A closer look at recent guidance on pension-linked emergency savings accounts

The IRS and Department of Labor (DOL) issued guidance on pension-linked emergency savings accounts (PLESAs) that were authorized under SECURE 2.0 to address employer uncertainty regarding the rules that apply to the accounts. PLESAs are short-term savings accounts that, within a defined contribution plan, allow non-highly compensated employees to draw from the accounts without incurring tax penalties or reducing their retirement savings accounts. The accounts are funded with after-tax Roth contributions and became available for plan years beginning Jan. 1.

The IRS guidance was included in Notice 2024-22 and the DOL addressed PLESAs in recently issued answers to frequently asked questions (FAQs). For the most part, the DOL FAQs address general compliance information, while the IRS notice provides anti-abuse rules. Together, the guidance from the two agencies provides information on the following:

• Eligibility. PLESAs are available to non-highly compensated employees eligible to participate in the defined contribution plan linked to the accounts if they meet any age, service or other eligibility requirements of the plan.
• Participation. Participating employees may be automatically enrolled by their employer or participate voluntarily.
• Employee contributions. PLESA contributions must be Roth contributions made on an after-tax basis and the accounts are limited to a maximum balance of $2,500. Employers may choose a lower maximum balance. When determining the contribution limit, plans may include or exclude earnings on participant contributions.
• Matching contributions. If the underlying defined contribution plan has an employer match, the PLESA contributions must be eligible for matching contributions at the same rate as non-PLESA contributions. However, matching contributions must be allocated to the retirement savings portion of the plan, not the PLESA.
• Withdrawals. Funds may be withdrawn up to once a month at the participant’s discretion. No evidence of hardship or an emergency is necessary.
• Anti-abuse provisions. Plan sponsors may implement reasonable procedures to prevent manipulation of the employer matching rules. Notice 2024-22 provides examples of manipulative behavior that may be prohibited and procedures that would be considered unreasonable.

The IRS noted that certain stakeholders have expressed concerns regarding the application Rev. Rul. 74-55 and Rev. Rul. 74-56 on employer contributions to PLESAs. The IRS said it does not view the rulings as applicable to PLESAs, but invited comments on the applicability of the revenue rulings and the regulations upon which they were based, to PLESAs or in other contexts.