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Articles From Lumsden McCormick

What is a Pension-Linked Emergency Savings Account (PLESA)

Is it advantageous for your business to provide the recently introduced emergency savings accounts to its workforce? Under the SECURE 2.0 law, a novel benefit option known as a Pension-Linked Emergency Savings Account (PLESA) has been introduced for employees navigating unforeseen crises. The authorization for PLESAs took effect for plan years commencing on or after January 1, 2024. The IRS has issued guidelines on these accounts, outlined in Notice 2024-22, while the U.S. Department of Labor (DOL) has furnished a set of frequently asked questions to assist employers, plan sponsors, participants, and others in comprehending this new benefit.

Understanding PLESA

The DOL defines PLESAs as "short-term savings accounts established and maintained within a defined contribution plan." Employers administering 401(k), 403(b), and 457(b) plans have the option to extend PLESAs to non-highly compensated employees. For the year 2024, an individual earning $150,000 or more in 2023 is categorized as a highly compensated employee.

Here are some key features of PLESAs:

  • The portion of the account balance attributed to participant contributions cannot exceed $2,500 in 2024 (or a lower amount specified by the plan sponsor), with adjustments for inflation in subsequent years.
  • Employers can choose to enroll eligible participants in PLESAs from 2024 or opt for automatic enrollment.
  • There is no minimum contribution or account balance requirement for PLESAs.
  • Participants are permitted to make at least one withdrawal per calendar month, and these withdrawals must be processed "as soon as practicable."
  • Initial four withdrawals in a plan year are exempt from fees or charges. Subsequent withdrawals may incur reasonable fees.
  • Contributions must be held in cash, an interest-bearing deposit account, or an investment product.
  • If a participant with a PLESA becomes highly compensated as per tax law, further contributions are prohibited, but the individual retains the right to withdraw the existing balance.
  • Contributions are made on a Roth basis, impacting taxable income but allowing tax-free withdrawals.

No Proof of Emergency Required

Unlike traditional emergency funds, PLESA withdrawals do not necessitate participants to provide proof of an emergency. The DOL specifies that "withdrawals are made at the discretion of the participant."

These are fundamental aspects of PLESAs. If you have inquiries regarding these or other fringe benefits and their associated tax implications, reach out to us for more information.

What is a Pension-Linked Emergency Savings Account (PLESA)

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Amanda joined the Firm in January 2018 as a tax staff accountant after interning for the Firm in 2017. She is now a manager and specializes in tax compliance for individuals, trusts, and estates, and also provides tax services to privately held businesses and private foundations.

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