Pre-paid calling cards and T-shirts might seem insignificant investments for companies with more important mandates, but according to the 10 firms selected by the Principal Financial Group as the best companies for employee financial security in 2005, it’s actually the small stuff that pays off in the long run.

The companies, selected by Principal from among a large number of small- and medium-sized companies across the U.S., not only offer top-tier pension benefits, but they have also found that incentivizing their employees with freebies such as T-shirts can go a long way toward making sure that people avail themselves of the investment and savings programs they have to offer.

“The judges of the [Best Companies for Employee Financial Security Program] are looking for a deep commitment from companies toward providing employees with the means and ways to accumulate for their financial security,” says Renee Schaff, a vice president at the Principal. “They are looking for employers that are deeply engaged with their benefits program, not only from the financial side, but also through communicating with their employees and ensuring they partake of the benefits program they offer.”

As in past years, this year’s winners were selected because of their ability to not only maintain an excellent benefits program in an increasingly costly environment, but also because of the strides they have made in changing employees’ mindsets on retirement finance from “entitlement to engagement,” Schaff says. While the onus of saving adequately for retirement has shifted onto the individual, companies need to still engage with their workforce, she says, and make sure that employees fully understand their benefits program and how best to contribute toward it for their own future financial security.

Measures taken by the 2005 winners to ensure their workforce makes the shift from entitlement to engagement include automatic enrollment in 401(k) plans and automatic increases in 401(k) deferrals. Most of the companies on the list also offer life-cycle funds, a feature Schaff thinks will see greater popularity in 2006, as life-cycle funds offer employees the kind of “do-it-yourself investment choices” that they both want and need. About 40% of plan sponsors in the Principal’s block of retirement business now offer life-cycle funds, Schaff says, a huge step considering that these vehicles were introduced quite recently.

Many of the top 10 companies are also offering age-specific retirement planning options, grouping people by age and directing them toward programs that are best suited to that age.

Most importantly, though, the 10 Best Companies for Employee Financial Security made the wise decision to employ financial advisors to educate and inform their workforce about their retirement goals and investment options, Schaff says.

“This is a very important move by these companies,” she says. “Every person’s financial situation is different and it is sometimes difficult to get one’s arms around how much to save, and where to invest. A financial advisor can provide one-on-one support and this kind of interaction is extremely important.”

Through their experiences, the 10 best companies selected by Principal underscore the need for a personal, one-on-one kind of approach to the retirement space from the part of employers, Schaff says. Even though more and more companies across the U.S. have recognized the importance of this, there is still not enough happening, she says. However, companies need to make the necessary investments for a more personalized and engaged approach to help their employees invest for retirement, and to recognize the fact that “great benefits attract great employees.”

“The one thing the winners understand is that they need to invest a lot into these programs and to educate people thoroughly,” Schaff says. “In the long run, this pays off because great benefits result in a dedicated and stable workforce.”

Indeed, employee turnover rate at the 10 companies selected by Principal in 2005 is less than half the national average, Schaff says.

Principal began the 10 Best program in 2000 and in 2001, compiled the experiences of the winners in a guide that has quickly become a valuable resource for employers, employees, plan sponsors and others in the retirement space.

The guide can be found at www.principal.com/theprincipal10best/index.htm