax Refund 1 Qtr 2003 2 Qtr 2002
Pay down or pay off short-term debts 50% 45%
Save or invest the refund 31% 47%
Spend on a big-ticket item 16% N/A
Pay down or pay off longer-term debts 14% 9%
Spend on consumer products 14% 23%
Other 13% 17%

Employee Well-Being

  • Employees overall are concerned about their long-term financial future and not content with their current financial well-being. See below for specific breakdown of findings.

"I am very concerned about my (and my family's) long-term financial future."

1 Qtr 2003 4 Qtr 2002 2 Qtr 2002 2 Qtr 2001
Agree (NET) 75% 74% 78% 84%
Neither Agree/Disagree 15% 15% 15% 6%
Disagree (NET) 10% 11% 7% 10%

"I am extremely happy about my current financial well-being."

1 Qtr 2003 4 Qtr 2002 2 Qtr 2002 2 Qtr 2001
Agree (NET) 25% 22% 27% 24%
Neither Agree/Disagree 25% 24% 25% 17%
Disagree (NET) 50% 54% 49% 59%
  • Job security continues to be the highest ranking item in importance, over long-term financial future and challenging work, with 52% of respondents rating it number one (down from 57 percent in the last quarter).

Please rank the following items in terms of how important they are to you.

RANKED ITEM #1 1 Qtr 2003 4 Qtr 2002 1 Qtr 2002 2 Qtr 2001
Job Security 52% 57% 50% 42%
Long-Term Financial Future 34% 29% 32% 37%
Challenging Work 14% 14% 17% 21%

Employee Benefits

  • Sixty-four percent of respondents agreed with statement "Having a good benefits plan encourages me to work harder and perform better."
  • Health insurance was ranked as the most important benefit, followed by defined contribution plans and defined benefit plans

Using a scale from 1 to 10, indicate how important each benefit program is to you.

Importance of Employee Benefits 1 Qtr 2003 4 Qtr 2002 2 Qtr 2002 2 Qtr 2001
Health Insurance 88% 91% 93% 87%
Defined Contribution Plans 70% 74% 73% 76%
Defined Benefit Plans 57% 61% 57% 72%
Disability Insurance 56% 61% 57% 63%
Life Insurance 54% 56% 55% 66%
Profit Sharing/Bonus Plans 41% 46% 40% 55%
Stock Options 18% 18% 18% 27%
  • Fifty-four percent of the respondents noted an increased satisfaction with their defined benefit plans, up ten percentage points from fourth quarter 2002.

Using a scale from 1 to 10, indicate how satisfied you are with each benefit program.

Satisfaction With Benefits 1 Qtr 2003 4 Qtr 2002 2 Qtr 2002 2 Qtr 2001
Defined Benefit Plans 54% 44% 51% 50%
Stock Options 44% 37% 35% 16%
Life Insurance 42% 43% 43% 43%
Disability Insurance 42% 43% 39% 37%
Defined Contribution Pans 40% 42% 44% 47%
Health Insurance 39% 39% 39% 44%
Profit Sharing/Bonus Plans 38% 44% 38% 34%

Rising Healthcare Coverage Costs

  • Sixty-six percent of the respondents are paying more for health care benefits this year.
  • Seventy-seven percent of larger companies (between 501 and 1000 employees) experienced increased healthcare costs, compared to only 60 percent of small companies (10 to 50 employees).

"For 2003, has the cost of your share of your employer-sponsored healthcare benefit increased?"

By Number of Employees At Respondents' Firm
Total 10 - 50 51 -100 101 - 200 201 - 500 501 - 1,000
Yes (to increase) 66% 60% 59% 67% 69% 77%
No (to increase) 34% 40% 41% 33% 31% 23%
  • Sixty-five percent of those seeing an increase in healthcare benefits cost plan to simply absorb the increase and not change their healthcare coverage.

"How will you (or did you) cover the additional healthcare benefit expense?"

How Employees Plan to Cover Additional Healthcare Cost 1 Qtr 2003
Absorb the cost increase and make no changes in health care coverage 65%
Reduce other personal expenses 18%
Elect a less expensive medical plan/coverage option 11%
Elect not to participate in other benefits (i.e. vision or dental coverage) 4%
Reduce amount contributed to company retirement plan 1%
Other 7%

Raises/Work Week Length

  • Fifty-seven percent of the respondents have received or anticipate receiving a raise in 2003.

"Do you anticipate receiving a raise from your employer in 2003?"

Salary Raise Expectations 1 Qtr 2003
I have already received a raise 16%
I anticipate a raise 41%
I do not anticipate a raise 29%
Not sure 14%
  • The average raise increase is 4.3 percent, with the majority (46 percent) averaging between three and four percent.

"For those who anticipate/received a raise, what percent increase was your raise for 2003 or do you anticipate it will be?"

Anticipated Rate Increases 1 Qtr 2003
1% to 2% 18%
3% to 4% 46%
5% to 6% 24%
7% to 8% 4%
9 to 10% 4%
More than 10% 4%
Average Raise Increase of 4.3%
  • Overall, the majority of employees (68 percent) are working the same number of hours.

"Compared to the same time last year, how has the length of your average workweek changed?"

Change in Average Workweek 1 Qtr 2003
Increased from last year 22%
About same as last year 68%
Decreased from last year 10%
  • However, the employees who have increased their hours are working an average of 9.8 extra hours per week.

"How many additional hours per week do you work on average compared to the same time last year?"

Increase in Hours of Average Workweek 1 Qtr 2003
1-4 hours 24%
5-8 hours 34%
9-15 hours 25%
16+ hours 18%
Employees Average Workweek Increased by 9.8 Hours Per Week

Table Combination of Anticipated Salary Increase by Change in Length of Workweek

Change in average length of workweek from same time last year
Employees Anticipated Salary Raises in 2003 Increased from last year About the same as last year Decreased from last year Total
1-2% raise 16% 18% 29% 18%
3-4% raise 46% 48% 32% 46%
5-6% raise 26% 24% 27% 24%
7-8% raise 1% 4% 13% 4%
9-10% raise 4% 4% - 4%
More than 10% raise 8% 3% - 4%

Overview

The Principal Financial Group, the nation's 401(k) leader, commissioned Harris Interactive to conduct online research with employees of small and mid-sized U.S. businesses (firm size 10-1,000 employees) about their attitudes and perceptions regarding their financial well-being and their current employee benefits. Harris Interactive, Inc. conducted the latest Principal Financial Well-Being Indexsm February 20 - March 3, 2003. 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 Index was conducted in November 2000.

Methodology

Harris Interactive conducted the study in cooperation with members of the Harris Poll, which is composed of a subset of a panel of more than seven million cooperative respondents via the Internet. More than 1,100 employees of small and mid-sized companies (size range: 10-1,000 employees) were interviewed. Results have been weighted to reflect the national small to mid-sized business employee population. This study has a 95 percent confidence level with a margin of error of ± 2.5 percent.

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