American Companies' Commitment to Offering Employee Benefits Will Remain Strong over Next Five Years.

Some Employers Take a More "Progressive" Approach

NEWARK, N.J. -- Despite increasing economic pressures, U.S. businesses overwhelmingly view employee benefit programs as important to competing effectively in today's market place, according to "Employee Benefits: 2006 & Beyond ," a new study released today by Prudential Financial, Inc. (NYSE: PRU) that explores current and future employee needs and how employers plan to respond to those needs. The results suggest that many plan sponsors are looking at new and innovative ways to better balance cost objectives and maintain competitive benefits programs.

"Our research yields insight about the employee benefits marketplace over the next five years that will assist us with building products and services that are valued by both the employers and employees we serve," said Ed Baird, president of Group Insurance, Prudential Financial.

Benefits Matter

Employers are facing higher medical insurance costs and increased pressure on expenses. Yet, most feel it is important to offer a competitive benefits package and subsidize as much of the cost as possible in order to attract and retain talent. In fact, eight in ten plan sponsors say it's important to offer and subsidize a wide range of employee benefits. And twice as many companies believe it is "highly important" (44 percent) compared to those who feel it's "less important" (22 percent) to offer their employees competitive benefits programs. This trend is true among companies of all size categories, but particularly for larger firms. However, as plan sponsors look to balance employee needs with the bottom line, many will reduce their benefits expenses by increasing employee cost-sharing on contributory plans, offering a wider range of voluntary benefits, and introducing more flexible plan designs.

Benefits Cost-Sharing Expected to Double by 2010

To maintain their current benefits offerings and coverage levels, most plan sponsors will shift costs to employees over the next five years. In fact, twice as many employers expect to increase employee cost-sharing by 2010. Top cost-sharing strategies include asking employees to shoulder a greater proportion of contributory benefits costs (37 percent) and offering more voluntary benefits, where the employee pays 100 percent of the cost (31 percent). Many plan sponsors (75 percent) also expect to implement consumer-driven health plans and integrated health and disability management initiatives.

Benefits Decision Making is Broadening

As benefits costs continue to increase as a percentage of payroll, the benefits decision-making process is becoming more complex with a widening pool of internal and external influencers. As a result, by 2010 plan sponsors say that finance (48 percent), risk management (24 percent) and procurement (15 percent) functions are playing a larger role in helping evaluate and negotiate for the most cost-effective solutions. As benefit choices become more complex and employees shoulder more of the expense, benefit providers will seek external guidance from benefits brokers/consultants (27 percent) and insurance carriers (27 percent) to help build the right solutions.

"The Progressives": A Small But Growing Segment

"Of particular interest from the findings, we learned about a small but growing segment of plan sponsors we've dubbed "The Progressives" because of their more strategic approach to addressing today's benefits challenges," added Baird. "For example, progressive firms focus on programs that manage risk rather than chase costs, such as wellness and prevention, disease state management, mental health counseling and work/life balance initiatives."

Gauging employees' needs, contribution to the company, competitive environment and ability to subsidize expenses must be carefully weighed to fine tune a benefits program. The study used the following criteria for determining what companies were considered "progressive plan sponsors":

* Currently offer benefits that are competitive within their industry/size segment;

* Understand employees' greatest financial and lifestyle concerns;

* Are highly interested in helping employees address their needs and plan to do so by 2010, particularly in maintaining a healthy lifestyle, providing access to mental health counseling, retirement planning and work/life balance programs.

The Number of "Progressives" Will Increase by 2010

On average, 11 percent of employers (about 68,000 businesses nationwide) consider themselves "progressive". And 31 percent consider themselves "above average," meaning they have a progressive benefit philosophy, but take a slightly more conservative approach in adopting new programs, communication strategies, technology and outsourcing. Across all plan sponsors surveyed, the percent of progressive and forward-thinking companies are expected to increase by 2010 to more that 50 percent of all employers.

Progressive Employers Come in All Sizes

* Employers with 5,000-9,999 employees comprise the largest share of "progressives" at 34 percent. Companies in this segment might have achieved the financial ability to offer stronger benefits, but likely also feel advanced benefits programs are key to attracting and retaining talent as they seek to reach the next level.

* The largest employers (10,000+ employees) are solidly positioned as "forward-thinkers" at 41 percent. Their resources, success, brand images and other factors are strong tools for attracting and retaining talent. Yet, most are unwilling to allow their competition to surpass them in terms of benefits offerings. The "forward-thinker" category also includes the largest segment of employers in the broad mid-size (and emerging large) market of 500-5,000 employees.

* Employers with less than 1,000 employees have a healthy representation as progressives and forward-thinkers. Given their size and other priorities, some firm's "status quo" approach to benefits is not surprising. Even so, smaller companies tend to watch market trends closely and adjust when necessary.

Prudential Financial's Employee Benefits: 2006 and Beyond report is based on an online national random sample of 1,218 benefits decision makers including executives, business owners, human resource and financial management and 400 employees. The survey was administered in February, 2006. The margin of error is plus +/-2.0 percentage points at the 95 percent confidence level. For a copy of the report, visit www.prudential.com/gi/.

Prudential Financial companies, with approximately $568 billion in total assets under management as of June 30, 2006, serve individual and institutional customers worldwide and include The Prudential Insurance Company of America, one of the largest life insurance companies in the United States. These companies offer a variety of products and services, including life insurance, mutual funds, annuities, pension and retirement-related services and administration, asset management, banking and trust services, real estate brokerage franchises, relocation services and, through a joint venture, retail securities brokerage services. For more information, visit www.prudential.com.