The Department of Labor, in consultation with the Department of the Treasury and the IRS, has released FAQ guidance on pension-linked emergency savings accounts (PLESAs), established under SECURE 2.0 to help pension plan participants save for emergencies. PLESAs allow participants to contribute up to $2,500 through special Roth contributions to a separate emergency savings account in a defined contribution plan. In addition to the FAQs, the IRS issued limited guidance in Notice 2024-22 on the anti-abuse requirements that apply to PLESAs. Highlights from both sets of guidance are provide below.
The new PLESA provisions apply to plan years beginning after December 31, 2023; thus, both sets of guidance can be applied immediately.
PLESA FAQs
The FAQs summarize the statutory requirements and address a variety of questions that have been raised related to PLESAs. Below are a few highlights:
- Eligibility criteria. SECURE 2.0 requires that an individual must be eligible to participate in a plan’s PLESA if the individual 1) meets any age, service and other eligibility requirements of the plan; and 2) is not a highly compensated employee. The statute does not address whether a plan may allow individuals to participate in the PLESA even if they have not yet met the plan’s general service requirement.
- Account minimums. Plans cannot require a minimum amount to open a PLESA. In addition, plans cannot 1) require the closure and distribution of a PLESA based on a minimum balance requirement; 2) impose any penalty (e.g., fees or the suspension of withdrawal rights) for PLESAs that fall below a specified account balance; or 3) require a minimum contribution amount per pay period.
- Optional treatment of earnings. Under SECURE 2.0, participant contributions to a PLESA can be no more than $2,500 (indexed). Plans have the option to include or exclude earnings on the participant’s contributions, so long as the portion of the account balance attributable to participant contributions does not exceed the statutory limits.
- Employer remittance. PLESA contribution timing rules are the same as those that apply to other participant contributions. In other words, employee contributions must be contributed to the plan at the earliest date that such contributions can reasonably be segregated from the employer’s general assets but in no case later than the 15th business day of the month immediately following the month in which the contribution is either withheld or received by the employer.
- No requirement to demonstrate emergency. A participant does not need to provide any evidence of an emergency to make a withdrawal from a PLESA.
- Fees.
- Withdrawal fees. SECURE 2.0 allows PLESAs to be subject to reasonable fees or charges for any withdrawals beyond the first four withdrawals in a plan year, including reasonable reimbursement fees imposed for the incidental costs of handling of paper checks.
- Account administration fees. Subject to ERISA’s fiduciary standards, reasonable fees, expenses or other charges associated with administration may be imposed 1) directly on PLESAs or 2) against accounts in the individual account plan of which the PLESA is a part.
- Designated investment option. PLESA contributions must be held as cash, in an interest-bearing deposit account, or in an investment product that provides a “reasonable rate of return, whether or not such return is guaranteed, consistent with the need for liquidity” and is provided by a state-regulated or federally regulated financial institution. Plan fiduciaries may select any prudent investment product that meets the account requirements, regardless of the type of financial institution that issues or underwrites the product, the industry in which the institution operates, or the principal regulators of the investment product or its issuer or underwriter.
- Model PLESA notice under evaluation. The DOL and Department of the Treasury are evaluating the feasibility of issuing a model notice for plan administrators to satisfy the statutory disclosure requirements with respect to plans that offer PLESAs.
- Form 5500. The DOL is working on adding a PLESA feature code for plans to indicate on the 2024 Form 5500 that the plan includes a PLESA and instructions that would tell filers that information on PLESAs should be aggregated and reported in relevant line items (e.g., contributions, investments, fees and expenses, and distributions) on the forms, schedules and attachments.
Notice 2024-22 and anti-abuse rule
Secure 2.0 includes an anti-abuse rule that allows “reasonable procedures” to limit matching contributions on PLESA contributions only so far as is necessary to prevent plan rules from being manipulated to allow for higher and more frequent matching contributions.
Notice 2024-22 describes 1) elements of the relevant statutory provisions that the IRS believes already limit manipulation, and 2) anti-manipulation procedures that the Treasury and IRS have determined to be unreasonable.
- Confirmation that anti-abuse procedures are optional. A plan sponsor might view the statutory provisions controlling PLESAs as sufficient anti-abuse provisions and therefore decide not to impose any other restrictions meant to prevent manipulation of matching contributions. In this regard, the notice refers to: 1) the rule that treats any matching contributions as first attributable to elective deferrals other than PLESA contributions, 2) the rule that limits annual matching contributions based on PLESA contributions to the maximum account balance for PLESAs, and 3) the rule that limits participants to one permissible PLESA withdrawal per month.
- Unreasonable procedures. The Department of the Treasury and the IRS have determined that unreasonable plan procedures include, but are not limited to, the following:
- Forfeiting matching contributions already made on account of participant contributions to the PLESA by reason of a participant’s withdrawal from a PLESA
- Suspending a participant’s ability to contribute to the participant’s PLESA on account of a withdrawal from the PLESA
- Suspending matching contributions made on account of participant elective deferrals to the underlying defined contribution plan
The notice does not identify any suspension procedures that are reasonable.
Going forward
The DOL is considering releasing future guidance to address additional questions. Hopefully such guidance will address whether:
- Distributions received during a year must immediately impact the additional amount that a participant is permitted to contribute to the PLESA (which could complicate the ability of payroll to determine whether a participant is eligible to make contributions to the PLESA during that year)
- Distributions from a PLESA are required to be reported on a 1099-R
- A correction is needed for a participant who makes PLESA contributions during a year before it is determined that the participant is a highly compensated employee
- A plan is permitted to only accept PLESA contributions based on a percentage of compensation
Plan sponsors considering whether to establish a PLESA should review the guidance with their plans’ recordkeepers.
