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Diageo 401k plan – what you need to know in 5 minutes!

The Diageo 401k plan is an important part of the retirement benefits you are offered as an employee. In this article, we present the five major things you need to know so you can retire from Diageo with the dignity you deserve!


But first – hello! I’m Charlie.


Charlie Horonzy is a financial advisor and he works with Diageo employees.

I help people retire in Chicagoland and across the country in a tax-efficient way. You may want to earmark these other blogs about financial planning for people in Illinois and other places in the United States.



Here’s an overview of the Diageo retirement benefits package in five minute or less. Before we get into it, we are providing you with general guidance that should not be interpreted as advice specific to any one individual. If you want advice specific to you, set up a time and let’s talk.


Okie dokie?


Let’s go!


First, some specifics about the plan:


  • Diageo offers no 401(k) match. However, the company will contribute 10% of your earnings into a pension. These contributions vest after three years.

  • The contribution limit for 2026 is $24,500 for the 401k plan. That is the maximum amount you can contribute in 2025 from your salary. If you are over age 50, you can contribute an additional $7,500 more. The total cannot exceed $32,000.

  • The 401k plan is custodied at Fidelity. That means that your assets will be held in an account in your name at Fidelity. Diageo will not take custody of your money.

  • You can access your 401k plan holdings through Fidelity NetBenefits.


The Diageo 401k’s investment options are fabulous!


The Diageo 401 (k) plan offers a broad range of investments and provides employees with a valuable opportunity to build wealth for the future. We are familiar with them and would group them into the following categories:

  • Stock funds - both domestic only, international only, and a blend of both. Stocks tend to be more volatile than other asset classes, such as bonds and cash.

  • Bond funds – there are a range of options, from stable value bond funds, bond funds that cover a broad index, and inflation-protected bonds. Bonds that have a shorter maturity tend to be less volatile, while longer maturity bonds tend to be more subject to the vagaries of interest rate changes. When rates rise, bond prices drop. Bonds tend to be more stable than stocks.

  • Blended funds – these tend to hold a combination of stocks and bonds, and may include other categories of investments such as commodities, real estate, or even crypto in some cases. T

  • The Diageo 401k includes Target Date Funds as an option. These are funds that adjust their strategy over time in accordance with your age and projected date of retirement. While they may seem like an attractive option, proceed with caution. Not all assumptions based on age are correct.


Okay so I put a bunch of money into my 401k…NOW what?


Another question we often receive is: “How should I manage my Diageo 401k contributions?”


This can’t be construed as advice specific to any one individual, so take it with a grain of salt. But generally, here’s some overall guidance about what to do after you put money into a 401k plan.


Sound good?


Alright.


Instead of just randomly throwing your hard-earned money into a few of these funds and hoping for the best, take a more strategic approach. Create an asset allocation, or a mix of stocks, bonds, and other investment types, that fits your risk profile.


If you chose to have your paycheck contributions automatically invested in the plan, you may benefit from dollar cost averaging. Dollar cost averaging is investing a defined set of money in the market consistently over time. Each month you put 2%, 3%, 10%, etc. into your 401k. The deferral doesn’t care if the market is hot or the market is cool, the money goes in. To learn more about how this works, read our blog about investing. 


You have the option to contribute on a Roth basis


Contributions to the Diageo 401 (k) plan may be made on a traditional or Roth basis.

Traditional vs. Roth?


Huh?


Here are the key differences.


Traditional 401(k) contributions are made from your pre-tax earnings. The money grows on a tax-deferred basis. When you reach age 73, you must take Required Minimum Distributions as per IRS rules. These are taxed at the ordinary income tax rate.


Roth contributions are made with money that is already taxed. Like the Traditional contributions, Roth money grows on a tax-deferred basis. When you reach age 73, you must take Required Minimum Distributions as per IRS rules. However, no taxable event occurs, as you already paid tax on any money contributed on a Roth basis.


“Why does it matter?”, you may ask.


Roth IRAs are typically not an option for those earning above the income limits, however Roth 401(k) plans have no such earnings limits. This is great news for high-earning Diageo employees!


The Diageo Executive Long Term Incentive Plan


Through the Diageo Executive Long Term Incentive Plan, also called DELTIP, you may receive shares of the company stock as a reward for your contribution to the company. Your award is based on your salary and a few other factors, one of which is related to the expected value to the company of your future performance.


Your DELTIP award can come in one of two forms, or a combination of the two (you choose):

  • Diageo Restricted Stock Units (RSUs) – you are awarded Diageo shares that automatically transfer into your name, normally after three years. These shares are given to you at no cost.

  • Share options – you will receive the right, but not the obligation, to purchase shares of Diageo company stock at a price that is specified at the time of award. The shares are granted to you on a certain date, and you may choose to exercise them at a later date (after the share options vest). You may exercise these options within seven years of vesting date, but if you don’t do so within that time, they become obsolete. The value of your share option is the difference between the price on the date it was granted and the share price when the option was exercised. The value you receive is the gain of exercise price over grant price, not the whole value of the share.


There is some flexibility built into how you receive your award. You can pick from the following three options:


  • 100% RSUs, 0% share options

  • 50% RSUs, 50% share options

  • 0% RSUs, 50% share options


These awards are typically made in September of every year, and you must be level L3 or above to be eligible for DELTIP,  with a few exceptions applying to the latter.

Whew! That was pretty technical.


The Diageo Executive Long Term Incentive Plan can get pretty complicated. Let us know if you’d like to meet with us and go over this in more depth.


Diageo pension plan


Diageo employees also have access to the Diageo Cash Balance Pension Plan. It is a defined benefit plan. This is a key retirement benefit for Diageo employees.


How does it work?

  • You are eligible to participate in the Diageo pension plan the month after you start working there.

  • You are vested after three years, meaning that if you leave the company after three years, you can take whatever amount the company has put away for you in your pension account.

  • You must start receiving your pension benefits after age 65.

  • You don’t have to sign up for this; Diageo automatically enrolls you if you meet certain characteristics (US Citizen or lawful resident, salaried, etc.)

  • The interest rate you are credited is based upon the 30-year US Treasury bond.

  • In a defined benefit plan, the employer calculates a certain amount of your paycheck each pay period and invests it on your behalf in an account in your name. When you reach retirement age, you get a pre-determined certain amount back (a “defined benefit.) In the Diageo pension, the amount contributed to your pension is 10% of your salary and it gets contributed to the plan once every quarter.   

    

The contributed money grows over time in accordance with an investment strategy that the plan sponsor creates. Upon retirement, you receive either a lump sum of the accumulated amount or a series of annuitized payments.


You do not make the investment decisions; they do. Please note, this functions very differently from the 401k plan. In a defined benefit plan, you have no control over how the money is invested and are not in charge of making decisions about it. This contrasts your 401k plan, where you are in total control of what fund options are chosen.


The Diageo pension plan is a great benefit. However, keep in mind that when you receive your pension benefits, they will be taxed. You are liable to pay ordinary income tax on the distributions you get. Most people have no idea how much they’ll pay in taxes at retirement. Don’t be in the dark about this; especially if you are close to retirement it is best to get clarity on what your tax bill will be. A financial advisor can help you put together a tax plan that takes into account all of your Diageo retirement benefits, Social Security, and any other forms of income you’ll be receiving.


Have you run the numbers?


Diageo retirement benefits are wonderful. Take full advantage of them whether you are starting out, an executive, or somewhere in between. As you can see, there are many dimensions to the Diageo 401k and retirement benefits package. It’s best to run the numbers and get a clear financial plan to guide you in this important decision.


My name is Charlie and I help people retire in a way that minimizes what they pay to Uncle Sam, whether they are retiring in Illinois or elsewhere. I am a CPA and a financial planner. If you’d like to set up a time to talk about tax-efficient retirement planning for people in Illinois or elsewhere, please schedule a time.

 

Sources

Diageo DELTIP Factsheet

Diageo North America, Inc. Cash Balance Pension Plan Summary Plan Document

 

Disclaimers

Focused Up Financial is not affiliated with Diageo in any way. All information herein may be subject to change and Focused Up Financial is not required to notify readers. All information herein reflects the views of Focused Up Financial and does not reflect the position of Diageo.


 
 
 

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