Procter & Gamble employees rely on their retirement plans at Procter & Gamble as a cornerstone of their financial security, yet as the company strives to innovate and grow it may make changes to these plans over time. Staying current on these updates allows you to leverage your assets more efficiently while taking full advantage of any tax incentives.
P&G Profit Sharing Trust (PST) is a defined contribution plan, offering participants a fixed sum upon separation or retirement from employment or upon receiving employer matching contributions. The value of this amount varies based on performance of investments within PST as well as personal accounts created from employee contributions plus related earnings as well as employer matching contributions.
Because the PST is heavily invested in P&G common stock and preferred shares, it poses concentration risk for employees. Employees with large holdings of company stock face the possibility of significant losses should their share price fall sharply – such as what occurred during P&G’s share price decline in early 1990s when its share value dropped nearly two-thirds. Therefore, we advise our clients to reduce their holdings of P&G common and preferred shares.
Procter & Gamble provides its employees with various retirement savings plans in addition to the PST, such as Savings Plans and LTIP RSUs. Of these options, Savings Plans offer more diversity than its PST counterpart and offer lower cost investment choices; however they remain limited when it comes to equity options as their underlying portfolios remain heavily weighted towards P&G stock.
LTIPs offer sophisticated retirement packages with substantial potential advantages for those approaching or recently separated from work. Their primary purpose is long-term incentive provision for high performers through vesting, cash payments and equity awards – each contributing towards your overall retirement picture. Similar to PST and Savings Plans plans, however, awards under an LTIP tend to be highly concentrated in company stock.
Once an individual has experienced a “qualifying life event” and needs to start taking RMDs, their first option should be rolling their assets over into an IRA in order to maximize investment flexibility and avoid taxes at ordinary income rates in future years. An alternative could be purchasing an individual annuity directly from the company – although few opt for this approach due to limited flexibility and higher costs than alternative strategies.
For those with vested amounts in their retirement accounts who aren’t yet ready to start taking RMDs, filing a Form 5500-Q can delay initial distribution by another year and extend when they can take distributions without incurring a 10% penalty fee. As more time passes between RMD distributions, their required minimum distributions decrease and retirement accounts expand further.