DOL Issues FAQs on Pension-Linked Emergency Savings Accounts

On January 17, 2024, the DOL released guidance regarding pension-linked emergency savings accounts (PLESAs) as part of the implementation of the SECURE 2.0 Act. The guidance, which is in the form of 20 frequently asked questions (FAQs), provides general compliance information. The FAQs were developed in consultation with the IRS and follow a recent IRS notice concerning PLESA anti-abuse rules. (Please see our January 17, 2024, Compliance Corner article.)

As explained by the first five FAQs, PLESAs are individual accounts in defined contribution plans (such as 401(k) and 403(b) plans) that allow eligible non-highly compensated employees to save for financial emergencies via Roth contributions. Participants can make withdrawals from the PLESAs at least monthly at their discretion and without being assessed the penalty tax normally applicable to early retirement plan distributions. The FAQs explain that the plan cannot set eligibility criteria beyond that required for participation in the retirement plan nor set minimum balance or contribution amounts (subject to reasonable administrative restrictions, such as requiring contributions in whole dollars or percentages). Automatic enrollment in PLESAs is permissible, provided employees are provided advance notice and the opportunity to opt out and withdraw their funds without charge.

FAQs six through 10 address contributions, which must be Roth contributions. The portion of a PLESA balance attributable to participant contributions may not exceed the $2,500 maximum (as periodically indexed for inflation). The guidance clarifies that a plan has flexibility to either include or exclude earnings when applying the limit. However, a plan cannot set an annual limit on participant contributions. If a plan provides matching contributions, an employee's PLESA contributions must be matched at the same rate as for non-PLESA elective deferrals. Plans must maintain separate recordkeeping for each PLESA.

FAQs 11 through 13 discuss distributions and withdrawals. FAQ 11 clarifies that a participant does not need to demonstrate or certify the existence of an emergency or other need or event to make a PLESA withdrawal. FAQ 12 explains that PLESAs cannot be subject to any fees for the first four withdrawals in a plan year. However, PLESAs may be subject to reasonable fees or charges in connection with any subsequent withdrawals.

Finally, FAQs 14 to 20 address investment and administration. PLESA contributions must be held as cash in an interest-bearing deposit account or in an investment product designed to preserve principal while providing liquidity. Accordingly, a plan’s qualified default investment alternative would normally not qualify. Reasonable administrative fees (separate from fees assessed solely for withdrawals) may be imposed directly on PLESAs or against the retirement plan account of which a PLESA is a part.

The plan administrator must provide notice at least 30 days prior to the first contribution and annually thereafter, explaining the PLESA contribution limit, tax treatment, and election procedures, among numerous other items. The notice can be furnished with other required ERISA disclosures. The guidance clarifies that the PLESA account balance does not need to be included in individual periodic pension benefit statements under ERISA Section 105 or investment disclosures under 29 CFR § 2550.404a-5. The last FAQ explains that the DOL is updating the 2024 Form 5500 to reflect the PLESA feature.

Plan sponsors who are considering offering PLESAs may find this guidance helpful and should review the FAQs for further details. They may also want to consult with their retirement plan service providers regarding the practical and administrative aspects of PLESA implementation.

FAQs: Pension-Linked Emergency Savings Accounts | U.S. Department of Labor (dol.gov) »