The IRS recently issued guidance regarding various provisions of Secure Act 2.0, including the “Pension-linked Emergency Savings Account” (PLESA) provision. This provision aims to alleviate financial strain on employees facing hardships. Effective January 1st, 2024, non-highly compensated employees can contribute to an emergency savings account through payroll deferrals. Participants can withdraw funds without triggering events or facing a 10% early distribution penalty. It’s important to note that highly compensated employees are ineligible.
Contributions to the account are capped at $2,500 on a Roth basis only. These contributions count toward the annual employee deferral limit and any applicable employer matching contributions. Investments within the account must be held in a limited selection of principally protected investments offered by regulated institutions. Expense account eligibility will be the same as retirement plan eligibility requirements.
Distributions can occur monthly, but participants cannot roll their balance to another qualified account unless associated with employment termination. Recordkeepers are not allowed to charge fees on the first four distributions.
Plan sponsors considering the inclusion of the emergency savings account should consult with their retirement plan recordkeeper, TPA, and plan advisor to determine if the current systems and design can support the provision. For further information on implementing the emergency savings account in your retirement plan, contact the Innovative team at (856)-242-3343 or email resources@iifria.com.
