How Priorities Align with Practices

Transcription

1 Business Owner Market Study How Priorities Align with Practices Introduction The role of small businesses in the economy of the United States is huge. According to the U.S. Small Business Administration (SBA), the nearly 27 million small businesses in the United States represent 99.7 percent of all employer firms and comprise about 43 percent of the total U.S. private-sector payroll. (The SBA defines a small business as having fewer than 500 employees.) From 1993 through 2009, small-business owners provided nearly two-thirds (65 percent) of all net new jobs and employed about half of U.S. workers. 1 In 2012, the Principal Financial Group again contracted with Harris Interactive to conduct national small-businessowner research to continue to keep its finger on the pulse of the small-business market. 1 Source: U.S. Small Business Administration, Office of Advocacy. August 2012.

2 Table of Contents Key Survey Findings: Small-Business Owners Priorities... 3 Implications...7 Analysis of 2012 Priorities First Priority: Business Protection... 8 Second Priority: Health and Wellness Solutions... 9 Third Priority: Income Protection... 9 Fourth Priority: Qualified Retirement Plans Fifth Priority: Non-medical Benefits Sixth Priority: Supplemental Key Employee Benefits Seventh Priority: Voluntary Benefits Eighth Priority: Wealth Transfer Ninth Priority: Survivor Income Tenth Priority: Exit Planning Considerations for Business Owners...15 Research Methodology...15 About The Principal...16 About Harris Interactive...16

3 How Priorities Align with Practices 3 Key Survey Findings: Small- Business Owners Priorities Small-business owners were asked to rank 10 benefit categories (see each section for definitions) from highest to lowest by order of importance to them. They also were asked to identify the benefits they offer for their businesses (business needs), for themselves (personal needs), and for their employees (employee benefits). The owners ranking of importance of the benefit categories is displayed on the left side of the graphic below, and the percentage of owners who actually offer those benefits is displayed on the right. Business Owner Key Findings Ranked Priority 1 Business Protection (Business Need) percentage offered 36 2 Health and Wellness Solutions (Employee Benefit) 52 3 Income Protection (Personal Need) 32 4 Qualified Retirement Plans (Employee Benefit) 51 5 Non-medical Benefits (Employee Benefit) 51 6 Supplemental Key Employee Benefits (Business Need) 27 7 Voluntary Benefits (Employee Benefit) 36 8 Wealth Transfer (Personal Need) 64 9 Survivor Income (Personal Need) Exit Planning (Business Need) 36

4 How Priorities Align with Practices 4 Mismatch between Benefit Priorities and Practices Business owners consider business protection as important but business needs are the least used of the three needs categories. This year s survey found small-business owners, as they had in 2010, ranked their top priority as business protection, which is one of the three business needs. In aggregate, business needs are the least used as compared to employee benefits and personal needs. They continue to put the needs of their employees and themselves above the needs of their businesses, although there has been a significant increase (to 46 percent, from 39 percent in 2010) in the number that has at least one business need in place. Specifically, the 2012 data show that of the small-business owners surveyed: 84 percent have at least one personal need benefit (a wealth transfer plan, income protection or survivor income). 46% Less than half have at least one business need benefit in place. 70 percent offer at least one Group benefit (health and wellness solutions; non-medical benefits, including dental, vision, life, long-term disability and short-term disability; voluntary benefits; or qualified retirement plans). 46 percent have at least one business need benefit in place (supplemental key employee benefits, business protection plans or exit plans). Most Important Goal: Business Growth The survey identified small-business owners most important goals for the coming year. As in 2010, their No. 1 goal is growing their businesses, with even more owners (66 percent, up from 61 percent in 2010) identifying growth as their paramount goal. This year, significantly fewer owners than in 2010 said their second-place business goal is plan to remain active in the business even after normal retirement (48 percent, down from 55 percent in 2010). Also, significantly fewer said their third-place goal is achieve business stability (41 percent, down from 50 percent in 2010). Which of the following business goals apply to your business? Grow the business. 66% Remain active in the business even after normal retirement. 48% Achieve business stability. Develop the business for family members. 41% 31% Sell the business and retire early. 11% Other 3% Not Sure 1% 0% 20% 40% 60% 80% 100%

5 How Priorities Align with Practices 5 Top Priorities Same as 2010 As in 2010, the top three priorities for business owners represented each of the three need categories business, personal and employee. Business Protection (business need) is owners highest-priority benefit for the second consecutive time, yet 58 percent of small-business owners do not have any business-protection plans and 62 percent have never had their businesses valued. Health and Wellness Solutions (employee benefit) ranked the same (second) for the second consecutive time, yet almost half (46 percent) do not offer these benefits for their employees. Income Protection (personal need) ranked third for the second consecutive time. This year s data show a significant increase in the number of owners who have individual disability income insurance, almost one-third versus only one-quarter in Growth Seen in Highest-Ranked Personal Need That Is Still Least-Used Even though Income Protection is ranked third, it is the least used of all the personal needs. Individual Disability Income (DI). Thirty-two percent of small-business owners have this benefit, up from 24 percent in And significantly more owners this year (8 percent) than in 2010 (4 percent) said they plan to purchase this benefit in the next year. Wealth Transfer. As was true in 2010, nearly two-thirds have some type of wealth transfer plan. Thirty-eight percent have had their plan reviewed in the last two years, up from 35 percent in 2010; for 50 percent, it s been more than two years, a figure virtually unchanged from 49 percent in Survivor Income in the form of individual life insurance is held by 71 percent of small-business owners, up just 1 percent from The percentage that had policies reviewed in the last two years has declined significantly to 51 percent, from 59 percent in 2010; whereas, the percentage that had a review in two or more years ago has increased significantly to 44 percent, from 37 percent in % more owners own DI insurance than in 2010.

6 How Priorities Align with Practices 6 51% have concerns about health care costs. Business Owners Concerns The pressure of owning a business takes its toll, as owners need to consider many factors in running and growing their businesses, while keeping everything in perspective. Small-business owners have concerns that keep them up at night, including the economy, personal concerns and the well-being of the business, as shown in the table that follows. Economy Health care costs (51%) Gas prices (48%) Taxes (46%) Top Business Owner Concerns Personal Concerns Maintaining current quality of life (45%) Outliving savings (43%) Affording good medical care (41%) Well-Being of Business Generating enough retirement income (37%) Avoiding borrowing money to increase sales/earnings (26%) Managing health care insurance costs (25%) 51% said they offer some type of qualified retirement plan. Employee Benefit Offerings Up Across the Board More than half of business owners (52 percent) agree that offering a good employee benefits plan is an essential component of their strategy to recruit and retain employees. Comprehensive health insurance continues to be the most common health and wellness solution small businesses offer, staying pretty constant from 2010 to However, the survey shows there has been a significant increase in small businesses offering health savings accounts (to 23 percent, from 14 percent in 2010) and wellness solutions (to 17 percent, from 10 percent in 2010). More than one third (39 percent) of business owners surveyed do not offer any non-medical employee and voluntary benefits yet it ranks in the top half of benefit priorities. The order of importance of non-medical benefits has not drastically changed since 2010 short-term disability insurance is ranked most important and vision insurance is ranked least. The reason cited most often by small-business owners for offering voluntary benefits is to improve worker morale and satisfaction (46 percent), followed by to attract and retain employees (36 percent), to promote employee well-being (35 percent) and to offer employees a wide array of benefits (34 percent). Half of business owners (51 percent) said they offer some type of qualified retirement plan, with a 401(k) plan being the most common type of plan offered (35 percent, up significantly from 23 percent in 2010).

7 How Priorities Align with Practices 7 Retirement Plans for Businesses, Owners Shifting Keeping it in the family is more important for business owners today. Retirement plans of some small-business owners have changed since the last survey, with a significant increase (21 percent, from 11 percent in 2010) in the number who plan to give their businesses to family members. Plus, 8 percent plan to sell their businesses to family members. Also, when stating their business goals, 31 percent (up from 26 percent in 2010 and 21 percent in 2008) plan to develop the business for family members. Significantly fewer small-business owners (25 percent, down from 31 percent in 2010) plan to never retire. And, significantly more (34 percent, up from 22 percent in 2010) are likely to continue working for 10 or more years. Individual business owners state these other goals for their company upon retirement: Close the business and retire at age 66 Develop e-commerce Have something to leave to my sons Make a lot of money Sell to employees Implications Stay out of bankruptcy Use core business to start new business The discrepancy between priorities and practices may be a result of a conflicting operational focus and limited resources. However, it also may be due to a lack of awareness of possible solutions revealing a need for education around the needs of business owners and the wide array of solutions available to help them meet those needs. Business owners are trying to align their personal financial needs with the financial needs of their businesses and employees. While business owners focus on all aspects of their businesses, options exist to offer more employee benefits and to add plans to address their business needs. These plans may also address business owners personal financial needs to help ensure the success of their businesses. Business owners focus more on short-term goals than on planning for the future of their businesses, a practice that may adversely affect their longterm goals. For example, the lack of an exit plan could lead to numerous challenges when business owners are ready or need to transition out of their businesses quickly or unexpectedly. In addition, ignoring wealth-transfer planning could lead to negative personal financial outcomes for their families. Business owners recognize the importance of their key employees. 2 Special benefit packages and plans are designed for key employees to help business owners recruit, retain and reward these employees. 2 Key employees are vital to small businesses, which typically include highly visible and highly compensated employees whose performances most affect the financial success of the business.

8 How Priorities Align with Practices 8 Analysis of 2012 Priorities First Priority: Business Protection Business Protection plans protect the integrity, cash flow and value of the business from the loss of a key employee due to death, disability or termination of employment. These benefits help the business meet the expenses associated with recruiting and training a new key employee. Although Business Protection ranked first in terms of business-owner priority, survey results show only 36 percent have a business protection plan. The most common form of protection offered is key person life insurance (20 percent), a decrease from 23 percent in Twelve percent of business owners have key person disability insurance, and 7 percent have a disability overhead expense plan in place. More than two-thirds of respondents (67 percent) who currently do not offer a plan report they will not add or change business protection in the next 12 months; and 58 percent (down from 68 percent in 2010) indicated their plans have been reviewed within the last two years. CONCLUSION: The No. 1-ranked category has the same utilization rate as the last-ranked category, exit planning. Actually, when business protection, exit planning and supplemental key employee benefits are combined, only 46 percent of business owners offer any of these plans. Key Person Life Insurance is insurance on the life of a key employee, purchased by the employer to help reimburse an employer for the economic loss caused by the death of the employee. Stay Bonus Program is a technique to provide key employees a financial incentive to stay with the business after the death of a business owner, which helps facilitate a smoother exit strategy for the owner. Key Person Disability Insurance is an efficient way to provide business clients with the funds necessary to handle the loss of a key employee due to a total disability. Benefits can be used at the discretion of the employer, but common uses include: recruitment and training costs, the cost of hiring temporary staff and short-term revenue replacement. Disability Overhead Expense reimburses an owner for business expenses incurred during a disability.

9 How Priorities Align with Practices 9 Second Priority: Health and Wellness Solutions Employer-sponsored health benefits provide health and health-related benefits generally to all employees and their dependents. Wellness programs are organized activities companies offer their employees to help them maintain or improve their health. The survey showed that less than half of business owners (40 percent) offer comprehensive health insurance to their employees 2 percent less than in As firm size increases, so does the likelihood that the business will offer health insurance. For example, only 23 percent of firms with two to nine employees offer comprehensive health insurance, as opposed to 76 percent of firms with 200 to 499 employees. Overall, health savings accounts (HSAs) and wellness solutions are offered by 23 percent and 17 percent, respectively, both significant increases from 14 percent and 10 percent, respectively, in CONCLUSION: While many businesses continue to offer comprehensive health insurance, the big news is the significant increase in alternative forms of health care offerings. Health savings accounts continue to increase in popularity among small-business owners. Also, the wellness programs are well-rounded and are designed to foster more employee engagement. Comprehensive Health Insurance is a variety of benefit design options that may include managed care provisions, employee-level choice of benefit designs and providers, and coordination of benefits. Health Savings Accounts (HSAs) are tax-advantaged trusts or custodial accounts created for the benefit of individuals covered under a qualified High Deductible Health Plan (HDHP). HSAs may be sold on a stand-alone basis in all states or with an insured HDHP in many states. Wellness Programs consist of organized activities companies offer their employees to help them maintain or improve their health. 60% 50% 40% 30% 20% 10% 0% 51% 50% Health Risk Assessment Preventive Screening Wellness Components Incentive 44% 42% 41% 39% Third Priority: Income Protection Health Coaching Year-Round Engagement Ongoing Communication Individual Disability Income (DI) insurance helps replace a portion of income lost due to a disability. Results of the survey showed that nearly one-third (32 percent) of business owners have individual DI insurance policies for themselves, a significant increase from 24 percent in And, 8 percent of business owners plan to purchase income protection in the next 12 months, a significant increase from 4 percent in More than half (58 percent) of business owners reviewed their income protection plans within the last two years. CONCLUSION: A big disconnect still exists between small-business owners stated high priorities and their actions. Income protection is identified as a personal priority, ranking third in both 2012 and Yet, six in 10 (63 percent) of small-business owners do not have income protection. The good news is small-business owners are paying attention to this important gap in insurance coverage, and the percentage that has income protection insurance significantly increased in 2012 from According to the Principal Financial Well-Being Index SM from First Quarter 2012, the most common reason people gave for not purchasing individual DI insurance is they believe it is too expensive. As business owners continue to recognize the need for income protection, they will protect not only their income but also their businesses and the welfare of their families.

10 How Priorities Align with Practices 10 Fourth Priority: Qualified Retirement Plans Qualified Retirement Plans are defined contribution and defined benefit retirement solutions, including 401(k)s, traditional defined benefit, profit sharing, Savings Incentive Match Plan for Employees Individual Retirement Accounts (SIMPLE IRAs) and Simplified Employee Pension (SEP) plans. These benefits are generally made available to all eligible employees. Survey results showed that more than half of business owners (51 percent) offer some type of qualified retirement plans to their employees. The most commonly offered retirement plan is a 401(k) plan (35 percent), followed by profit sharing (11 percent), SIMPLE (6 percent) and SEP (6 percent). Larger companies are significantly more likely than smaller companies to offer a 401(k) plan to their employees. For example, 67 percent of companies with 200 to 499 employees offer a 401(k) plan compared with 46 percent of companies with 10 to 49 employees. Of the business owners who don t currently offer a qualified retirement plan to their employees, approximately two in 10 (22 percent) plan to implement a retirement plan in the next 12 months. CONCLUSION: Qualified retirement plans remain a steadfast opportunity for employees and business owners to save for retirement and they also provide tax benefits. Offering a qualified retirement plan also benefits the business owner by attracting and retaining top talent. In 2012, small-business owners have a greater appreciation of these advantages: The percentage offering a 401(k) plan increased significantly to 35 percent, from 23 percent in (k) plan is a defined contribution (DC) plan that permits employees to contribute a portion of their pay on a pretax or after-tax basis, which is also known as an elective deferral. The employer may make matching contributions (in an amount that is based on the employee s elective deferral amount), additional contributions, profit sharing contributions or a qualified non-elective contribution. SEP (Simplified Employee Pension IRA) is a retirement plan that an employer or self-employed individuals can establish. The employer can claim a tax deduction for contributions he or she makes to the SEP plan and makes contributions to each eligible employee s SEP IRA on a discretionary basis. Profit Sharing is a qualified retirement plan established by an employer for the benefit of the business s employees and their beneficiaries in which contributions may vary annually depending on the company s profits. SIMPLE (Savings Incentive Match Plan for Employees) IRA is a retirement plan that may be established by employers, including self-employed individuals. The employer may claim a tax deduction for contributions the employer makes to the SIMPLE IRA. The employer makes either matching or non-elective contributions to each eligible employee s SIMPLE IRA and employees may make salary deferral contributions. Defined Benefit Plan is a traditional pension plan that pays members an anticipated amount (defined as a benefit in the plan) at retirement. It is also known as a pension plan.

11 How Priorities Align with Practices 11 Fifth Priority: Non-medical Benefits Non-medical Benefits are employer-sponsored, including life, short-term disability (STD), long-term disability (LTD), dental and vision insurance. The employer can pay all or part of the premium. When the employee pays 100 percent of the premium, the product is typically referred to as voluntary. (See Voluntary Benefits.) The survey showed: The priority ranking for non-medical benefits remained unchanged from the previous study. Of the five categories of non-medical benefits, short-term disability insurance ranks first, followed by life insurance, long-term disability insurance, dental insurance and vision insurance. 39% More than one third of business owners surveyed do not offer any non-medical employee or voluntary benefits. Non-Medical and Voluntary Priorities/Offerings Ranked Priority percentage offered 1 STD 36 2 Life 38 3 LTD 32 4 Dental 38 5 Vision 36 More than one third of business owners surveyed (39 percent) do not offer any non-medical employee or voluntary benefits. Dental and life insurance are the most commonly offered non-medical benefits. Both are offered by more than one third (38 percent) of business owners. The percentage of non-medical benefits offered increases with the size of the business. For example: while only 19 percent of business owners with two to nine employees offer dental benefits, 87 percent of business owners with 200 to 499 employees offer them. A small percentage of business owners 8 percent to 12 percent plan to add non-medical coverage in the next 12 months. On the other hand, few business owners (4 percent to 7 percent) plan to drop coverage, 8 percent plan to convert to voluntary and as many as 9 percent plan to reduce coverage. CONCLUSION: Small-business owners recognize the need to provide strong benefit packages to their employees, and they consider group non-medical benefits among their top five benefit priorities. However, what they choose to offer is often inconsistent with how they rank their top priorities. This is evident with the lower offering of both STD and LTD despite their higher priority rankings.

12 How Priorities Align with Practices 12 Executive Bonus Plan (IRC Section162) involves the purchase of life insurance on the life of a select employee. The employer pays the policy premium and includes the premium when reporting taxable wages. The employee (or a trust) owns the insurance, names the beneficiaries and has all rights to the policy. The employer has no rights to the policy s cash value or death benefit. Deferred Compensation (defined contribution that includes an account balance) is a compensation arrangement established by employers to provide retirement income to select employee(s). The contractual commitment is between an employer and participant(s) and specifies when and under what circumstances future compensation will be paid. The benefit usually results in a lump-sum payment or an annual income stream. Sixth Priority: Supplemental Key Employee Benefits Supplemental Key Employee Benefits are nonqualified benefits generally offered only to key employees whose performance most affects the success of the businesses where they work. These benefits can help in recruiting, rewarding and retaining key employees. As supplemental key employee benefits relate to retirement, they can help make up for benefits lost due to legal restrictions on qualified retirement plans. The research showed that only 27 percent of business owners offer some type of supplemental key employee plans for themselves or their key employees. Among businesses with 200 to 499 employees, the use of these plans is significantly higher than in businesses with employees (66 percent as compared to 46 percent). While the majority of business owners (68 percent) indicate their companies do not offer the listed supplemental key employee benefit plans, disability income insurance (9 percent), executive bonus plans (8 percent), and retirement protection disability coverage (8 percent) are the three most popular supplemental key employee benefit plans currently offered. With regard to qualified plan contribution limits: More than half of business owners (56 percent) indicate they or their key employees are limited in the amount they are allowed to contribute to their qualified retirement plans. Deferred Compensation (defined benefit that promises a future monthly benefit) is a compensation arrangement established by employers to provide retirement income to select employee(s). The contractual commitment is between an employer and participant(s) and specifies when and under what circumstances future compensation will be paid. The promised benefit is usually paid as an annual income stream. Disability Income Insurance for Key Employees involves establishing plans to protect key employees ability to work and earn an income in the event of a disabling illness or injury. However, more than two-thirds of business owners (68 percent) do not offer supplemental key employee benefits that can help overcome this limitation. CONCLUSION: An imbalance exists between business owners offerings and their key employees needs. For example, these results indicate a need for business owners to find ways to provide retirement savings opportunities beyond their companies qualified retirement plans. Seventh Priority: Voluntary Benefits Voluntary Benefits are employer-sponsored benefits where employees pay for 100 percent of the premium (50 percent or more for dental). Usually employees pay for these benefits through payroll deduction. Voluntary benefits may include life insurance, short-term disability, long-term disability, dental, vision, long-term care, cancer, critical illness and accident. The survey showed: The most commonly offered voluntary benefits, in order of frequency, include vision and supplemental medical (both 11 percent), and short-term disability and long-term disability (both 10 percent). Among business owners who offer voluntary benefits, 46 percent say they offer them to improve worker morale/satisfaction; 36 percent say they do so to attract and retain employees. The latter is down from 52 percent in A combination of group and one-on-one meetings, offered by 36 percent of business owners, is the most popular enrollment method used to educate employees.

13 How Priorities Align with Practices 13 CONCLUSION: Offering voluntary benefits helps business owners offer a more comprehensive benefit package to attract and retain qualified employees without having to increase their benefit spend. In the third quarter 2012 Principal Financial Well-Being Index SM, 61% of employees said having a good employee benefits plan keeps them working for their current employer and 64% said having a good employee benefits plan encourages them to work harder and perform better. Yet, the percentage of business owners offering voluntary benefits to attract and retain employees is down from 52 percent in 2010 to 36 percent in Eighth Priority: Wealth Transfer Wealth Transfer is the preparation of plans and/or agreements to ensure there are assets both personal and business to meet business owners lifetime objectives, and the assets are distributed in the most equitable and efficient manner consistent with owners goals and objectives. Of the business owners surveyed, 64 percent of business owners have some type of plan in place for wealth transfer. Almost half of all business owners (47 percent) have a will. The survey shows that: In 2012, 13 percent of business owners possess a family trust. In 2012, 17 percent of business owners possess a revocable life insurance trust. CONCLUSION: The amount of activity in the area of wealth transfer was relatively minimal from 2010 to Even though more than half of small-business owners do not have a will, only 12 percent plan to make or change a will. By not making a will, those who do not have one are putting their families and businesses at risk. Ninth Priority: Survivor Income Revocable Trust is a trust that offers potentially lower probate costs and more privacy than the usual probate process. It may be changed or terminated. Will is a document that specifies how a person s wealth will be transferred upon death. Three major provisions typically included are naming a guardian for the children, creating trusts and naming an executor. Family Trust (Credit Shelter Trust) is designed to minimize federal estate taxes for the benefit of one s family. It restricts access of the surviving spouse and uses the $1 million exemption of the first spouse to die. Survivor Income is the concept of using life insurance to help protect the future of a business owner s family in the event of the owner s death. Survivor income also provides solutions for business owners to help their families achieve their particular financial objectives. Business owners tend to have more life insurance than key employees and rank-and-file employees. The survey shows that 71 percent of business owners have life insurance, while LIMRA research shows that 56 percent of individuals with incomes of $100,000 and more 3 those with a greater likelihood of including key employees have life insurance. Of all U.S. households, slightly more than four in 10 (44 percent) have individual life insurance, representing a 50-year low LIMRA Life Ownership Study.

14 How Priorities Align with Practices 14 Death Buy-Sell is an agreement that establishes a predetermined business price and a buyer for the business interest when a business partner or owner dies. Life insurance is commonly used to help provide the funding needed for the buy-sell agreement. CONCLUSION: Business owners have more life insurance than the affluent market (incomes of $100,000 or higher) and all U.S. households. Yet three in 10 are placing their families and their businesses at risk by neglecting to have individual life insurance coverage. Even affluent households those earning $100,000 or more lack sufficient life insurance. One-third said they do not have enough coverage, according to LIMRA research. Tenth Priority: Exit Planning Exit Planning is the establishment of formal agreements by and between business owners and family members, key employees or other third parties to help provide for the continuation or sale of the business due to the owner s death, disability or retirement. The survey shows: Disability Buy-Sell is an agreement that establishes a predetermined business price and a buyer for the business interest when a business partner becomes totally disabled. Disability buy-out insurance is commonly used to help provide the reimbursement funding needed for the buy-sell agreement. Retirement Exit Planning helps business owners set exit goals and decide how best to achieve them. An exit plan can help maximize financial return when the business is transferred and may help minimize tax liability. Only 36 percent of small-business owners have an exit plan, leaving the vast majority without a plan to exit their businesses. Of those who have a plan, only slightly more than two in 10 (21 percent) have a buy-sell plan for a death, and more than one in 10 (13 percent) have a buy-sell plan for a disability. Business owners who plan to add staff in the next 12 months are significantly more likely to have specific types of exit plans, compared with business owners who intend to maintain their current number of employees. Thirty-nine percent who intend to add staff have a plan, compared with 11 percent who intend to maintain their current number of employees. In addition, small-business owners generally seem ill-prepared to take any action to exit their businesses, as more than nearly two-thirds (62 percent) have never had a business valuation. Without a business valuation, business owners may not know the full worth of their businesses. A quarter of business owners (25 percent) do not plan to retire, significantly fewer than in 2010 (31 percent). Of those who do plan to retire, 34 percent don t plan to retire for another 10 years. CONCLUSION: With more than a third (34 percent) planning to retire more than 10 years from now, it is important for them to periodically update their business valuations. The long time frame may allow them to work through the current economic challenges, help them grow their businesses and improve their personal financial situations.

15 How Priorities Align with Practices 15 Considerations for Business Owners In light of the survey findings, it s recommended that small-business owners: Review their current benefit offerings, making sure those offerings reflect their goals and priorities for themselves, key employees and businesses. Work with a financial professional to draft a comprehensive benefit plan that aligns the needs of themselves, their key employees and their businesses as a whole. Take note of the benefits they don t offer, evaluating whether to provide them. Educate themselves about available and recommended benefits, and ask for input from a financial professional. Recognize the importance of networking with business peers in their communities. Learn best practices and ways to improve their benefit offerings to improve both the short-term operations and long-term planning of their businesses. Avoid allowing short-term necessities to cloud the need for long-term planning. Research Methodology The survey was conducted by Harris Interactive and includes 505 online interviews conducted from May 4 through May 21, Interviews were conducted using our Harris Interactive Small Business Panel. Respondents qualified for this survey if they met the following criteria: United States resident age 21 and older Currently employed, either full time, part time or self-employed Business owner of at least 5 percent of the company Actively manage their business Own a company with between 2 and 500 employees, with quotas by completed interviews as follows: Business owners with 2-9 employees (n=101) Business owners with employees (n=103) Business owners with employees (n=101) Business owners with employees (n=100) Business owners with employees (n=100) Results were weighted for company size based on the number of employees, entity type, and annual sales. Potential respondents for this survey were selected from among those who have agreed to participate in Harris Interactive surveys. Because the sample is based on those who agreed to be invited to participate in the Harris Interactive online research panel, no estimates of theoretical sampling error can be calculated.

16 About The Principal The Principal Financial Group is a global investment management leader offering retirement services, insurance solutions and asset management. The Principal offers businesses, individuals and institutional clients a wide range of financial products and services through its diverse family of companies. Founded in 1879 and a member of the FORTUNE 500, the Principal Financial Group has $392.2 billion in assets under management as of September 30, 2012, and serves some 18.3 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 About Harris Interactive Harris Interactive is one of the world s leading custom market research firms, leveraging research, technology and business acumen to transform relevant insight into actionable foresight. Known widely for the Harris Poll and for pioneering innovative research methodologies, Harris offers expertise in a wide range of industries including health care, technology, public affairs, energy, telecommunications, financial services, insurance, media, retail, restaurant and consumer package goods. Serving clients in over 215 countries and territories though its North American, European and Asian offices and a network of independent market research firms, Harris specializes in delivering research solutions that help Harris and its clients stay ahead of what s next. For more information, please visit we ll give you an edge Principal National Life Insurance Company and Principal Life Insurance Company. Principal National (except in New York) and Principal Life are issuing insurance companies of the Principal Financial Group, Des Moines, Iowa , Not FDIC or NCUA insured May lose value Not a deposit No bank or credit union guarantee Not insured by any Federal government agency BB /2012 t ns