Why Great Benefits are Good Business Lessons from The Principal 10 Best Companies for Financial Security 2008 Dennis Long, Vice President Principal Consulting Group

Agenda The Principal 10 Best Winners—2008 Great Benefits At-a-Glance Why Employee Financial Security Matters The Formula for Success The Holy Grail: Communication

The Principal 10 Best Companies for Employee Financial Security –Companies with 5 – 1,000 employees –Commitment to employee financial security –Showcase role models –7 years –4,885 nominations –70 winning companies –Do not need to be a customer of The Principal

How Are They Selected? –Mathew Greenwald and Associates –Independent panel of experts –Anonymous entrants

Independent & Objective Process

The Winners 1 st United Services Credit Union A.Y McDonald Manufacturing Company CENTRIA Jewelers Mutual Insurance Company NJ Sullivan Company, Inc. NORCAL Mutual Insurance Company North Island Credit Union SAE International The Spiratex Company Torch Technologies, Inc.

Criteria Entrants evaluated on: Breadth and depth of financial benefits offered Level of commitment to benefits What kind of benefits? Those that contribute most to long-term financial security for employees

The Benefits Medical Coverage 100 percent offer medical insurance 8 pay at least 80% of an employee’s premium, and 5 pay 85 percent or more of the premium 7 pay 80 percent or more of dependents’ premiums 5 offer medical insurance and/or prescription drug coverage to their retirees 100 percent offer wellness programs

The Benefits Retirement 7 out of 10 offer 2 or more retirement plans, including 401(k), Profit Sharing and ESOP 6 offer a defined benefit pension plan Among the 401(k) or 403(b) retirement plans offered: –Average employee participation rate: 91.9% –Average deferral rate: 8 percent –9 provide match to employee 401(k) contributions

The Benefits Insurance 100% pay for group life insurance 9 pay 100% premiums for long-term disability coverage. All offer short term disability insurance; ___ pay 6 offer long term care insurance

2008 Trends Staying the course Focus on boosting retirement savings Phased retirement Expanded wellness programs Ramped up communication and education efforts One-on-one meetings at the worksite

10 Best Companies Devote a High Share of Their Total Compensation Package to Benefits Less than 20% 20% to 29% 30% to 39% 40% or more Source: The Principal 10 Best Results Seven in ten devote at least 30% of the total compensation package to benefits. 70%

Why Employee Financial Security Matters Retention of valued employees Attraction of valuable employees Improved loyalty and motivation of employees Improved customer retention and satisfaction Improved productivity Enhanced company’s image Improved company’s financial position Competitive Advantage “You can draw a straight line between the overall benefit program and the success of our company.” -Bob Rubrik, Director of Administration, CENTRIA ( Best Winner)

Top 5 most valued workplace benefits (Gen X and Gen Y combined) Source: “Preparing for Their Future: A Look at the Financial State of Gen X and Gen Y” – 2008 ASEC and AARP

Attract & retain great employees: As Boomers retire, talent shortage grows # of jobs to be filled in 2012: 165,300,000 # of available workers in 2012: 162,300,000 = 3 Million shortage of workers! Source: U.S. Bureau of Labor Statistics

8.2% Increased retention/Reduced turnover costs: Reduce Voluntary Turnover The Principal 10 Best Companies turnover rate: 21.94% National turnover rate: Source: The Principal 10 Best Companies for Financial Security, 2008; Bureau of Labor Statistics Building the case for benefits

Improve Bottom Line Results Companies with effective health coverage and productivity programs achieve: 4.3% higher shareholder value 20% more revenue per employee 16.1% higher market value 57% higher shareholder returns Source: “Building an Effective Health & Productivity Framework” – Watson Wyatt 2007

FINANCIAL FITNESS for employees PHYSICAL FITNESS for employees FISCAL FITNESS for the business + = The Formula for Success

Financial Fitness Retirement Best Practices BEST PRACTICE: Monitor whether employees are diversifying Offer investment choices – but not too many Make participation easy with “auto” features Give employees an incentive to increase contributions (Offer a match, etc.) Offer lifecycle/lifestyle funds EMERGING BEST PRACTICE: Contact employees individually regarding diversification Base employer match on years of participation in the plan Phased retirement Roth 401(k) Replacement ratio as measure of success One on one education Make meetings mandatory Source: The Principal 10 Best Companies for Employee Financial Security

Basics of a great program: Financial Protection Best Practices BEST PRACTICES: Mandatory enrollment meetings Protecting employee’s income Benefit designs to encourage return to work Foundation of coverage with options to buy additional coverage – voluntary benefits Choice of benefits EMERGING BEST PRACTICE: Face-to-face meetings Needs analysis Simple financial planning tools Source: The Principal 10 Best Companies for Employee Financial Security

FINANCIAL FITNESS for employees PHYSICAL FITNESS for employees FISCAL FITNESS for the business + = The Formula for Success

Benefits program best practices: Employee wellness can help control healthcare costs +59.1% +31.1% Source: Principal Wellness study comparing claims of participants with 3 or more health screenings to non-screened individuals. "We firmly believe wellness will lower our health care costs over the long term." – Mark Sherwin, President, CENTRIA

Benefits program best practices: Health & Wellness Best Practices BEST PRACTICE: Focus on wellness Offer free health screenings Establish baseline measures (claims, costs, etc.) Pay for preventive care Disease management Tie wellness participation to insurance premiums Offer choice to meet employees’ varying needs EMERGING BEST PRACTICE: Engagement models of healthcare –HSA –HRA –Co-insurance vs. co-pay Cost transparency Financial responsibility Source: The Principal 10 Best Companies for Employee Financial Security

The Holy Grail Communication! The Formula for Success

Communicate True Value Employees underestimate the true value of their benefits by 43% Source: HR Daily Advisor, June 2007 Maximizing the benefits investment

Employees are more satisfied with benefits when they understand their value  Good benefits + poor communication = Good benefits + good communication = 17% turnover 8% turnover Source: Watson Wyatt 2007 through HERO Think Tank

Educate. Educate. Educate: Educate. Communicate. Repeat. It takes an average of 7 before a person learns and remembers times

Employees are Struggling 80% of employees are worried about their personal finances* Employees are more likely to get their CAR an annual checkup than themselves.** * Gallup Poll, May 2008 ** 2nd Quarter 2008 Principal Well-Being Index The Power of One-on-One Education Percent of employees who have done this in the past year Car check-up95% Health check-up75% Financial check-up28%

Educate.Educate.Educate: Communication Best Practices BEST PRACTICE: “Age” education with workforce Distribute personalized benefit statements Use a combination of tools: , newsletters, video, web, paycheck stuffers Use simple language EMERGING BEST PRACTICE: Personalization - Text messages? Total compensation statement – use as retention tool Include spouses Educate on misused or underused benefits Share what you’re up against One-on-one education Source: The Principal 10 Best Companies for Employee Financial Security Year round Endeavor!

Educate. Educate. Educate: Individual education increasing in popularity 73% of workers use written materials from work; however, workers find financial professionals to be the MOST USEFUL information source EBRI Retirement Confidence Survey

Best Practices Guide January Entries accepted beginning February 1, 2009