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

Summary of Survey Findings
Despite a sluggish economy, bear stock market and corporate scandals, American workers appear to be heeding time-tested advice regarding their retirement investment strategy. The 3rd Quarter 2002 Principal Financial Well-Being Indexsm reveals that employees are staying the course, remaining faithful to their 401(k)s, planning more concertedly, and awaiting better days. The Principal Financial Group® and Harris Interactive® partnered in July 2002, as well as for previous waves, to conduct the quarterly consumer research using The Harris Poll®.

Staying the course
Despite ups and downs, American workers appear to still believe in the stock market. This is evidenced in the 80 percent of employees who indicated they have not changed to more stable investments during this volatile market period, the highest ever recorded by the Principal Financial Well-Being Index. Moreover, 69 percent [of the more than 1,600 employees who responded to the quarterly survey of workers of growing businesses] have not taken action in response to low retirement plan investment earnings over the past two years.

However, the volatile market appears to be leading employees to behave more realistically by planning for retirement savings/security, as 57 percent of respondents disagreed with the statement, "I have not yet planned for retirement savings/security," up 12 points from the previous quarter. Moreover, fear over job security in the wake of highly publicized layoffs earlier may be waning, as the percentage of workers who ranked "job security" as most important declined to 47 percent. Those ranking "long-term financial future" and "challenging work" first rose to 34 percent and 19 percent, respectively.

Responding to scandal
The spate of corporate scandals does not appear to be causing U.S. workers to flee stocks or make any significant changes in their retirement investment strategy. Eighty-four percent of workers answered that scandals and accounting malfeasance have not prompted them to change their investment behavior. Four percent indicated that the scandals led them to decrease the amount they were investing but another three percent said they were increasing the amount they were investing.

While most American workers are riding out the bear market, nine percent of all respondents and 23 percent of those over the age of 54 said that they had to postpone their planned retirement age. Seven percent said they were increasing their deferral or savings rate to compensate for the low investment earnings.

While employees seem resolved overall, corporate crises do appear to be affecting the confidence workers have in their employers. The percentage of respondents answering that their employer is "very concerned" about their well-being declined six percentage points to 22 percent--its lowest level since late 2000.

Employee confidence
As highly publicized layoffs have slowed and the unemployment rate has stabilized, workers seem more at ease with their current financial well-being, as 71 percent (down from 78 percent last quarter) said "I am very concerned with my long-term financial future." However, they are certainly not satisfied with their current situation, as only 20 percent of workers said they are extremely happy about their current financial well-being, the lowest satisfaction level witnessed since the Principal Financial Well-Being Index's inception in 2000.

Employee Benefits
Market volatility appears to have led some workers to appreciate the stability of a defined benefit, such as traditional pensions. Defined benefits ranked as the most satisfying benefit with a mean score of just above 7 on a 10-point scale with a score of 10 considered "extremely satisfied." Moreover, the plans have consistently been rated the number one benefit employees wish they could add to their benefits package. As we near the fall enrollment period for many companies, new investment products that combine the benefits of defined benefits and defined contributions are highly anticipated.

Labor Day and September 11th Anniversary
As Labor Day and the anniversary of the September 11, 2001 tragedies approaches, workers were asked about their attitudes regarding work. Here, employees note that the reason they work is not only to provide for primary needs (79 percent) and improve their standard of living (66), but also to save for the future and to achieve personal satisfaction from a job well done (both 52).

While the tragic events of September 11, 2001 will not be forgotten, most employees do not appear to have altered their work/life balance as a result. The vast majority of respondents, 81 percent, noted that their work/life balance has remained the same since the day nearly one year ago.

Employee Well-Being

  • Job security remains the top concern of U.S. employees with 47 percent ranking it as "most important" compared to "long-term financial future" (34 percent) and "challenging work" (19 percent).
  • Only 22 percent believe their employer is concerned about their long-term financial future, the lowest figure since late 2000.
  • 20 percent of employees are happy about their current financial well-being, the lowest percentage since the Index's inception.
  • "I am extremely happy about my current financial well-being."
 

3 QTR 2002

2
QTR
2002

3
QTR
2001

2
QTR
2001

1
QTR
2001

4
QTR
2000

Agree Completely/Somewhat

20%

27%

30%

28%

24%

29%

Neither Agree or Disagree

23%

25%

20%

20%

17%

17%

Disagree Completely/Somewhat

56%

49%

50%

53%

59%

55%

"Please indicate to what extent you agree or disagree with the following statement - I am extremely happy about my current financial well-being?" (N=1,612)
  • 71 percent agreed that they are very concerned about their long-term financial future. (Lowest percentage yet)
  • Up 12 points from last quarter, 57 percent of employees disagreed with the statement, "I have not yet planned for retirement savings/security."

Employee Benefits

  • Health insurance is the most common employee benefit (93%), and the benefit rated as "very important" to 94% of employees (rated a 8,9, or 10 on a 10-point scale).
  • Health insurance is also the benefit most desired for improvement, with most employees wanting a reduction in costs.
  • Overall Summary of Responses Wanted Improvements in Current Health Insurance Benefit

(N=703)

Proportion of Total Number
of Responses

Overall - improve choice benefit design,
provider companies, networks (A)

34%

Overall - reduce benefit cost
(co-pay, deductible, premium) (B)

54%

Overall - improve communication
about benefit plans (C)

12%

  • Defined contribution plans are the second most common benefit (76%) and also second in terms of being "very important" to 72% of employees (rated a 8,9, or 10 on a 10-point scale). .
  • Defined benefits ranked as the most satisfying benefit with a mean score just above 7 on a 10-point scale with a score of 10 considered "extremely satisfied."
  • 58 percent said, "having a good benefits plan keeps me working for my current employer."
  • 64 percent said, "having a good benefits plan encourages/would encourage me to work harder and perform better."
  • There is a recognizable gap between how satisfied employees are with their benefit package and how important they rate each benefit.

Age Comparisons

  • Only 22 percent of respondents age 45-54 report being "very satisfied with their overall financial well-being." This is the lowest percentage of all age groups.
  • More so than any other age group, 37 percent of respondents age 18-34 have not yet saved for retirement.
  • A remarkable 19 percent of respondents age 55+ have not yet saved for retirement.
Summary (N=1,612) 18-34 35-44 45-54 55+
"My company is concerned about my long-term financial future." 23% 20% 21% 21%

"I am very satisfied with my overall financial well-being."

30% 27% 23% 29%
"I am very concerned about my long-term financial future." 70% 71% 74% 70%
"Having a good employee benefits plan encourages me to work harder & perform better." 66% 64% 63% 59%
"I have not yet planned for retirement savings/security." 37% 23% 26% 19%
"Having a good employee benefits plan keeps me working at current company." 60% 58% 59% 54%
"I am extremely happy about my current financial well-being." 22% 18% 18% 23%

Effect of Corporate Scandal and Weak Earnings

  • 80 percent of employees indicated they have not changed to more stable investments during this volatile stock market period. This is the highest percentage recorded by the Principal Financial Well-Being Index.
  • 84 percent of survey participants have not changed their investment behavior amongst the recent wave of corporate accounting scandals such as Enron, Adelphia and WorldCom.
  • Corporate Scandals Have Not Affected SMB Employee Investors
Have not changed investment behavior

84%

Reallocated retirement investment portfolio

11%

Reduced amount of money put into retirement investments

4%

Increase amount of money put into retirement investments

3%

"How has the recent wave of corporate accounting scandals, such as Enron, Arthur Andersen, and Worldcom, changed your retirement investment behavior?" (N=1,612)
  • Low investment earnings over the past two years have not prompted the majority of employees to take action. 69 percent reported taking no action regarding their retirement investment savings.

Low Investment Earnings - Age Breakdown

(N=1,612) 18-34 35-44 45-54 55+ All Ages

Taken no action

78% 68% 65% 53% 69%
Reassessed how retirement savings are invested 13% 16% 17% 19% 16%
Postponed planned retirement age 2% 8% 12% 23% 9%
Increased deferral or savings rate into a plan 5% 9% 8% 7% 7%
Changed financial products for retirement savings 4% 6% 9% 10% 6%
Other 2% 1% 2% 2% 2%
"How have you responded to the low retirement plan investment earnings over the past two years?"

Responses to September 11

  • 80 percent report no change in their work/life balance since September 11, 2001; however, 12 percent noted the events of that day would cause them to spend more time outside of work while eight percent said Sept. 11 would lead them to spend more time at work.

Why Employees Work

  • Most employees work to provide for their primary/basic needs of everyday life.

Employees Work For a Variety of Reasons

Need to provide for primary/basic needs

79%

Desire to improve current standard of living (earn more money)

66%

Desire to save for future (college, long-term security, retirement, etc.)

52%

Achieve personal satisfaction from a job well-done

52%

Desire to advance professionally

33%

Other

6%

"Which of the following factors, if any, motivate you to go to work every day? Please check all that apply." (N=1,612)
  • Males were 10 percent more likely to indicate they work to achieve personal satisfaction from a job well-done. They also were 14 percent more likely to indicate "a desire to advance professionally."

Overview
The Principal Financial Group®, the nation's 401(k) leader, commissioned Harris Interactive(sm) 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 Index survey of 1,612 employees (age 18+) during the month of July 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 the year 2000.

Methodology
Harris Interactive conducted the study among members of its multi-million member online panel of double opt-in online respondents. Data were collected with an online self-administered survey in July 2002. A total of 1,612 interviews were obtained from employees of small and mid-sized businesses in the U.S. Results were weighted to reflect the national small to mid-sized business employee population. This study has a margin of error of ± 2.4 percent at the 95% confidence level. For access to results from previous waves of The Principal Well-Being Index, visit www.principal.com.

About The Principal
The Principal Financial Group® (The Principal ®) is a leader in offering businesses, individuals and institutional clients a wide range of financial products and services, including retirement and investment services, life and health insurance and banking through its diverse family of financial services companies. More employers choose the Principal Financial Group for their 401(k) plans than any other bank, mutual fund, or insurance company in the United States . A member of the Fortune 500, the Principal Financial Group has $119.6 billion in assets under management and serves some 13 million customers worldwide from offices in Asia, Australia, Europe, Latin America and the United States. Principal Financial Group, Inc. is traded on the New York Stock Exchange under the ticker symbol PFG. For more information, visit www.principal.com.

Press contacts: Susan Houser, 515.248.2268 or Chad Ritterbusch, 312.372.7090

About Harris Interactive®
Harris Interactive (www.harrisinteractive.com) is a worldwide market research and consulting firm best known for The Harris Poll® 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

Press Contact:
Nancy WongHarris Interactive585-214-7316 nwong@harrisinteractive.com

1 "The Principal Financial Group" and "The Principal" are registered trademarks of Principal Financial Services, Inc., a member of the Principal Financial Group.
2
CFO Magazine, April/May 2002 based on total plans served in 2001 by insurance companies, banks and investment firms.
3 As of June 30, 2002.

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