IRS issues guidance for employer-managed emergency savings accounts
Introduction to pension-linked emergency savings accounts (PLESAs)
The IRS has recently unveiled initial guidelines to support employers in implementing pension-linked emergency savings accounts (PLESAs).
These accounts are part of the SECURE 2.0 Act of 2022, crafted to encourage employees to save for unforeseen financial needs.
Eligibility and implementation
From plan years commencing after December 31, 2023, employers can offer PLESAs.
Employees eligible for their employer's defined contribution plan can contribute to a PLESA, even if they don’t participate in the primary plan.
The maximum balance for these accounts is capped at $2,500, though employers have the discretion to set a lower threshold.
Contribution and matching rules
Employees can contribute to PLESAs, and employers are allowed to match these contributions at the same rate as their defined contribution plan.
However, there are specific restrictions in place to govern these matching contributions.
Tax treatment and withdrawal flexibility
PLESAs are treated as designated Roth accounts. This means the contributions are made with after-tax dollars, but withdrawals are generally tax-free.
Employees can withdraw from their PLESA at least once a month, as required.
Guidelines to prevent manipulation
The IRS has also provided guidance on reasonable measures employers should take to prevent manipulation of PLESA matching contribution rules.
This is detailed in Notice 2024-22, now available on the IRS website.
Public comment and feedback
The IRS notice not only provides guidance but also solicits public comments on these provisions.
It outlines how individuals and organizations can submit their feedback and opinions.
Bottom line
The introduction of PLESAs represents a significant step in helping employees save for emergencies.
With the IRS providing clear guidelines for their implementation, employers are better equipped to offer these beneficial accounts to their workforce.
This initiative reflects a growing focus on financial wellness and preparedness in the workplace.