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The Principal Financial Well-Being IndexSM Executive Summary - Fourth Quarter 2005

The Principal Financial Group®, the nation's 401(k) leader, commissioned Harris Interactive® to conduct online research with employees (ages 18+) of small and mid-sized (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. Harris Interactive conducted The Principal Financial Well-Being Index survey of 1,213 employees from November 4-17, 2005. Data were weighted to be representative of the total population of adult employees who work for small or mid-sized U.S. businesses on the basis of age by gender, education, race/ethnicity, region income and propensity to be online. In theory, with probability samples of this size, one can say with 95% certainty that the overall results have a statistical precision of plus or minus 3 percentage points; however, this online sample was not a probability sample. 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.

Summary of Key Findings

  • Impact of Rising Home Heating Costs - Many employees in firms of 10-1000 will be making changes to their behaviors as a result of rising home heating costs. Home heating cost increases will cause half (51%) to lower their thermostats. One-third (33%) are planning to make their homes more energy efficient and approximately one in five (22%) will be saving on other expenses to be able to pay higher heating bills. All regions of the country are making changes, but the Midwest region is significantly more likely to be taking steps to deal with rising home heating costs than any other region of the country.
  • Reduced Holiday Spending - Forty-four percent of employees in firms of 10-1000 will be spending less this holiday season due to higher energy prices and the impact of hurricanes and other natural disasters.
  • Benefits - The availability of benefits has remained fairly consistent when compared to 4th quarter 2004. However, there has been a significant decline in the availability of the following benefits offered at 10-1,000 employee firms: Defined Contribution Plans, Disability Insurance and Tuition Reimbursement. Employees continue to rate health insurance as the most important benefit, followed by Defined Contribution Plans and then Defined Benefit Plans and Disability Insurance. Health insurance is the benefit most employees would like to see their company improve upon. Of the employees who have health coverage, 37% saw an increase in co-pays and 31% saw an increase in employee deductibles.
  • Roth 401(k) and Roth 403(b) - Almost three in five (58%) employees in firms of 10-1000 have heard of the Roth 401(k) or Roth 403(b) and there is a high level of interest in it, with 72% saying they would be interested in it if their employer offered it. However, only 6% of the employees were aware that their employer was going to offer it in 2006. 69% of the employees whose company will be offering it in 2006 plan to participate)1.

1) Small base. Data should be used directionally.

Energy Prices

Economists have predicted an increase in energy prices as a result of the hurricanes. We asked employees what steps they plan to take, if any, in response to the forecasted energy price increases. Half (51%) of the respondents plan to lower their thermostat this winter. One-third (33%) are planning to make their homes more energy efficient. Approximately one in five (22%) will be saving on other expenses to be able to pay the higher heating bills. The Midwest region of the United States is significantly more likely to be taking steps to deal with rising home heating costs than any other region of the country. See Table 1 for details.

Eleven percent of employees have had to reduce their savings as a result of increasing energy prices, as seen in Table 2.

Table 1
"Many economists expect the cost of home heating oil and natural gas to rise significantly because of the Gulf Coast hurricanes. Have you or will you take any of the following steps in response to rising home heating costs? Please select all that apply."

Base: N=1,213 U.S. Adults age 18+

  4 Qtr 2005 U.S. Region
East
U.S. Region
Midwest
U.S. Region
South
U.S. Region
West
Planning on lowering the thermostat this winter 51% 45% 58%SIG 48% 53%
Making your home more energy efficient 33% 36% 42%SIG 27% 30%
Saving more on other expenses to pay for a higher heating bill 22% 23% 27% 19% 18%
Switching to a budget billing plan a payment plan that lets you even out your payments throughout the year 11% 12% 18%SIG 10% 6%
No changes made 34% 36% 20%SIG 40% 38%
  N=1,213 N=297 N=278 N=385 N=253

SIG= Significant at the 95% confidence level

Table 2
"Have you had to reduce your savings (e.g., 401(k) contributions) as a result of increases in energy prices?"

Base: N=1,213 U.S. Adults age 18+

  4 Qtr 2005 U.S. Region
East
U.S. Region
Midwest
U.S. Region
South
U.S. Region
West
Yes 11% 9% 11% 12% 11%
No 89% 91% 89% 88% 89%
  N=1,213 N=297 N=278 N=385 N=253

Table 3
"Will the hurricanes and/or higher energy prices make you spend less this holiday season?"

Base: N=1,213 U.S. Adults age 18+

  4 Qtr 2005 U.S. Region
East
U.S. Region
Midwest
U.S. Region
South
U.S. Region
West
Yes 44% 40% 48% 49%SIG 38%
No 56% 60% 52% 51% 62%SIG
  N=1,213 N=297 N=278 N=385 N=253

SIG= Significant at the 95% confidence level

  • Significantly more people in the South say they will be spending less this holiday season than the people in the West.

Natural Disasters

2005 has seen many natural disasters affect people all around the world. We wanted to see what impact it has had on employees in firms of 10-1000 employees. The majority (85%) said they didn't change their financial behavior at all as a result of the natural disasters. As illustrated in table 4, there are no statistically significant differences between regions of the country.

Table 4
"Did the recent series of natural disasters (Hurricanes Katrina, Rita Wilma, earthquakes in Pakistan) make you alter your financial behavior in any of the following ways? Please select all that apply."

Base: N=1,213 U.S. Adults age 18+

  4 Qtr 2005 U.S. Region
East
U.S. Region
Midwest
U.S. Region
South
U.S. Region
West
I added or reviewed my current property and casualty insurance. 8% 6% 8% 9% 7%
I established a "rainy day" fund for my family and me in the event of natural disasters. 7% 5% 5% 8% 7%
I added or reviewed my current life insurance. 5% 3% 7% 4% 5%
I looked into moving to a location that is less vulnerable to natural disasters. 2% 3% 1% 4% 1%
I didn't change my behavior at all. 85% 87% 85% 83% 85%
  N=1,213 N=297 N=278 N=385 N=253

Benefit Programs Offered at Businesses with 10 to 1,000 Employees


The top benefits offered at firms with 10 to 1,000 employees are Health Insurance (88%), Life Insurance (65%), Defined Contribution Plans (64%), Free Parking (57%) and Disability Insurance (48%). In table 5 below, comparisons can be made with the previous year's benefit offerings. There are some significant differences between responses from this most recent quarter and 4th quarter 2004 - indicated with "SIG" below.

Table 5
"What types of benefit programs (excluding vacation and holidays) does your company currently offer you? Please select all that apply."

Benefits 4th Qtr. 2005 4th Qtr. 2004 3rd Qtr. 2005
Health Insurance 88% 89% 88%
Life Insurance 65% 63% 64%
Defined Contribution 64%SIG 72% 66%
Free Parking 57% 59% 63%SIG
Disability Insurance 48%SIG 53% 51%
Tuition Reimbursement 30%SIG 34% 32%
Profit-Sharing/Bonus 26% 28% 23%
Flex-time 26% 28% 29%
Defined Benefit 22% 20% 18%SIG
Stock Options 11% 10% 6%SIG
Financial Planning 10% 10% 10%
Personal Banking Services 8% 7% 7%
Legal Services 7% 8% 8%
Other 5% 4% 5%
Executive Benefits 4% 5% 5%
Child Care Subsidies 4% 3% 3%
On-site Daycare 3% 2% 3%
  N= 1,213 N=1,736 N=1,147

SIG= Significant at the 95% confidence level

Benefit Satisfaction


Upon identifying what benefits they are offered through their employers, employees were asked to rate their satisfaction with some of the major benefits. Employees are most satisfied (rating of 8-10 on a 10 point scale) with their Defined Benefit Plan (62%), Defined Contribution Plan, (54%), Disability Insurance (48%) and Stock Options (46%). In comparing this quarter's results with the previous year, there are significant decreases in satisfaction levels for Life Insurance and Profit sharing/Bonus plans.

Table 6
"Please indicate how satisfied you are with each benefit program."
(rating of 8, 9 or 10 on a 10 point scale)

Benefits Satisfaction
Top 3 Box
4th Qtr. 2005
Satisfaction
Top 3 Box
4th Qtr. 2004
Satisfaction
Top 3 Box
3rd Qtr. 2005
Defined Benefit 62% 64% 54%
Defined Contribution 54% 55% 50%
Disability Insurance 48% 50% 44%
Stock Options 46% 53% 34%
Life Insurance 45%SIG 51% 47%
Health Insurance 44% 45% 40%
Profit-Sharing/Bonus 41%SIG 52% 53%SIG

SIG= Significant at the 95% confidence level
** Sample size varies by benefit offered

Benefit Importance


All employee respondents were asked to rate a group of benefits in terms of how important it was to them on a 10-point scale with 10 being "Very Important." As seen in Table 7, many benefits have had a significant change from 4th quarter 2004.

Table 7
"Please indicate how important each benefit program listed below is to you."
(rating of 8, 9 or 10 on a 10 point scale)

Benefits Importance
Top 3 Box
4th Qtr. 2005
Importance
Top 3 Box
4th Qtr. 2004
Importance
Top 3 Box
3rd Qtr. 2005
Health Insurance 90% 90% 90%
Defined Contribution 71%SIG 75% 66%SIG
Defined Benefit 55%SIG 51% 50%SIG
Disability Insurance 55%SIG 50% 49%SIG
Life Insurance 51%SIG 46% 44%SIG
Profit-Sharing/Bonus 44% 44% 38%SIG
Stock Options 18% 20% 13%SIG
  N=1,213 N=1,736 N=1,147

SIG= Significant at the 95% confidence level

Each employee respondent was asked to identify what benefits they would most like their employers to offer, aside from those already offered. Defined Benefit Plans top the list with 18%, followed by Profit Sharing/Bonus with 12%.

Table 8
"Which one employee benefit do you most wish that your company would offer you (excluding vacation and holidays)?"

Benefits 4 Qtr. 2005 3 Qtr 2005
Defined Benefit Plan 18%SIG 25%
Profit-sharing/bonus 12%SIG 15%
Flex-time 11% 11%
Defined Contribution Plan 9% 8%
Tuition Reimbursement 6% 8%
  N=1,212 N=1147

Aside from those benefits employees would like to see added to their employer's benefit programs, they were also asked to identify what benefits they would like to have improved upon. The top two benefits mentioned are Health Insurance (45%) and Defined Contribution Plan (14%). See table 9 for additional detail.

Table 9
"Which one employee benefit (excluding vacation and holidays) do you most wish that your company would improve upon?"

Benefits 4 Qtr. 2005 3 Qtr 2005
Health Insurance 45% 47%
Defined Contribution Plan 14% 16%
Profit Sharing/Bonus 8%SIG 5%
Life Insurance 4%SIG 2%
  N=1,209 N=1,147

Health Coverage Changes

As noted above, health insurance is the top benefit employees would like their employer to improve upon. To better understand what types of changes employees have seen recently in their health coverage, employees were asked to select from a list those changes they've seen in the past 12 months. As illustrated in table 10, the largest proportion of employees saw an increase in employee co-pays (37%) and increased deductibles (31%).

Table 10
"Over the past 12 months, has your employer made any of the following changes in your health care coverage?"

Base: U.S. Adults age 18+ (employees with health insurance)

  4 Qtr 2005 3 Qtr 2005
Increased employee co-pays 37% 41%
Increased employee deductibles 31%SIG 37%
Reduced medical benefit coverage options 16%SIG 20%
Offered additional medical benefit coverage options 7% 8%
Moved to HRA or MSA plans 4% 4%
Eliminated employer-sponsored health care benefits 1% 2%
Eliminated retiree health care benefits 1% 2%
None of these changes have occurred 47% 43%
  N=1,076 N=1,049

Benefits for Recruit & Retention


Firms with 10 to 1,000 employees offer employee benefits to aid in the recruiting and retaining of quality employees. To measure how employees react to the presence of good employee benefits a series of agree statements were asked. There was a significant decrease in the proportion of employees who agree that a good employee benefits plan encourages them to work harder and perform better. The proportion of employees who agree that the company they work for is concerned about their long-term financial future has also significantly declined. - see table 11.

Table 11
"Please indicate the extent to which you agree or disagree with each of the following statements."

Trending Comparison
(% of respondents agreeing completely or somewhat)
Agree 4th Qtr. 2005 Agree 4th Qtr. 2004 Agree 3rd Qtr. 2005
Having a good employee benefits plan encourages me to work harder and perform better. 65%SIG 70% 68%
Having a good employee benefits plan keeps me working for my current company. 62% 65% 60%
My company is concerned about my long-term financial future. 25%SIG 33% 23%
  N=1,213 N=1,736 N=1,147

SIG= Significant at the 95% confidence level

Employee Financial Well Being


In measuring employees' attitudes and perceptions about their financial well-being, a series of different questions were asked of them. First they were asked to identify how much they agreed with some statements relating to how concerned they are about their long-term financial future and how happy they are about their current well-being. As seen in table 12, the percentage of employees who are very concerned about their long-term financial future has declined significantly from last year. However, a significantly smaller proportion of employees than the previous year agree they are extremely happy about their current financial well-being.

Table 12
"Please indicate the extent to which you agree or disagree with each of the following statements."

SMB Employee Population
(% of respondents agreeing completely or somewhat)
Agree 4th Qtr. 2005 Agree 4th Qtr. 2004 Agree 3rd Qtr. 2005
I am very concerned about my long-term financial future. 73%SIG 77% 77%SIG
I am extremely happy about my current financial well-being. 29%SIG 34% 22%SIG
I have not yet planned for retirement savings/security. 25% 27% 33%SIG
  N=1,213 N=1,736 N=1,147

SIG= Significant at the 95% confidence level

Job Security


Job security continues to top the importance chart when compared to long-term financial future and challenging work and it has increased significantly since last year. The importance of challenging work has seen a significant decline since 4th quarter 2004.

Table 13
"Please rank the following items in terms of how important it is to you."

Respondent Ranked Item #1 4 Qtr 2005 4 Qtr 2004 3 Qtr 2005
Job Security 52%SIG 47% 52%
Long-Term Financial Future 36% 35% 34%
Challenging Work 12%SIG 19% 14%
  N=1,213 N=1,736 N=1,147

SIG= Significant at the 95% confidence level

Investment Changes


Changing market conditions can spur some individuals to make changes to their investments. To measure what type of changes employees are making, they were asked to identify if and how they are moving their retirement savings. Based upon response, 77% of employees who have retirement savings are not making changes to how their investments are invested while 23% are - 15% to stable and 9% to volatile. There was a significant decline in the proportion of people moving money from volatile investments to stable investments for this year when compared to last year and a significant increase in the people not making any changes.

Table 14
"Given the current stock market and economic conditions, have you made changes in how you have your retirement savings invested?"
N= (base - those with retirement savings)

  4 Qtr 2005 4 Qtr 2004 3 Qtr 2005
Yes, I moved from more volatile to more stable investments 15%SIG 21% 18%
Yes, I moved from more stable to more volatile investments. 9% 10% 8%
No, I have not made any changes 77%SIG 69% 74%
  N=1,007 N=1,490 N=1,021

Tools to Help You Save for the Future


There was a significant decline in employees who are satisfied with the tools provided by their employer-sponsored benefit programs and significant increases in neutral and dissatisfied responses.

Table 15
"Overall, how satisfied are you with your employer-sponsored benefit program in providing you with the tools you need to save for your future?"

  4 Qtr 2005 4 Qtr 2004
Very/Somewhat Satisfied 45%SIG 53%
Neither Satisfied/Dissatisfied 25%SIG 21%
Very/Somewhat Dissatisfied 30%SIG 26%
  N=1,213 N=1,736

SIG= Significant at the 95% confidence level

Roth 401(k) and Roth 403(b)


Roth 401(k)'s and Roth 403(b)'s are an option employers can provide to their employees if they choose. Employees were asked a series of questions to help us better understand public awareness, availability and perception of the Roth 401(k) and Roth 403(b). As seen in Table 16, almost three in five (58%) have heard of a Roth 401(k) or 403(b) prior to this survey. Table 17 shows there is a high level of interest in the Roth 401(k) or 403(b) with 72% saying they would be interested if their employer offered it.

It does appear from Table 18 that few employers will be offering it next year with only 6% of the employees being aware that their company will make it an option. 69% of the employees whose company will be offering the Roth 401(k) or 403(b) plan to participate.

Table 16
"Beginning January 1, 2006, participants can designate a portion of their elective deferral contributions to a 401(k) or 403(b) plan as after-tax Roth elective deferral contributions that are includable in gross income. At qualified distribution, the Roth contributions, including earnings, are tax-free. It is up to your employer to decide whether or not to offer the Roth 401(k) or 403(b) option.

Prior to this survey, had you ever heard of a Roth 401(k) or 403(b)?"
Base: N=1,213 U.S. Adults age 18+

  4 Qtr 2005
Yes 58%
No 42%

Table 17
"Does the Roth 401(k) or Roth 403(b) sound like something you would be interested in, if it were offered by your employer?"
Base: N=1,213 U.S. Adults age 18+

  4 Qtr 2005
Yes 72%
No 28%

Table 18
"Is a Roth 401(k) or Roth 403(b) something your employer will be offering in 2006?"
Base: N=1,213 U.S. Adults age 18+

  4 Qtr 2005
Yes 6%
No 35%
Not Sure 59%

Table 19
"Do you plan to participate in the Roth 401(k) or Roth 403(b)?"
N= 67* (base - those whose employer will be offering in 2006)

  4 Qtr 2005
Yes 69%
No 23%
Not Sure 8%

* Small base. Data should be used directionally.

Table 20
"How would you prefer to be educated about the Roth 401(k) or Roth 403(b) option if it were available through your employer? Please select all that apply."
Base: N=1,213 U.S. Adults age 18+

  4 Qtr 2005
Receive information from my employer 58%
Receive information from my plan provider 47%
Do my own research 44%
Talk to a financial advisor 39%
Other 2%
I am not interested in being educated about this 8%

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