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Procter & Gamble Plans Competitive, But Exposure to Company Stock a Risk to Participants

Procter & Gamble (P&G) offers 3 different retirement plans; a 401k, an ESOP and a frozen defined benefit plan. The defined benefit plan is no longer available to new employees, and as such will be largely excluded from our analysis. As a standalone, the $3B P&G Savings Plan is a below average 401k offering, with no employer match and average participant contributions. The $16B P&G ESOP offers a generous employer contributions and is invested almost exclusively in company stock. Combined, the full retirement package is competitive from a generosity standpoint, but the exposure to P&G stock is too risky for the average participant.


Company Background

Procter & Gamble Co. (P&G) is a consumer goods company headquartered in Cincinnati, Ohio. P&G’s products include pet food, cleaning agents and personal care products. In 2014 P&G reported $83.1 billion in sales and net assets just shy of $140 billion. Recently, the company has been undergoing a cost cutting initiative which includes major employee layoffs. P&G plans to drop around 100 brands that make up 5% of their company profits and focus on the remaining 80 which produce 95% of the company’s profits.


Retirement Plan Details

Procter & Gamble’s two active retirement plans are the the Procter & Gamble Savings Plan, a 401k plan, and the Procter & Gamble Profit Sharing Trust and Employee Stock Ownership Plan, an ESOP. P&G’s two active plans are huge, covering 27,000 employees each. The ESOP has $16b in assets and the P&G Savings Plan contains $3b in assets.


P&G ESOP DC $16.5B No
P&G Savings Plan DC $3.1B No
P&G Master Retirement Plan      DB $1.8B Yes


Since 2010 the P&G Savings Plan has increased net assets by 36%, however net flows have been negative each year since 2010. Most of this growth is market-driven. However, the plan has been hurt by an over-allocation to P&G stock that has badly lagged the index.



The negative net flows should not come as a surprise as P&G's total headcount continues to decline as the result of its streamlining effort. A count of total plan participants illustrates this, in 2010 the plan had 34,575 active participants compared to 27,760 in 2014.


BrightScope Rating

The Procter & Gamble Savings Plan receives a BrightScope rating of 67, above its peer group average of 65 but falling well short of the highest peer group rating of 85. The plan’s rating has not varied much in recent years but has moved up roughly 3 points since 2010.  P&G’s ESOP checks in with a BrightScope Rating of 77 in 2014, a value that has been very constant over the past few years.



There are two primary reasons for the rating increase in the P&G Savings Plan, a decline in Total Plan Cost (TPC) and an increase in the plan’s participation rate. TPC has shrunk by 50% since 2009. TPC has dropped in part due to the growing share of plan assets invested in index products. Since 2010, the plan has increased its investment in index funds from under 40% of assets to over 50% of assets. The lower fees associated with these index products have driven down plan costs. The plan’s participation has moved up from 80% to 87% in just a few short years. 


Retirement Package Design

P&G’s dual retirement plan offerings of a 401k and an ESOP are generally speaking good vehicles to encourage retirement savings. P&G provides an incredibly generous annual contribution to the ESOP that in 2013 equated to almost $10k per active participant. Compared to other firms in the same industry this is incredibly generous. The firm does have a 4 year graded vesting schedule on that match, but longer-term employees are not impacted. The company contribution is provided as company stock. In an era where most employers have moved away from loading their employees up with their own stock, P&G likely views the plan as a way to provide their employees with ownership interest in the company. While company ownership is a valuable way to align incentives, it becomes irresponsible when employees have 70% of their retirement assets invested in a single company. The cost of this policy has been staggering, with P&G stock trailing behind the S&P 500 Index by over 10% a year over the last 5 years. P&G should consider adding a match to the P&G Savings Plan, which would encourage more employee deferrals into non-company stock investment options.

On a positive note, the plan does a great job on keeping fees low for investors and is seeing improving participation rates.

P&G Component Ratings


P&G ESOP Component Ratings

P&G participation rate in its 401k plan is average compared to its peer group but at 86.9% is nothing to sneeze at. The ESOP’s participation is at 95%, reflecting the fact that the company makes the contributions and thus does not require participant election. One method to increase participation is to consider a new enrollment structure that automatically enrolls new employees and re-enrolls existing employees and combine it with a company match. Doing so would improve the component ratings that go into P&G’s BrightScope rating and would make retirement saving easier for P&G employees. If auto-enrollment is added, P&G would need to select a QDIA that would provide a diversified portfolio for defaulted investors. Most companies of P&G’s size have chosen target date funds as their QDIA.


Service Providers

There hasn’t been much recent change in the P&G retirement service providers. Dating back to 2010 JPMorgan has acted as the recordkeeper, trustee and custodian for both of P&G’s active retirement plans.


Investment Menu

Other than some minor differences in the classes of company stock offered, P&G offers the same investment options to participants in both active DC plans. P&G does one thing very well with their core investment lineups: keeping things simple. Both plans sport 6 index products that cover the primary asset classes - large cap, small/mid cap, international stock and bonds. They supplement those index products with company stock, a money market fund and a real return product for diversification. At 10-12 investments options both retirement offerings have roughly half the investment options of a typical plan its size. If you exclude the stock and the money market fund, the funds are all collective trusts and the vast majority of the assets are indexed. The plan does not offer target date funds, so participants do have to do their own allocation work, but at least the plan is kept simple to make that task easier for participants.

Across the two plans over 70% of plans assets are invested in P&G company stock. BrightScope believes that having over 10% of assets in company stock is not wise. Having company stock as an option is fine, but it should be capped so participants do not become over-exposed to it. The P&G Savings Plan has seen declining exposure to company stock, from 46% in 2010 to 38% in 2014,but more needs to be done across the two plans to minimize participant exposure.



Index fund adoption at P&G is on the upswing, the P&G Savings Plan is now over 50% indexed. For P&G participants looking for actively managed funds, P&G could consider adding a brokerage window.


Investment Menu Changes

P&G has made several changes to their core investment lineup over the last 6 years. The plan has removed multiple active managers - PIMCO, Fidelity, JPMorgan - and replaced them with BlackRock and SSgA index products in multiple asset classes. They added a short term credit index and a real return product to provider further diversification.


2014 BlackRock MSCI ACWI ex-U.S. IMI Index None $292M World Ex-US
2012 SSGA Real Return Ex-Natural Resources Equity      None $67M Commodities
2012 SSgA Short US Govt / Credit Bond Index      None $67M Intermediate Government Bonds
2012 BlackRock Money Market JPMorgan Stable Value Fund, JPMorgan Prime Money Market $230M Cash
2009 BlackRock MSCI ACWI ex-US Index Fidelity Diversified International $100m International Stock
2009 BlackRock US Debt Index PIMCO Total Return, JPMorgan Core Bond Ultra $100m Total Bond


All told the lineup has become less actively managed and less mutual fund oriented, both of which are in line with other plans of similar size.



All in all, the Procter & Gamble retirement package is middle of the road. The package offers a great match, well designed lineup and low fees, but those positives are outweighed by the over-exposure to company stock. Lowering the company stock exposure and providing the match within the participant-directed P&G Savings Plan would go a long way towards providing a better retirement benefit for employees.

If P&G were to solve a single challenge with their retirement package, it would be finding ways to reduce its employees exposure to P&G stock to reasonable levels.

BrightScope Editorial
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