Depletion of P&G Preferred Stock: What You Need to Know

As of July 2024, a significant shift will take place in the Procter & Gamble Profit Sharing Trust (PST) that will impact how employees’ retirement savings are structured moving forward. This change marks the final instance where P&G employees will receive P&G preferred stock as part of their annual PST contribution.

Impact on Funding Composition 

For most employees, the transition away from preferred stock means a restructuring of their annual PST contributions. Starting with the July 2025 contribution cycle, the annual allocation will no longer include preferred stock. Instead, it will consist entirely of cash, which will be used to purchase common stock. This adjustment comes as there are no remaining preferred shares to distribute within the PST plan.  

Consequences for Highly Compensated Employees 

The shift holds more profound implications for those categorized as highly compensated employees. Previously, P&G’s preferred stock contributions were exempt from IRS funding limitations, specifically rule 415(c), providing flexibility in retirement planning. However, with the cessation of preferred stock contributions, these individuals may find that their personal contributions to the P&G Savings Plan could be eliminated due to federally mandated contribution limits. 

Under current regulations, IRS rule 415(c) limits how much can be contributed each year to employer-administered retirement funds, like pension plans, profit-sharing plans, and 401(k) plans. Currently, that limit is 100% of the employee’s compensation or $69,000, whichever is less. The limit applies to contributions made directly by the employee, as well as to contributions made by their employer.  

Currently, P&G employees earning $135,000 or more annually, with an adjusted service date before July 1, 2005, can contribute a maximum of $12,000 per fiscal year to their savings plan. The exclusion of preferred stock from 415(c) limits means that the new cash contributions will now count towards these thresholds. As a result, employees may reach their contribution limits earlier in the plan year, potentially preventing them from making additional savings contributions. It should be noted that the annual catch-up contribution will be allowed for those aged 50 and older. 

Mitigation Measures by P&G 

Recognizing these challenges, P&G intends to mitigate the impact on highly compensated employees by awarding Restricted Stock Units (RSUs). These RSUs will be awarded each year as an offset to highly compensated employees who find their ability to contribute to the savings plan reduced. This is as P&G is aiming to offset any reductions in retirement savings resulting from the transition away from preferred stock contributions. 

Looking Ahead 

The decision to discontinue preferred stock contributions reflects P&G’s commitment to adapt its retirement benefits to evolving regulatory frameworks and market conditions. While this change may initially present challenges for some employees, P&G remains dedicated to ensuring that retirement savings remain robust and competitive, supporting its workforce through innovative and rewarding investment strategies. 

In conclusion, as P&G prepares for the final distribution of preferred stock contributions in July 2024, employees should stay informed about how these changes will impact their retirement planning and we would invite you take advantage of the resources and support offered at Truepoint in helping navigate this change.

Truepoint Wealth Counsel is a fee-only Registered Investment Adviser (RIA). Registration as an adviser does not connote a specific level of skill or training nor an endorsement by the SEC. More detail, including forms ADV Part 2A & Form CRS filed with the SEC, can be found at Neither the information, nor any opinion expressed, is to be construed as personalized investment, tax or legal advice. The accuracy and completeness of information presented from third-party sources cannot be guaranteed.

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