<img height="1" width="1" style="display:none" src="https://www.facebook.com/tr?id=314834185700910&amp;ev=PageView&amp;noscript=1">

Retirement Guide for Pepsi Employees

2024 Tax Rates & Inflation

In our comprehensive retirement guide for PepsiCo employees, we go through many factors which you may take into account when deciding on the proper time to retire from Pepsi. Some of those factors include: healthcare & benefit changes, interest rates, the new 2024 tax rates, inflation, and much more. Keep in mind we are not affiliated with Pepsi. We recommend reaching out to your Corporate benefits department for further information.

Table of Contents

2024 Tax Changes & Inflation

BOE-HTML-Inflation

It is imperative for individuals to be aware of new changes made by the IRS. The main factors that will impact employees will be the following:

  • The 2024 standard deduction will increase to $14,600 for single filers and those married filing separately, $29,200 for joint filers, and $21,900 for heads of household.

  • Taxpayers who are over the age of 65 or blind can add an additional $1,550 to their standard deduction. That amount jumps to $1,950 if also unmarried or not a surviving spouse.

 

Retirement account contributions: Contributing to your company's 401k plan can cut your tax bill significantly, and the amount you can save has increased for 2024. The amount individuals can contribute to their 401(k) plans in 2024 will increase to $23,000 -- up from $22,500 for 2023.  The catch-up contribution limit for employees age 50 and over will increase to $7,500.

There are important changes for the Earned Income Tax Credit (EITC) that you, as a taxpayer employed by a corporation, should know:

  • The tax year 2024 maximum Earned Income Tax Credit amount is $7,830 for qualifying taxpayers who have three or more qualifying children, up from $7,430 for tax year 2023.
  • Married taxpayers filing separately can qualify: You can claim the EITC as married filing separately if you meet other qualifications. This was not available in previous years.

 

Deduction for cash charitable contributions: The special deduction that allowed single nonitemizers to deduct up to $300—and married filing jointly couples to deduct $600— in cash donations to qualifying charities has expired.

Child Tax Credit changes:

  • The maximum tax credit per qualifying child is $2,000 for children five and under – or $3,000 for children six through 17 years old. Additionally, you can't receive a portion of the credit in advance, as was the case in 2023. 
  • As a parent or guardian, you are eligible for the Child Tax Credit if your adjusted gross income is less than $200,000 when filing individually or less than $400,000 if you're filing a joint return with a spouse. 
  • A 70 percent, partial refundability affecting individuals whose tax bill falls below the credit amount.

 

2024 Tax Brackets

2024-Tax-Bracket

 

Inflation reduces purchasing power over time as the same basket of goods will cost more as prices rise. In order to maintain the same standard of living throughout your retirement after leaving your company, you will have to factor rising costs into your plan. While the Federal Reserve strives to achieve a 2% inflation rate each year, in 2023 that rate shot up to 4.9% which was a drastic increase from 2020’s 1.4%. While prices as a whole have risen dramatically, there are specific areas to pay attention to if you are nearing or in retirement from your company, like healthcare. 

 It is crucial to take all of these factors into consideration when constructing your holistic plan for retirement from your company.

*Source: IRS.gov, Yahoo, Bankrate, Forbes

Blogs You May Enjoy:

New call-to-action

New call-to-action

New call-to-action

additional-articles-trg-1

Planning Your Retirement

Life after Retirement (graphic)

Retirement planning is a verb; consistent action must be taken whether you’re 20 or 60.

The truth is that most Americans don’t know how much to save or the amount of income they’ll need.

No matter where you stand in the planning process, or your current age, we hope this guide provides you a good overview of the steps to take and resources that help you simplify your transition from your company into retirement and get the most from your benefits.

You know you need to be saving and investing, especially since time is on your side the sooner you start, but you don’t have the time or expertise to know if you’re building retirement savings that can last after leaving your company.

"A separate study by Russell Investments, a large money management firm, came to a similar conclusionRussell estimates a good financial advisor can increase investor returns by 3.75 percent."

Source: Is it Worth the Money to Hire a Financial Advisor? The Balance, 2021

Starting to save as early as possible matters. Time on your side means compounding can have significant impacts on your future savings. And, once you’ve started, continuing to increase and maximize your contributions for your 401(k) plan is key.

ATTV5 Graph page8

There's a 79% potential boost in wealth at age 65 over a 20-year period when choosing to invest in your company's retirement plan.

*Source: Bridging the Gap Between 401(k) Sponsors and Participants, T.Rowe Price, 2020

As decades go by, you’re likely full swing into your career at your company and your income probably reflects that. However, the challenges of saving for retirement start coming from large competing expenses: a mortgage, raising children, and saving for their college.

One of the classic planning conflicts is saving for retirement versus saving for college. Most financial planners will tell you that retirement from your company should be your top priority because your child can usually find support from financial aid while you’ll be on your own to fund your retirement.

How much we recommend that you invest towards your retirement is always based on your unique financial situation and goals. However, consider investing a minimum of 10% of your salary toward retirement through your 30s and 40s.

As you enter your 50s and 60s, you’re ideally at your peak earning years with some of your major expenses, such as a mortgage or child-rearing, behind you or soon to be in the rearview mirror. This can be a good time to consider whether you have the ability to boost your retirement savings goal to 20% or more of your income. For many people, this could potentially be the last opportunity to stash away funds.

In 2024, workers age 50 or older can invest up to $23,000 into their retirement plan/401(k), and once they meet this limit, they can add an additional $7,500 in catch-up contributions for a combined annual total of $30,500. These limits are adjusted annually for inflation.

Why are 401(k)s and matching contributions so popular?

These retirement savings vehicles give you the chance to take advantage of three main benefits:

  • Compound growth opportunities (as seen above)
  • Tax saving opportunities
  • Matching contributions

Matching contributions are just what they sound like: your company matches your own 401(k) contributions with money that comes from the company. If your company matches, the company money typically matches up to a certain percent of the amount that you put in.

Unfortunately, many people fail to take advantage of their company's matching contributions because they’re not contributing the required minimum to receive the full company match. 
Research published in 2022 by Principal Financial Group identified that 62% of workers deemed company 401(k) matches significantly important to reaching their retirement goals.

According to Bank of America's "2022 Financial Life Benefit Impact Report", despite 58% of eligible employees participating in a 401(k) plan, 61% of them contributed less than $5,000 during the current year.

The study also found that fewer than one in 10 participants’ contributions reached the ceiling on elective deferrals, under IRS Section 402(g) — which is $23,000 for 2024.

A 2020 study from Financial Engines titled “Missing Out: How Much Employer 401(k) Matching Contributions Do Employees Leave on the Table?”, revealed that employees who don’t maximize their company match typically leaves $1,336 of extra retirement money on the table each year.

For example, if your company will match up to 3% of your plan contributions and you only contribute 2% of your salary, you aren’t getting the full amount of the company match.  By simply increasing your contribution by just 1%, your company is now matching the full 3% of your contributions for a total combined contribution of 6%. By doing so, you aren’t leaving money on the table.

 

Schedule a Call

Your Pension Plan

BOE-HTML-Your-Pension-Plan
Whether you’re changing jobs or retiring from your company, knowing what to do with your hard-earned retirement savings can be difficult. A company-sponsored plan, such as a pension and 401(k), may make up the majority of your retirement savings, but how much do you really know about that plan and how it works?
 
There are seemingly endless rules that vary from one retirement plan to the next, early out offers, interest rate impacts, age penalties, and complex tax impacts.
 
Increasing your investment balance and reducing taxes is the key to a successful retirement plan spending strategy. At The Retirement Group, we can help you understand how your company's 401(k) fits into your overall financial picture and how to make that plan work for you.
 
"Getting help and leveraging the financial planning tools and resources your company
makes available can help you understand whether you are on track, or need to
make adjustments to meet your long-term retirement goals..."
 
Source: Schwab 401(k) Survey Finds Savings Goals and Stress Levels on the Rise

Please Note: 

PepsiCo is implementing a pension freeze, effective at the end of 2025.

This means that employees will no longer accrue additional benefits after the freeze date, though they will retain the benefits they have already earned.

 

PepsiCo's Defined Benefit Pension Plan

PepsiCo’s Defined Benefit Pension Plan is a traditional pension plan designed to provide retirees with a fixed, pre-determined benefit based on factors such as years of service, salary, and age at retirement.

This plan benefits salaried employees who meet the eligibility criteria.

How It Works:

  1. Formula: The pension is calculated using a formula based on an employee's years of service and their average salary, typically during the last few years of employment or the highest salary years. For example, 1.5% of the member's highest average monthly salary, multiplied by the number of pensionable years of service, or 3% of the member's highest average monthly salary, multiplied by the number of years of pensionable service, but not exceeding 15 years.

  2. Lump Sum or Annuity: Retirees can choose to receive their pension in the form of monthly payments (annuity) or a one-time lump sum. The calculation for the lump sum depends on the interest rates in effect at the time of retirement.

  3. Eligibility: Generally, PepsiCo employees who have worked for the company for a certain number of years (typically 5 or more years) and have reached a minimum age (usually 55) are eligible for the defined benefit pension.

  4. Pension Freeze (2025): PepsiCo is implementing a pension freeze, effective at the end of 2025. This means that employees will no longer accrue additional benefits after the freeze date, though they will retain the benefits they have already earned.

Example Calculation:

Suppose an employee worked for PepsiCo for 25 years, and their final average salary is $100,000. Using a pension accrual rate of 1.5%, the annual pension would be calculated as:

 

In this case, the employee would receive $37,500 annually upon retirement, either as a monthly annuity or a lump sum based on the current interest rate.

Eligibility and Access:

  • Who is eligible? Full-time salaried employees who have reached the retirement age or who have completed a minimum of 5 years of service. In some cases, hourly employees and non-salaried workers in certain divisions may also qualify if they are part of specific legacy plans
  •  
  • Plan Details: Different divisions, such as PepsiCo UK or international branches, may have slightly varying rules and benefits.

PepsiCo Pension Equalization Plan (PEP)

 

The PepsiCo Pension Equalization Plan (PEP) is designed to provide supplemental retirement benefits to PepsiCo employees whose benefits under the primary Salaried Employees Retirement Plan are limited by IRS regulations.

The PEP ensures that participants receive the full benefits they would have earned if not for those legal caps.

The PEP is divided into two segments: a Pre-409A Program and a Post-409A Program.

The Pre-409A Program covers benefits earned or vested before January 1, 2005, while the Post-409A Program governs benefits accrued after this date.

These segments are tracked separately to comply with regulatory requirements. The plan primarily offers benefits as a lifetime annuity, with options for lump-sum payouts under specific conditions, utilizing standard actuarial factors, such as the 5% interest rate and mortality tables.

Additionally, the plan is designed to align with the rules of the company's Salaried Plan, and any freeze or changes to the Salaried Plan (such as the freeze scheduled for December 31, 2025) will also apply to the PEP.

PepsiCo’s Pension Equalization Plan (PEP) is a supplemental retirement plan that provides benefits to employees who are affected by IRS limits on compensation and benefits under the PepsiCo Salaried Employees Retirement Plan.

This plan ensures that employees receive full retirement benefits, even beyond the limits set by the Internal Revenue Code. It is available to employees whose compensation or pension contributions exceed these legal caps.

Eligibility and Benefits:

  1. The PEP benefits accrue in tandem with the benefits of the Salaried Employees Retirement Plan, ensuring that employees receive what they would have earned if the IRS limits did not apply.
  2. Employees eligible for this plan are generally those whose compensation is high enough to exceed the IRS-imposed caps on retirement contributions and benefits.
  3. The PEP also has provisions that mirror the Salaried Plan, including opportunities for annuity and lump-sum distributions, calculated using similar actuarial assumptions like a 5% interest rate and specified mortality tables.
  4. The plan is subject to a freeze in accruals at the end of 2025, similar to the freeze in the Salaried Plan.

 

PepsiCo Employee Stock Options

PepsiCo offers stock options and Restricted Stock Units (RSUs) to its employees as part of its compensation and benefits package. These programs are designed to reward employees for long-term service and align their interests with the company's performance.

Stock Options:

PepsiCo provides Incentive Stock Options (ISOs) and Nonqualified Stock Options (NSOs). These options allow employees to purchase company stock at a predetermined price, offering potential tax advantages if the employee meets specific holding periods.

ISOs can offer long-term capital gain treatment if the stock is held for at least two years from the date of grant and one year from the date of exercise. However, employees may be subject to the Alternative Minimum Tax (AMT) upon exercising these options if the fair market value exceeds the option price.

Restricted Stock Units (RSUs):

RSUs are another equity compensation mechanism available to PepsiCo employees, often granted as part of long-term incentive plans for executives and certain key employees. RSUs provide recipients with the right to receive shares of PepsiCo stock upon vesting, typically after meeting certain service or performance criteria. RSUs generally offer tax benefits since they are taxed only when they vest and the employee receives the shares. At that point, the value of the shares is taxed as ordinary income.

Eligibility:

RSUs and stock options at PepsiCo are typically granted to salaried employees, particularly those in managerial, executive, or leadership roles, as part of their long-term incentive compensation. The level of eligibility and the amount of granted equity can depend on the employee’s position, performance, and length of service. 

 

 

PepsiCo Executive Income Deferral Program (EIDP)

PepsiCo offers a 409A Deferred Compensation plan called the Executive Income Deferral Program (EIDP), which allows eligible U.S.-based executives to defer a portion of their salary and bonuses.

Executives can defer up to 75% of their base salary and 100% of their annual cash incentives.

These deferrals are placed into phantom investment funds, with no guaranteed return on investments, as they are tied to market-based funds.

PepsiCo does not offer matching contributions on these deferrals. The EIDP is a non-qualified, unfunded program, meaning participants' balances are unsecured and could be at risk in the event of bankruptcy.

Executives who participate in the program must make elections on how and when to receive the deferred amounts.

Distributions can be scheduled for a specific date or triggered upon separation from service.

For any deferrals made after 2004, payments triggered by separation are delayed six months if the executive is classified as a “specified employee” under IRS Section 409A.

Participants can receive the deferrals in lump sums or installments over a period of up to 20 years, but distributions are made in cash.

Eligibility for this plan is limited to executive officers and senior management. The program is designed to provide tax deferral benefits to PepsiCo’s top-level employees, enhancing long-term financial planning options for executives who receive significant compensation packages.

 

Your 401(k) Plan

US-Bank-HTML-Your-401k-Plan

401(k) Savings Plan

Employees are encouraged to enroll in a 401(k) savings plan right away. You may invest on a before-tax and/or an after-tax basis (regular or Roth) and choose various investment options, with varying degrees of risk.

In 2024, workers can contribute up to $23,000 into their 401(k), and for those 50 and older, they can add an additional $7,500 in catch-up contributions for a combined annual total of $30,500. These limits are adjusted annually for inflation.

You can also roll over pre-tax and Roth amounts from other eligible plans. 

Vesting

As a participant, you vest in the company match after meeting or exceeding the vesting service.

In addition, if you have an account in an eligible plan of a former employer, you may be eligible to roll over a distribution from that account to the Savings Plan.

When you retire, if you have balances in your 401(k) plan, you will receive a Participant Distribution Notice in the mail. This notice will show the current value that you are eligible to receive from each plan and explain your distribution options. It will also tell you what you need to do to receive your final distribution. Please call The Retirement Group at (800)-900-5867 for more information and we can get you in front of a retirement-focused advisor.

Next Steps:

  • Watch for your Participant Distribution Notice and Special Tax Notice Regarding Plan Payments. These notices will help explain your options and what the federal tax implications may be for your vested account balance.
  • "What has Worked in Investing" & "8 Tenets when picking a Mutual Fund".
  • To learn about your distribution options, call The Retirement Group at (800)-900-5867. Click our e-book for more information on "Rollover Strategies for 401(k)s". Use the Online Beneficiary Designation to make updates to your beneficiary designations, if needed.

 

PepsiCo’s 401(k) Retirement Savings Plan

PepsiCo’s 401(k) Retirement Savings Plan offers a comprehensive retirement savings option for eligible employees.

Here's a detailed explanation of how the plan works, who is eligible, and an example calculation based on your contributions:

Key Features of the PepsiCo 401(k) Plan:

  1. Eligibility: PepsiCo employees, including salaried and hourly workers, are eligible to participate in the 401(k) plan. Full-time employees are eligible after their first day of service, while part-time employees become eligible after completing 1,000 hours within a 12-month period.

  2. Contributions: Employees can contribute up to 50% of their eligible pay into the 401(k) on either a pre-tax or after-tax (Roth) basis. PepsiCo will match 50% of the employee's contribution, up to 8% of eligible pay based on service. This means that for every dollar you contribute (up to 8% of your salary), PepsiCo will contribute 50 cents.

  3. Automatic Enrollment: New hires are automatically enrolled at a 4% contribution rate, with an automatic increase of 1% per year for two years, until the contribution rate reaches 6%.

  4. Investment Options: The plan offers a variety of investment options, including conservative, moderate, and aggressive funds, as well as target-date funds that adjust as employees near retirement.

  5. Vesting: Employees are immediately vested in their contributions and any investment earnings. PepsiCo’s matching contributions become fully vested after three years of service.

Example Calculation:

Let’s say you earn $50,000 per year and contribute 8% to your 401(k). Here’s how the contribution works:

  • Your contribution: 8% of $50,000 = $4,000 per year.
  •  
  • PepsiCo match: 50% match on 8% = 4% of $50,000 = $2,000 per year.
  •  

The total contribution to your 401(k) would be:

  • Total: $4,000 (your contribution) + $2,000 (PepsiCo’s match) = $6,000 per year.
  •  

Over half of plan participants admit they don’t have the time, interest or knowledge needed to manage their 401(k) portfolio. But the benefits of getting help goes beyond convenience. Studies like this one, from Charles Schwab, show those plan participants who get help with their investments tend to have portfolios that perform better: The annual performance gap between those who get help and those who do not is 3.32% net of fees. This means a 45-year-old participant could see a 79% boost in wealth by age 65 simply by contacting an advisor. That’s a pretty big difference.diversification-removebg-preview

Getting help can be the key to better results across the 401(k) board.

A Charles Schwab study found several positive outcomes common to those using independent professional advice. They include:

  • Improved savings rates – 70% of participants who used 401(k) advice increased their contributions.
  • Increased diversification – Participants who managed their own portfolios invested in an average of just under four asset classes, while participants in advice-based portfolios invested in a minimum of eight asset classes.
  • Increased likelihood of staying the course – Getting advice increased the chances of participants staying true to their investment objectives, making them less reactive during volatile market conditions and more likely to remain in their original 401(k) investments during a downturn. Don’t try to do it alone. Get help with your company's 401(k) plan investments. Your nest egg will thank you.
In-Service Withdrawals
 
Generally speaking, you can withdraw amounts from your account while still employed with your company under the circumstances described below.

It’s important to know that certain withdrawals are subject to regular federal income tax and, if you’re under age 59½, you may also be subject to an additional 10% penalty tax. You can determine if you’re eligible for a withdrawal, and request one, online or by calling your company's Benefits Center.

Rolling Over Your 401(k) 

As long as the plan participant is younger than age 72, an in-service distribution can be rolled over to an IRA. A direct rollover would avoid the 10% early withdrawal penalty as well as the mandatory 20% tax withholding. Your company's plan summary outlines more information and possible restrictions on rollovers and withdrawals.

Because a withdrawal permanently reduces your retirement savings and is subject to tax, you should always consider taking a loan from the plan 
instead of a withdrawal to meet your financial needs. Unlike withdrawals, loans must be repaid, and are not taxable (unless you fail to repay them). In some cases, as with hardship withdrawals, you are not allowed to make a withdrawal unless you have also taken out the maximum loan available within the company plan.

You should also know that your company's plan administrator reserves the right to modify the rules regarding withdrawals at any time, and may further restrict or limit the availability of withdrawals for administrative or other reasons. All plan participants will be advised of any such restrictions, and they apply equally to all corporate employees.

Borrowing from your 401(k)

Should you? Maybe you lose your job with your company, have a serious health emergency, or face some other reason that you need a lot of cash. Banks make you jump through too many hoops for a personal loan, credit cards charge too much interest, and … suddenly, you start looking at your 401(k) account and doing some quick calculations about pushing your retirement from your company off a few years to make up for taking some money out.

We understand how you feel: It’s your money, and you need it now. But, take a second to see how this could adversely affect your retirement plans after leaving your company.

Consider these facts when deciding if you should borrow from your 401(k). You could:

  • Lose growth potential on the money you borrowed.
  • Deal with repayment and tax issues if you leave your company.
  • Repayment and tax issues, if you leave your company.

 

Net Unrealized Appreciation (NUA)

When you qualify for a distribution, you have three options:Pads with color diagrams and color shining on background-3

  • Roll-over your qualified plan to an IRA and continue deferring taxes.
  • Take a distribution and pay ordinary income tax on the full amount.
  • Take advantage of NUA and reap the benefits of a more favorable tax structure on gains.

 

How does Net Unrealized Appreciation work?

First an employee must be eligible for a distribution from their qualified company-sponsored plan. Generally, at retirement or age 59 1⁄2, the employee takes a 'lump-sum' distribution from the plan, distributing all assets from the plan during a 1-year period. The portion of the plan that is made up of mutual funds and other investments can be rolled into an IRA for further tax deferral. The highly appreciated company stock is then transferred to a non-retirement account.

The tax benefit comes when you transfer the company stock from a tax-deferred account to a taxable account. At this time, you apply NUA and you incur an ordinary income tax liability on only the cost basis of your stock. The appreciated value of the stock above its basis is not taxed at the higher ordinary income tax but at the lower long-term capital gains rate, currently 15%. This could mean a potential savings of over 30%.

You may be interested in learning more about NUA with  a complimentary one-on-one session with a financial advisor from The Retirement Group.

IRA Withdrawal

When you qualify for a distribution, you have three options:IRA

Your retirement assets may consist of several retirement accounts: IRAs, 401(k)s, taxable accounts, and others.

So, what is the most efficient way to take your retirement income after leaving your company?

You may want to consider meeting your income needs in retirement by first drawing down taxable accounts rather than tax-deferred accounts.

This may help your retirement assets with your company last longer as they continue to potentially grow tax deferred.

You will also need to plan to take the required minimum distributions (RMDs) from any company-sponsored retirement plans and traditional or rollover IRA accounts.

That is due to IRS requirements for 2024 to begin taking distributions from these types of accounts when you reach age 73. Beginning in 2024, the excise tax for every dollar of your RMD under-distributed is reduced from 50% to 25%.

There is new legislation that allows account owners to delay taking their first RMD until April 1 following the later of the calendar year they reach age 73 or, in a workplace retirement plan, retire.

Two flexible distribution options for your IRA

When you need to draw on your IRA for income or take your RMDs, you have a few choices. Regardless of what you choose, IRA distributions are subject to income taxes and may be subject to penalties and other conditions if you’re under 59½.

Partial withdrawals: Withdraw any amount from your IRA at any time. If you’re 73 or over, you’ll have to take at least enough from one or more IRAs to meet your annual RMD.

Systematic withdrawal plans: Structure regular, automatic withdrawals from your IRA by choosing the amount and frequency to meet your income needs after retiring from your company. If you’re under 59½, you may be subject to a 10% early withdrawal penalty (unless your withdrawal plan meets Code Section 72(t) rules).

Your tax advisor can help you understand distribution options, determine RMD requirements, calculate RMDs, and set up a systematic withdrawal plan.

Your Pepsi Benefits

XOM-HTML-Your-Benefits

 

PepsiCo offers a variety of employee benefits designed to enhance the overall compensation package for its employees. These benefits are outlined in several documents, which provide details about eligibility, plan types, and specific financial contributions PepsiCo makes on behalf of employees.

PepsiCo Employee Benefits Overview

  1. Health and Insurance Benefits:
    PepsiCo offers several medical plan options, including a high deductible plan with an associated Health Savings Account (HSA) and a more traditional plan with lower deductibles but higher premiums. Preventive care, prescription drugs, and fertility benefits are covered under both plans. Vision and dental insurance options are also available, with benefits such as preventive dental care covered at 100% in-network.

  2. Retirement and Financial Benefits:

    • 401(k) Plan: PepsiCo provides a 401(k) plan with a company match. For each $1 you contribute (up to 4% of your eligible pay), PepsiCo matches 50¢. Additionally, PepsiCo provides an Automatic Retirement Contribution (ARC) based on a formula that takes into account your age and years of service. ARC contributions range from 2% to 9% of your eligible pay, depending on your years of service and age.

    • Pension Plan: Some employees may also be eligible for a pension plan, though specifics depend on job role and tenure. For employees participating in a grandfathered pension plan, they are not eligible for ARC or the 401(k) match.

  3. Life Insurance and Disability:
    PepsiCo offers company-paid life insurance equal to one year of salary, with optional additional life insurance. Short-term and long-term disability coverage is provided, with employees having the option to purchase additional coverage.

  4. Work-Life Balance and Additional Benefits:
    Employees have access to flexible work arrangements, paid parental leave, and adoption assistance up to $35,000. There are also provisions for back-up child care, elder care, and employee assistance programs.

Eligibility for Benefits

PepsiCo’s benefits are primarily available to full-time employees who work at least 30 hours per week. Some part-time employees may also be eligible depending on their job classification. Eligible dependents include spouses, children under 26, and disabled dependents of any age.

 Automatic Retirement Contribution (ARC) Calculation

To illustrate how PepsiCo’s Automatic Retirement Contribution (ARC) works, let’s assume an employee is 45 years old with 20 years of service and earns an annual salary of $100,000. Based on PepsiCo's ARC formula, the employee qualifies for an ARC percentage of 5% (as age + service falls in the 45-49 bracket.

  • ARC Contribution Calculation:
    5% of $100,000 = $5,000.
    This amount is automatically deposited into the employee’s 401(k) account

 

Health Savings Account (HSA)

Health Savings Accounts (HSAs) are often celebrated for their utility in managing healthcare expenses, particularly for those with high-deductible health plans. However, their benefits extend beyond medical cost management, positioning HSAs as a potentially superior retirement savings vehicle compared to traditional retirement plans like 401(k)s, especially after employer matching contributions are maxed out.

Understanding HSAs

HSAs are tax-advantaged accounts designed for individuals with high-deductible health insurance plans. For 2024, the IRS defines high-deductible plans as those with a minimum deductible of $1,600 for individuals and $3,200 for families. HSAs allow pre-tax contributions, tax-free growth of investments, and tax-free withdrawals for qualified medical expenses—making them a triple-tax-advantaged account.

The annual contribution limits for HSAs in 2024 are $4,150 for individuals and $8,300 for families, with an additional $1,000 allowed for those aged 55 and older. Unlike Flexible Spending Accounts (FSAs), HSA funds do not expire at the end of the year; they accumulate and can be carried over indefinitely.

Comparing HSAs to 401(k)s Post-Matching

Once an employer's maximum match in a 401(k) is reached, further contributions yield diminished immediate financial benefits. This is where HSAs can become a strategic complement. While 401(k)s offer tax-deferred growth and tax-deductible contributions, their withdrawals are taxable. HSAs, in contrast, provide tax-free withdrawals for medical expenses, which are a significant portion of retirement costs.

HSA as a Retirement Tool

Post age 65, the HSA flexes its muscles as a robust retirement tool. Funds can be withdrawn for any purpose, subject only to regular income tax if used for non-medical expenses. This flexibility is akin to that of traditional retirement accounts, but with the added advantage of tax-free withdrawals for medical costs—a significant benefit given the rising healthcare expenses in retirement.

Furthermore, HSAs do not have Required Minimum Distributions (RMDs), unlike 401(k)s and Traditional IRAs, offering more control over tax planning in retirement. This makes HSAs particularly advantageous for those who might not need to tap into their savings immediately at retirement or who want to minimize their taxable income.

Investment Strategy for HSAs

Initially, it's prudent to invest conservatively within an HSA, focusing on ensuring that there are sufficient liquid funds to cover near-term deductible and other out-of-pocket medical expenses. However, once a financial cushion is established, treating the HSA like a retirement account by investing in a diversified mix of stocks and bonds can significantly enhance the account's growth potential over the long term.

Utilizing HSAs in Retirement

In retirement, HSAs can cover a range of expenses:

  • Healthcare Costs-Pre Medicare: HSA's Can pay for healthcare costs to bridge you to Medicare
  • Healthcare Costs-Post Medicare: HSAs can pay for Medicare premiums and out-of-pocket medical costs, including dental and vision, which are often not covered by Medicare.
  • Long-term Care: Funds can be used for qualified long-term care services and insurance premiums.
  • Non-medical Expenses: After age 65, HSA funds can be used for non-medical expenses without incurring penalties, although these withdrawals are subject to income tax.

 

HSAs offer unique advantages that can make them a superior option for retirement savings, particularly after the benefits of 401(k) matching are maximized. Their flexibility in fund usage, coupled with tax advantages, makes HSAs an essential component of a comprehensive retirement strategy. By strategically managing contributions and withdrawals, individuals can maximize their financial health in retirement, keeping both their medical and financial well-being secure.

 

What Happens If Your Employment Ends

Your life insurance coverage and any optional coverage you purchase for your spouse/domestic partner and/or children ends on the date your employment with your company ends, unless your employment ends due to disability. If you die within 31 days of your termination date from your company, benefits are paid to your beneficiary for your basic life insurance, as well as any additional life insurance coverage you elected.

Note:
  • You may have the option to convert your life insurance to an individual policy or elect portability on any optional coverage.
  • If you stop paying supplementary contributions, your coverage will end.
  • If you are at least 65 and you pay for supplemental life insurance, you should receive information in the mail from the insurance company that explains your options.
  • Make sure to update your beneficiaries. See your company's SPD for more details.
Beneficiary Designations
 
As part of your retirement planning and estate planning, it’s important to name someone to receive the proceeds of your benefit programs in the event of your death. That’s how your company will know whom to send your final compensation and benefits. This can include life insurance payouts and any pension or savings balances you may have.

Next Step:
  • When you retire, make sure that you update your beneficiaries, and update the Beneficiary Designation form for life events such as death, marriage, divorce, childbirth, adoptions, etc.

 

 
 
 
 

Social Security & Medicare

NGC-HTML-Social-Security-Medicare
For many retirees, understanding and claiming Social Security can be difficult but identifying optimal ways to claim Social Security is essential to your retirement income planning. Social Security benefits are not designed to be the sole source of your retirement income, but a part of your overall withdrawal strategy.

Knowing the foundation of Social Security, and using this knowledge to your advantage, can help you claim your maximum benefit.

It’s your responsibility to enroll in Medicare parts A and B when you first become eligible — and you must stay enrolled to have coverage for Medicare-eligible expenses. This applies to your Medicare eligible dependents as well.

You should know how your retiree medical plan choices or Medicare eligibility impacts your plan options. Before you retire from your company, contact the U.S. Social Security Administration directly at 800-772-1213, call your local Social Security Office or visit ssa.gov.
They can help determine your eligibility, get you and/or your eligible dependents enrolled in Medicare or provide you with other government program information. For more in-depth information on Social Security, please call us.
 
image-png-Nov-04-2021-06-08-27-51-PM
 
Check the status of your Social Security benefits before you retire from your company. Contact the U.S. Social Security Administration, your local Social Security office, or visit ssa.gov.
 
Are you eligible for Medicare or will be soon?
If you or your dependents are eligible after you leave your telecom industry company, Medicare generally becomes the primary coverage for you or any of your dependents as soon as they are eligible for Medicare. This will affect company-provided medical benefits.

You and your Medicare-eligible dependents must enroll in Medicare Parts A and B when you first become eligible. Medical and MH/SA benefits payable under the company's-sponsored plan will be reduced by the amounts Medicare Parts A and B would have paid whether you actually enroll in them or not.
For details on coordination of benefits, refer to your company's summary plan description.
If you or your eligible dependent don’t enroll in Medicare Parts A and B, your provider can bill you for the amounts that are not paid by Medicare or your company-specific medical plan … making your out-of-pocket expenses significantly higher.
 
image-png-Nov-04-2021-06-10-31-71-PM
 
According to the Employee Benefit Research Institute (EBRI), Medicare will only cover about 60% of an individual’s medical expenses. This means a 65-year-old couple, with average prescription-drug expenses for their age, will need $259,000 in savings to have a 90% chance of covering their healthcare expenses. A single male will need $124,000 and a single female, thanks to her longer life expectancy, will need $140,000.
Check your company's plan summary to see if you’re eligible to enroll in Medicare Parts A and B.
 
 
If you become Medicare-eligible for reasons other than age, you must contact your company’s benefit center about your status.

Divorce

XOM-HTML-Divorce
 
The ideas of happily ever after and until death do us part won’t happen for 28% of couples over the age of 53. Most couples saved together for decades, assuming they would retire together. After a divorce, they face the expenses of a pre-or post-retirement life, but with half their savings.

If you’re divorced or in the process of divorcing, your former spouse(s) may have an interest in a portion of your retirement benefits from your company. Before you can start your pension — and for each former spouse who may have an interest — you’ll need to provide your company with the following documentation:
 
  • A copy of the court-filed Judgment of Dissolution or Judgment of Divorce along with any Marital Settlement Agreement (MSA)
  • A copy of the court-filed Qualified Domestic Relations Order (QDRO)

 

Provide your company with any requested documentation to avoid having your pension benefit delayed or suspended. To find out more information on strategies if divorce is affecting your company's retirement benefits, please give us a call.
You’ll need to submit this documentation to your company’s online pension center regardless of how old the divorce or how short the marriage. *Source: The Retirement Group, “Retirement Plans - Benefits and Savings,” U.S. Department of Labor, 2019; “Generating Income That Will Last Throughout Retirement,” Fidelity, 2019
Social Security and Divorce
You can apply for a divorced spouse’s benefit if the following criteria are met:
 
You’re at least 62 years of age.
You were married for at least 10 years prior to the divorce.
You are currently unmarried.
Your ex-spouse is entitled to Social Security benefits.
 
Your own Social Security benefit amount is less than your spousal benefit amount, which is equal to one-half of what your ex’s full benefit amount would be if claimed at Full Retirement Age (FRA).
 
Unlike with a married couple, your ex-spouse doesn’t have to have filed for Social Security before you can apply for your divorced spouse’s benefit, but this only applies if you’ve been divorced for at least two years and your ex is at least 62 years of age. If the divorce was less than two years ago, your ex must already be receiving benefits before you can file as a divorced spouse.

 

Unlike with a married couple, your ex-spouse doesn’t have to have filed for Social Security before you can apply for your divorced spouse’s benefit.

Divorce doesn’t disqualify you from survivor benefits. You can claim a divorced spouse’s survivor benefit if the following are true:

  • Your ex-spouse is deceased.
  • You are at least 60 years of age.
  • You were married for at least 10 years prior to the divorce.
  • You are single (or you remarried after age 60).

In the process of divorcing?

If your divorce isn’t final before your retirement date from your company, you’re still considered married. You have two options:

  • Retire from your company before your divorce is final and elect a joint pension of at least 50% with your spouse — or get your spouse’s signed, notarized consent to a different election or lump sum.
  • Delay your retirement from your company until after your divorce is final and you can provide the required divorce documentation.*

Source: The Retirement Group, “Retirement Plans - Benefits and Savings,” U.S. Department of Labor, 2019; “Generating Income That Will Last Throughout Retirement,” Fidelity, 2019

Survivor Checklist

BAC-HTML-Checklist

In the unfortunate event that you aren’t able to collect your benefits from your company, your survivor will be responsible for taking action.

What your survivor needs to do:

  • Report your death. Your spouse, a family member or even a friend should call your company’s benefits service center as soon as possible to report your death.

  • Collect life insurance benefits. Your spouse, or other named beneficiary, will need to call your company's benefits service center to collect life insurance benefits.

If you have a joint pension:

  • Start the joint pension payments. The joint pension is not automatic. Your joint pensioner will need to complete and return the paperwork from your company's pension center to start receiving joint pension payments.

  • Be prepared financially to cover living expenses. Your spouse will need to be prepared with enough savings to bridge at least one month between the end of your pension payments from your company and the beginning of his or her own pension payments.

If your survivor has medical coverage through your company:

  • Decide whether to keep medical coverage.

  • If your survivor is enrolled as a dependent in your company-sponsored retiree medical coverage when you die, he or she needs to decide whether to keep it. Survivors have to pay the full monthly premium.

Life After Your Career

TRG-HTML-Life-After-Career-Aug-30-2022-05-40-26-09-PM
 
While you may be ready for some rest and relaxation, without the stress and schedule of your full-time career with your company, it may make sense to you financially, and emotionally, to continue to work.
Financial benefits of working

Make up for decreased value of savings or investments. Low interest rates make it great for lump sums but harder for generating portfolio income. Some people continue to work to make up for poor performance of their savings and investments.

Maybe you took an offer from your company and left earlier than you wanted with less retirement savings than you needed. Instead of drawing down savings, you may decide to work a little longer to pay for extras you’ve always denied yourself in the past.

Meet financial requirements of day-to-day living. Expenses can increase during your retirement from your company and working can be a logical and effective solution. You might choose to continue working in order to keep your insurance or other benefits — many employers offer free to low cost health insurance for part-time workers.
Emotional benefits of working

You might find yourself with very tempting job opportunities at a time when you thought you’d be withdrawing from the workforce.

Staying active and involved. Retaining employment after your previous job, even if it’s just part-time, can be a great way to use the skills you’ve worked so hard to build over the years and keep up with friends and colleagues.

Enjoying yourself at work. Just because the government has set a retirement age with its Social Security program doesn’t mean you have to schedule your own life that way. Many people genuinely enjoy their employment and continue working because their jobs enrich their lives.
 
 
 
Individuals interested in planning their retirement may be interested in live webinars hosted by experienced financial advisors. Click here to register for our upcoming webinars.

Sources

Sources (graphic)6