PepsiCo Compensation Overview: ARC, EIDP and RSUs & PSUs

PepsiCo offers a complete and well-structured compensation package, including:

1. The PepsiCo Savings Plan: 401(k) Plan offering a 4% employer match and after-tax contributions.

2. Automatic Retirement Contribution (ARC): PepsiCo's profit-sharing plan contribution 2-9% to employee's 401(k).

3. Executive Income Deferral Plan (EIDP): A non-qualified deferred compensation plan allowing executives to defer taxable income.

4. ARC-E: The Supplemental Savings Plan allowing employer contributions above IRS limits for qualified accounts.

5. Equity Compensation: A mix Restricted Stock Units (RSUs) and Performance Share Units (PSUs).

These benefits offer valuable planning opportunities for maximizing savings and minimizing taxes. Let’s break down each component and highlight key strategies.

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The PepsiCo Savings Plan and ARC (Qualified Plans)

The PepsiCo Savings Plan provides employees with an employer match of up to 4% of eligible pay as well as access to Traditional and Roth 401(k) accounts. Here are some key points of the Plan.

401(k) Match: PepsiCo matches 50% of an employee’s contribution up to 4% of eligible pay (typically salary + annual bonus)

After Tax Contributions: The Plan allows after-tax contributions, which can be converted to Roth using in-plan Roth conversion or in-service rollover strategies.

Automatic Retirement Contribution Plan (ARC): This is a company-funded profit-sharing contribution ranging from 2% to 9% of eligible pay, based on your age and years of service. You receive it regardless of your own contributions.

Planning Opportunities

Mega Backdoor Roth: After-tax contributions allow you to exceed the IRS deferral limit ($23,500 in 2025), up to the total annual limit of $70,000 (combined employee + employer). This enables high earners to build substantial Roth assets.

The Executive Income Deferral Program (EIDP) and ARC-E (Non-Qualified Plans)

For senior-level employees, PepsiCo offers two non-qualified plans that allow for additional tax advantaged savings above IRS limits for qualified accounts:

Executive Income Deferral Program (EIDP): Eligible employees are allowed to defer up to 100% of their annual bonus and 75% of their base salary via the EIDP.

EIDP Distributions: Payouts typically begin post-separation, either in a lump sum or installments (quarterly, semi-annually, or annually). If you meet retirement criteria, you can elect a future distribution date even if you leave earlier.

EIDP Investment Options: The investment options are similar to the other plans, but the Plan offers a fixed rate option that is tied to 120% of the IRS Long-Term Applicable Fund Rate.

ARC-E (Supplemental Savings Plan): When IRS limits reduce your eligible 401(k) match or profit-sharing contributions, PepsiCo contributes the difference into the ARC-E which is a non-qualified plan.

Planning Opportunities

Tax Deferral: As a high earner, you’re likely in the highest tax bracket of your lifetime. Deferring taxable income today – that may be taxed at 37% - to a future date with a lower tax rate can significantly lower your lifetime tax bill.

Preserve Employer Contributions: The ARC-E ensures that no employer match or profit-sharing dollars are lost due to IRS limits. This provides more flexibility with contributions to the EIDP and after-tax contributions to the 401(k) Plan.5

Retirement Timing Flexibility: Eligible retirees can delay distributions beyond separation, creating opportunities for strategic income smoothing.

Credit Risk: As non-qualified plans, the EIDP and ARC-E are subject to PepsiCo’s credit risk. These are unsecured promises to pay you later.

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Are you interested in working with a financial planner? Schedule an introductory call to see if working with a flat-fee financial planner is right for you.

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The PepsiCo Long-Term Incentive Plan (RSUs and PSUs)

PepsiCo grants equity through:

Restricted Stock Units: Time-based awards, typically vesting over 1-3 years.

Performance Share Units: Awarded to senior executives and typically cliff vest after 3 years, contingent on company performance metrics.

Non-Qualified Stock Options (NQSOs): While still authorized under the plan, PepsiCo has not granted NQSOs in recent years. RSUs and PSUs are now the primary equity vehicles.

Planning Opportunities

Cash Flow Strategy: Equity awards can be a source of liquidity. Use this income to increase tax-deferred contributions to your 401(k), HSA, or EIDP.

Diversify: If you do not want to have a concentrated stock position in PepsiCo, best practice is to liquidate and diversify soon after the shares vest.

Tax Withholding: Default withholding is often 22%, but many executives face higher tax brackets. Plan for a tax bill or adjust withholding/pay estimated taxes proactively.

The PepsiCo Compensation Package is a generous one but there are several moving parts. There are several paths to increasing your savings rate and reducing your tax bill via the EIDP, ARC and Mega Backdoor Roth strategy. Also, the supplemental savings plan (ARC-E) is a huge benefit that is not offered at a lot of other companies and participants should take advantage of it.

Taurus Financial Planning is a Flat-Fee financial planning firm based in Bentonville, AR. The firm offers comprehensive financial planning, tax planning and investment guidance to corporate executives across the country.

Taurus Financial Planning is a Registered Investment Advisor with the State of Arkansas. This information is provided as a guide to assist you in your financial planning. The specific examples are provided for illustration purposes only and are not representative of specific investments or guarantees of future returns. Please consult with a professional for specific questions regarding your particular situation. If there is any error or inconsistency between this document and the official company plan documents, your company plan documents will govern.

This publication is for informational purposes only and is not intended as tax, accounting or legal advice or as an offer or solicitation of an offer to buy or sell or as an endorsement of any company security fund or other securities or non securities offering. This publication should not be relied upon as the sole factor in an investment making decision. Past performance is no indication of future results. Investment in securities involves significant risk and has the potential for partial or complete loss of funds invested. It should not be assumed that any recommendations made by the Author, in the future, will be profitable or equal the performance noted in this publication.