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The Principal Financial Well-Being IndexSM Executive Summary - Second Quarter 2002

Summary of Survey Findings

As headlines suggest that many employers are cutting employee benefits to reduce costs in a sluggish economy, small to mid-sized (growing) businesses may actually be increasing benefits to employees, according to the Second Quarter 2002 Principal Financial Well-Being IndexSM . However, in light of the continued layoff announcements, the top concern for employees continues to be job security.

Benefits on Rise; Rising in Importance

This latest national survey of 1,500 employees of businesses with 10 to 1,000 employees showed the fourth consecutive quarterly increase in the number of firms that offer health insurance, defined contribution plans, life insurance and disability insurance. These are the benefits ranked "most important" among employees responding to the survey, suggesting that employers are responding to the needs and desires of their workers, who say that they are motivated by good benefit plans.

According to the survey, 70 percent of employees believe a good benefit plan encourages them to work harder and perform better - an increase of 9 percentage points over the previous quarter. Additionally, 61 percent said that a good benefits plan would help keep them at their current employer.

Respondents noted that healthcare benefits are the most in need of improvement. Employees noted they would like more flexibility in their health insurance plans, and only one in four employees believed they are given enough choice in their health insurance coverage. Defined contribution plans, such as 401(k) plans, ranked second among the benefits cited as most in need of improvement.

On a scale of one to ten, with ten being "very satisfied," the satisfaction level of respondents toward their current benefit packages was 6.74, down slightly from one quarter ago. The decline may be attributed to the intense communication of benefit plans and/or changes that typically take place at the beginning of the calendar year, underscoring he importance of communicating with employees regarding their benefits.

Job Security Remains Key Concern

For the fourth straight quarter, the percentage of respondents indicating job security as their top concern increased, up to 52 from 50 percent in the first quarter. Long-term financial future and challenging work continue to be ranked second and third, respectively.

Nearly 80 percent of respondents said they are "very concerned" about their long-term financial future and only 44 percent said they are confident in their ability to effectively transition their retirement savings into a dependable stream of retirement income, suggesting investor education and guidance is more important than ever. Interestingly, employees are four percent more likely to agree with the statement, "My company is concerned about my long-term financial future" today than they were just one year ago.

Despite the concern over long-term finances, only 58 percent said they are planning for retirement. Meanwhile, of the 81 percent of respondents who are offered a defined contribution plan, at least 23 percent do not participate in the plan.

Despite highly-publicized situations in which employees lost their retirement savings as their companies faltered, 62 percent of employees do not include any of their firm's stock in their retirement plan. A mere 7 percent reported having more than 15 percent of their retirement investments savings invested in their employer's company stock.

Finally, 80 percent of employees surveyed expect to receive a tax return from their April filings. Employees indicated they are most likely to use their returns to pay on their short-term debt or deposit the amount in their savings or checking accounts. The survey revealed that only one in five employees plan to spend their refunds on consumer products.

Employee Benefits

For the fourth straight quarter, the survey has shown an increase in the number of small and midsize companies offering employees benefit coverage.

Company Sponsored Employee Benefit Coverage 2nd Qtr 2002 1st Qtr 2002 4th Qtr 2001 3rd Qtr 2001 2nd Qtr 2001
Health Insurance 97% 94% 86% 83% 89%
Defined Contribution Plans 81% 74% 67% 64% 76%
Life Insurance 78% 74% 67% 61% 67%
Disability Insurance 63% 55% 50% 49% 55%
Defined Benefit Plans 25% 28% 24% 25% 32%
Profit Sharing/Bonus 29% 26% 28% 24% 25%
Stock Options 12% 9% 12% 15% 15%

  • Additionally, more employers are offering the benefits cited as most important by employees (health insurance, defined contribution plans, life insurance and disability insurance).
  • The benefits employees most wished their company improved upon were health insurance, defined benefit plans, followed by profit sharing and defined benefit plans.
  • More than half of the employees surveyed feel they are not given enough choice in their employer-sponsored medical insurance.
  • 61 percent of the respondents said that having a good benefits package would keep them working at their current company.


  • 17 percent of the respondents have changed employers primarily for a better benefits package.
Employee Financial Future and Well-Being

Job security has increased in importance for the fourth straight quarter, rated number one in importance by 52 percent of employees in the First Quarter of 2002, while long-term financial future and challenging work remained second and third in importance.

Rank Terms in Order of Importance Rank Terms #1
2nd Qtr 2002 1st Qtr 2002 4th Qtr 2001 3rd Qtr 2001
Job Security 52% 50% 46% 44%
Long-term Financial Future 32% 32% 40% 44%
Challenging Work 16% 17% 14% 13%

  • 78 percent of the respondents said they are "very concerned" about their long-term financial future, up one percentage point from First Quarter 2002.
  • Only 27 percent of the respondents agreed with the statement "I am extremely happy about my current financial well-being" down from First Quarter 2002. Almost 50 percent disagreed with the statement.
  • Only 16 percent of the respondents reported having no retirement savings, down from 21 percent in the last quarter.

Employee Reactions to the Economy

27 percent of the employees surveyed have made changes to their retirement investments, moving from volatile to more stable investments, up 5 percent from six months ago.

Made Changes in Volatility of Retirement Savings Investments
  2nd Qtr 2002 4th Qtr 2001 3rd Qtr 2001
Yes - have made changes 27% 22% 27%
No - have not made changes 73% 78% 73%

  • 44 percent agreed with the statement "I am confident in my ability to effectively transition my retirement savings into a dependable stream of retirement income", while 29 percent disagreed.
  • 62 percent of the respondents do not have access to their company's stock in their employer-sponsored retirement plan.

Employee 2002 Tax Return Expenditures

The majority of employees plan to deposit their tax refunds into a bank account (42 percent) or pay off their short-term debt (45%).

Income Tax Return Expenditures 2nd Qtr 2002
Deposit in savings/checking account(s) 42%
Pay on short-term debt (credit card, etc.) 45%
Spend on consumer products 23%
Pay on long-term debt 9%
Spend on investment(s) 5%
Other 17%

  • Only one in five of the respondents plan to spend their tax refunds on consumer products.
  • 20 percent of the employees surveyed did not anticipate receiving a tax return this year.

Gender Comparisons
  • Male respondents age 35 - 44 were significantly more satisfied with their defined contribution retirement plan benefits than their 45-54 age counterparts.
  • Male and female employees ages 35-44 and 45-54 rate disability insurance significantly higher in importance than males and females age 18-34.
  • Male employees age 35-44 are significantly more satisfied with their defined contribution retirement plans than their age 45-54 counterparts.
  • Female respondents ages 35-44 and 45-54 were more concerned about their long-term financial future than their 18-34 counterparts.
  • More so than any other age group, both male and female workers ages 45-54 reported moving their retirement plan investments from volatile to more stable investments.

Company Size Comparisions
  • Employees with firms of 500 -1000 employees rated health insurance a 9.7 in importance on a scale of 1-10, higher than employees in firms with less than 500 employees (9.4).
  • Employees from larger firms (500-1000 employees) were more likely to stay at their companies because of a good benefits package than employees at smaller firms (10-50 employees).
  • Significantly more employees within companies with 100-200 employees ranked "Long-Term Financial Future" number one in importance than employees within firms with 500-1000 employees.

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 10-1000 employees) about their attitudes and perceptions regarding their financial well-being and their current employee benefits. Harris Interactive conducted The Principal Financial Well-Being IndexSM during April 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 conducted in November 2000.

Methodology

Harris Interactive conducted the survey via the Internet with more than 1,500 employees of small and mid-sized companies (size range: 10-1000 employees). Results have been weighted to represent the national small to mid-sized business employee population. At a 95 percent confidence level, the study has a statistical precision of ± 2.5 percent.

About Harris InteractiveSM

Harris Interactive (www.harrisinteractive.com) is a worldwide market research and consulting firm best known for The Harris PollĀ® and its pioneering use of the Internet to conduct scientifically accurate market research. We combine the power of unique methodologies and technology with international expertise in predictive, custom and strategic research. Headquartered in Rochester, NY, with offices across the United States, in the United Kingdom, in Japan and a global network of local market and opinion research firms, the Company conducts international research with fluency in multiple languages. EOE M/F/D/V

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