Why Great Benefits are Good Business

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

2. 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

3. 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

4. How Are They Selected? • Mathew Greenwald and Associates • Independent panel of experts • Anonymous entrants

5. Independent & Objective Process

6. The Winners • 1st 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.

7. 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

8. 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

9. 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

10. 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 The Benefits

11. 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

12. 70% 10 Best Companies Devote a High Share of Their Total Compensation Package to Benefits Seven in ten devote at least 30% of the total compensation package to benefits. 40% or more 30% to 39% 20% to 29% Less than 20% Source: The Principal 10 Best Results 2004-2008

13. 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 Why Employee Financial Security Matters 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 (2008 10 Best Winner)

14. 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

15. Attract & retain great employees:As Boomers retire, talent shortage grows shortage of = 3 Million workers! Source: U.S. Bureau of Labor Statistics

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

17. 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 Improve Bottom Line Results Source: “Building an Effective Health & Productivity Framework” – Watson Wyatt 2007

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

19. 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 Financial FitnessRetirement Best Practices Source: The Principal 10 Best Companies for Employee Financial Security

20. 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 Basics of a great program:Financial Protection Best Practices Source: The Principal 10 Best Companies for Employee Financial Security

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

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

23. 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 Benefits program best practices:Health & Wellness Best Practices Source: The Principal 10 Best Companies for Employee Financial Security

24. The Formula for Success The Holy Grail Communication!

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

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

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

28. The Power of One-on-One Education 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

29. BEST PRACTICE: “Age” education with workforce Distribute personalized benefit statements Use a combination of tools: email, 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 Educate.Educate.Educate:Communication Best Practices Year round Endeavor! Source: The Principal 10 Best Companies for Employee Financial Security

30. 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. 2007 EBRI Retirement Confidence Survey

31. Best Practices Guide January 2009 www.principal.com/10best Entries accepted beginning February 1, 2009