There is a new benefit option for employees facing emergencies called a pension-linked emergency savings account (PLESA).
As part of the SECURE 2.0 law, the provision authorizing PLESAs became effective for plan years beginning January 1, 2024. IRS recently released guidance about the accounts (in Notice 2024-22) and the U.S. Department of Labor (DOL) published frequently asked questions to help employers, plan sponsors, and participants understand them.
The Basics of Pension-Linked Emergency Savings Accounts
Employers with 401(k), 403(b), and 457(b) plans can decide to offer PLESAs to non-highly compensated employees (participants who earned $150,000 or less in 2023 are considered non-highly compensated in 2024.) The Department of Labor defines PLESAs as “Short-term savings accounts established and maintained within a defined contribution plan.”
Here are some more details of this new type of account:
- The portion of the account balance attributable to participant contributions cannot exceed $2,500 (or a lower amount determined by the plan sponsor) in 2024. The $2,500 amount will be adjusted for inflation in future years.
- Employers can offer to or automatically enroll eligible participants in these accounts beginning in 2024.
- The account cannot have a minimum contribution to open or a minimum account balance.
- Participants can make a withdrawal at least once per calendar month, and such withdrawals must be distributed “as soon as practicable.”
- Participants are not subject to fees or charges for their first four withdrawals in a calendar year. However, subsequent withdrawals may be subject to fees or charges.
- Contributions are held as cash, in an interest-bearing deposit account, or an investment product.
- Suppose an employee starts a PLESA when they are not highly compensated but later becomes highly compensated. In that case, they cannot make any further contributions, but they are still able to withdraw the funds previously contributed.
- Contributions are made on a Roth basis, which means they are included in an employee’s taxable income but are tax-free when they later withdraw the funds.
Proof of an event is not necessary
A participant in a PLESA does not need to prove that he or she is experiencing an emergency before withdrawing from an account. The DOL states that “withdrawals are made at the discretion of the participant.”
These are just the basic details of PLESAs. For more information on PLESAs or other tax topics, reach out to your Wegner CPAs advisor.