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The Principal Financial Well-Being Indexsm Executive Summary - Fourth Quarter 2002

Summary of Survey Findings

Workers Believe in Long-Term Investing
American workers continue to show remarkable faith in the long-term future of their retirement investments, even as a growing percentage, particularly those nearing retirement, manage their retirement investment portfolios from quarter to quarter. The Fourth Quarter 2002 Principal Financial Well-Being Index reveals that the majority of employees (66 percent of those surveyed) have not made changes in how their assets are allocated; however, 34 percent have done so, the highest ever recorded by the Index and up dramatically from only 20 percent last quarter.

Workers Planning Ahead
American workers, sometimes considered apathetic in managing their retirement investments, are clearly becoming more sophisticated in how they manage their investments. For the workers who reported not having made changes in how to their retirement savings were invested, 58 percent reported their decision hinged on their belief in long-term investing while another 13 percent reported they were following the advice of a financial planner. A mere 19 percent of those surveyed reported they had not made changes because they were confused by the array of options presented to them.

In another sign of optimism, the Fourth Quarter 2002 Index, which polled 1,654 Americans who work for growing businesses, suggests that more people are actively planning for retirement. 62 percent of respondents, up from 55 percent one year ago, disagreed with the statement "I have not yet planned for retirement savings/security."

Trust Employer Yet Concerned for Job
Despite highly-publicized instances of corporate malfeasance, more workers with growing businesses believe that their employer is concerned for their financial future. 27 percent of respondents to the survey, which was administered by Harris Interactive® and sponsored by the Principal Financial Group®, believe that their employer "is concerned about their financial future." This is up from 21 percent in First Quarter 2001. Even as employees of growing firms seem to be placing more trust in their employers, higher unemployment continues to fuel concern over job security. The Fourth Quarter 2002 Index witnessed 57 percent of respondents, the most ever recorded by the study, ranking "job security" as more important than "long-term financial future" (29 percent) and "challenging work" (14 percent). One year ago, respondents provided a more balanced assessment, as 46 percent ranked job security as most important, 40 percent ranked long-term future most important and 14 percent ranked challenging work as most important.

Employee Benefits Matter
Employee benefits continue to be important to workers and a good benefits plan clearly encourages them to work harder, perform better, and remain with their current company. 62 percent of the respondents agreed with the statement "Having a good benefits plan encourages me to work harder and perform better." Growing businesses continue to offer their employees competitive benefit programs. In 4th quarter 2002, 93 percent of respondents reported having health insurance, 78 percent of respondents reported having defined contribution plans, 72 percent reported having life insurance. Workers still want "meat and potatoes" benefits like health insurance and retirement plans. Health insurance and defined contribution plans were rated as "very important" by 91 percent and 74 percent of the respondents respectively. Surprisingly, life insurance plans were rated "very important" by only 56 percent of the respondents, which is down from prior to September 11, 2001 (67 percent in Second Quarter 2001). 61 percent rated defined benefit plans as "very important".

Unsettled About Well-Being
The lackluster economy continues to take its toll on how employees feel about their overall financial well-being. Only 22 percent stated they were "extremely happy" about their current financial well-being, down from 29 percent nearly two years ago (First Quarter 2001).

Spending Less on Holidays
While the recession may be coming to an end, consumers are still planning to spend less money than last year during the holiday season. One year ago, 31 percent of respondents indicated they intended to spend less than the previous year; this year, 39 percent of the respondents intend to do so.

Resolving Financial Responsibility
While many New Years resolutions relate to diet, exercise and family, a substantial number relate to financial planning. 44 percent of the respondents are resolving to save more money, 31 percent are resolving to spend less money, and 16 percent are resolving to plan for retirement.

Employee Benefits

  • 62 percent of respondents agreed with statement "Having a good benefits plan encourages me to work harder and perform better."

What types of benefit programs (excluding vacation and holidays) does your company currently offer you?

Company Sponsored Primary Benefits 4 Qtr 2002 3 Qtr 2002 2 Qtr 2002 1 Qtr 2002 4 Qtr 2001
Health Insurance 93% 93% 97% 94% 86%
Defined Contribution Plans 78% 76% 81% 74% 67%
Life Insurance 72% 70% 78% 74% 68%
Disability Insurance 58% 55% 63% 55% 50%
Defined Benefit Plans 23% 23% 25% 28% 24%
Profit Sharing/Bonus 28% 29% 29% 26% 29%
Stock Options 14% 11% 12% 9% 13%
  • Health insurance and defined contribution plans were rated as "very important" by 91 percent and 74 percent, respectively, of respondents.
  • Employees rated following employee benefits as "Very Important" (rated as either "8", "9" or "10" on a 10 point scale with "1" being "Not at all Important" and "10" being "Very Important").

COMPANY SPONSORED EMPLOYEE
BENEFIT PROGRAMS

4 Qtr 2002 3 Qtr 2002 2 Qtr 2002
Health Insurance 91%
Mean - 9.4
94%
Mean - 9.4
93%
Mean - 9.5
Defined Contribution Plans 74%
Mean - 8.3
72%
Mean - 8.2
63%
Mean - 8.4
Life Insurance 56%
Mean - 7.4
54%
Mean - 7.3
55%
Mean - 7.4
Disability Insurance 61%
Mean - 7.7
61%
Mean - 7.7
57%
Mean - 7.6
Defined Benefit Plans 61%
Mean - 7.7
60%
Mean - 7.5
57%
Mean - 7.3
Profit Sharing/Bonus 46%
Mean - 6.6
47%
Mean - 6.6
40%
Mean - 6.4
Stock Options 18%
Mean - 4.7
19%
Mean - 4.5
18%
Mean - 4.6

Employee Financial Future and Well-Being

  • Workers are very concerned about their job security, as the Fourth Quarter 2002 Index registered a record percentage of respondents who ranked job security as more important than "long term financial future" and "challenging work."
Rank Terms in Order of Importance Proportion of Respondents Ranking Terms #1 in Importance
4 Qtr 2002 3 Qtr 2002 2 Qtr
2002
1 Qtr 2002 4 Qtr
2001
Job Security 57% 47% 52% 50% 46%
Long-term Financial Future 29% 34% 32% 32% 40%
Challenging Work 14% 19% 16% 17% 14%
"Please rank the following three items in terms of how important they are to you." N=1654
  • An increasing percentage of growing business employees believe their company is concerned about their long-term financial future.

"My company is concerned about my long-term financial future."

  4 Qtr
2002
3 Qtr 2002 2 Qtr
2002
1 Qtr
2001
Agree (*net) 27% 22% 24% 21%
Neither Agree or Disagree 27% 28% 28% 25%
Disagree (*net) 46% 50% 49% 54%
"Identify to what degree they agreed or disagreed with the following statement - My company is concerned about my (and my family's) long-term financial future." N=1654 *Completely/Somewhat Agree or Disagree
  • Employees are concerned about their overall financial well-being, as only 22 percent stated they were "extremely happy" about their current financial well being, down from 29 percent two years ago.

Retirement Planning and Investment Strategy

  • More workers appear to be planning for retirement. While only 55 percent of Fourth Quarter 2001 respondents had planned for retirement, 62 percent of today's respondents had done so.

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

  4 Qtr 2002 3 Qtr 2002 2 Qtr 2002 1 Qtr 2001
Agree (*net) 21% 28% 28% 30%
Neither Agree or Disagree 17% 16% 26% 15%
Disagree (*net) 62% 57% 45% 55%
"Identify to what degree you agree or disagree with the following statement - "I have not yet planned for retirement savings/security." N=1654 *Completely/Somewhat Agree or Disagree

Retirement Investments Alterations Based on Economic Conditions

  • Workers are responding to the Bear stock market. Some have opted to change how their retirement savings are invested, as 34 percent said they have moved from volatile investments to more stable ones, up from 20 percent in the Third Quarter 2002.

Made Changes in Volatility of Retirement Savings Investments

  4 Qtr 2002 3 Qtr 2002 2 Qtr 2002 4 Qtr 2001 3 Qtr 2001
Yes - have made changes 34% 20% 27% 22% 27%
No - have not made changes 66% 80% 73% 78% 73%
"Given the current stock market and economic conditions, have you made changes in how you have your retirement savings invested - moving from volatile investments to more stable investments?" N=1396
  • Among those who did not make changes to how their assets were allocated, most reflected a belief in long term investing. However, 19 percent noted that they are holding steady because there are too many options and did not know which one to choose, illustrating how important it is for employers to educate their employees about their benefits.
Why are you holding steady to your investments?
"I believe in long term investing of my retirement savings" 58%
"There are too many options/choices and I don't' know which one to choose" 19%
"I am following the advice of financial planner or advisor" 13%
"I don't have enough time to make investment changes" 8%
"I am not very interested in how my retirement savings are invested" 2%
  • Employees have a variety of concerns - some financial, others related to matters of health and lifestyle - regarding retirement.
Concerns For Retirement 4 Qtr 2002 Male Respondents Female Respondents
Staying healthy and self-sufficient 80% 79% 80%
Having to continue to work in order to make ends meet 65% 59% 71%
Outliving my savings 54% 51% 58%
Paying for catastrophic illness 53% 50% 57%
Being able to keep driving my car 31% 31% 31%
Staying busy 25% 28% 22%
Leaving my assets to my heirs 15% 16% 14%
Other 2% 2% 2%
None of the above 1% 2% 1%
"When thinking ahead to your retirement, what challenges most concern you? N= 1654

Holiday Spending Plans and Year End Resolutions

  • Consumers are planning to spend less money during this holiday season in comparison to last year.

"Intended Spending This Holiday Season"

Intended Spending This Holiday Season 4 Qtr 2002 4 Qtr 2001
Spend more than last year 9% 10%
Spend the same as last year 53% 59%
Spend less than last year 39% 31%
"During the upcoming holiday season, do you intend to..."
  • A substantial number of workers are resolving to be more responsible financially during the New Year.
Specific New Year's Resolutions for 2003 4 Qtr 2002
Exercise more 53%
Lose weight 46%
Eat more healthfully 45%
Save more money 44%
Spend less money 31%
Spend more time with family 24%
Plan for retirement 16%
Drink less caffeine 8%
Work less 7%
Plan for college savings 5%
Work more 5%
Other 6%
Do not intend to make a resolution for 2003 28%
"Which of the following, if any, do you intend to make as New Year's resolutions in 2003?" N= 1654

Age Comparisons

  • A person's age has a significant effect on whether or not the person makes changes to their retirement investment portfolio.
Made Changes in Volatility of Retirement Savings Investments Age 20-34* Age 35-44* Age 45-54* 55+*
Yes - have made changes 30% 32% 31% 46%
No - have not made changes 70% 68% 69% 54%
* Base for ages (20-34)=274, (35-44)=438, (45-54)=452, (55+)=231

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 to 1,000 employees) about their attitudes and perceptions regarding their financial well-being and their current employee benefits. Harris Interactive conducted the latest Principal Financial Well-Being Indexsm during November 2002. 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 released in First Quarter 2001.

Methodology
The Principal Financial Well-Being Index is a quarterly study that identifies and tracks trends in consumer financial well-being, retirement planning, employee benefits and workplace trends. It is conducted by Harris Interactive and commissioned by the Principal Financial Group, the nation's 401(k) leader. The fourth quarter survey was conducted online among a national sample of 1,654 employees of growing businesses (10 to 1,000 employees), weighted to reflect that population, during November 2002. "Propensity score" weighting was also used to adjust for respondents' propensity to be online. With a probability sample of this size, one can say with 95 percent certainty that the results have a statistical precision of ±2.4 percentage points; however, this was not a probability sample.

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