Managing Your P&G Savings Plan And Profit Sharing Trust (PST) Accounts

Savings Plan and PST Basics

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Procter & Gamble offers two distinct retirement accounts designed to help employees build long-term financial security: the Savings Plan (401(k)) and the Profit-Sharing Trust (PST). The Savings Plan is a traditional 401(k) that allows employees to contribute either Pre-Tax or Roth dollars directly from their paycheck. It provides immediate vesting and a wide range of investment options, giving employees flexibility and control over their retirement strategy. In contrast, the PST is a company-funded profit-sharing account. Employees do not contribute to this plan; instead, P&G makes annual contributions in July. These contributions are made primarily in cash, which then buys Common shares at the current market price, and a little bit of Preferred stock. While diversification is limited before age 45, employees can begin reallocating their investments after reaching that milestone - though they must maintain at least 40% in P&G stock. An important note when diversifying: know the distinction between Common and Preferred shares of P&G stock and consider selling only Common shares so that you preserve the Preferred shares for utilizing the Net Unrealized Appreciation (NUA) strategy at retirement.

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Roth vs. Pre-Tax Contributions?

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When contributing to your P&G Savings Plan, choosing between Roth and Pre-Tax contributions is key to building a tax-efficient retirement. Roth contributions are made with after-tax dollars, allowing your investments to grow tax-free and be withdrawn tax-free in retirement. This option is ideal if you expect to be in a higher tax bracket later or want tax diversification. Pre-Tax contributions reduce your taxable income today by providing a tax deduction and then grow tax-deferred. When withdrawals are taken in retirement, you will pay ordinary income taxes on the entire distribution. This strategy benefits those in higher earning years now and who anticipate a lower tax bracket in retirement. 

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Allocating Investments Across The P&G Savings Plan And PST

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When managing your P&G Savings Plan and PST, understanding how to allocate your investments is key to building a strong retirement strategy. The Savings Plan offers a wide range of investment options, including 3 risk profile funds, mutual funds, low-cost index funds, and company stock. You have full control over how your contributions are allocated, allowing you to tailor your portfolio to your risk tolerance and retirement timeline. The PST account, however, has specific requirements. It is primarily invested in P&G stock and, until age 45, diversification out of P&G stock is limited. However, once you reach age 45, you can begin reallocating your PST balance, but you must maintain at least 40% of the account in P&G stock.

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Managing P&G Stock Exposure To Reduce Concentration Risk

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Many P&G employees accumulate significant exposure to P&G stock through their Profit-Sharing Trust (PST), Restricted Stock Units (RSUs), and Options. While company stock can be a valuable part of your portfolio, too much of it creates concentration risk - the potential for your financial future to be overly tied to one company’s performance. Observing and managing this risk can prove a worthy endeavor to protect and grow your wealth. In the PST account, diversification within the account is restricted until age 45. However, after turning 45 you may begin reallocating your holdings, but you must maintain at least 40% of the account in P&G stock. This age-based rule is critical for managing risk while complying with plan guidelines. Additionally, RSUs that vest after 3 years can be sold to reduce exposure and rebalance your portfolio. Selling RSUs immediately after they vest doesn’t trigger additional tax liability but allows you to manage concentration in P&G stock and reinvest the proceeds into a more diversified mix of investments.

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