Initial guidance to prevent abuse of retirement plan-linked emergency savings accounts recently authorized by SECURE 2.0 was issued by the Internal Revenue Service today to help employers with implementation.
The initial guidance for pension-linked emergency savings accounts (PLESAs)—individual accounts in defined contribution plans designed to permit and encourage employees to save for financial emergencies—is focused on reasonable measures employers who offer PLESAs can take to discourage potential manipulation of the PLESA matching contribution rules. It can be found in Notice 2024-22, posted today on IRS.gov.
The Treasury Department and IRS are interested in examples of reasonable procedures which effectively balance incentivizing emergency savings while discouraging potentially abusive practices.
The notice also requests public comment, particularly related to reasonable anti-abuse procedures in order to explore further examples of what may be reasonable. The notice says the Treasury Department and IRS are interested in examples of reasonable procedures which effectively balance the policy of incentivizing emergency savings while discouraging potentially abusive practices.
Employers can offer PLESAs in plan years beginning after Dec. 31, 2023. This means that, in some cases, eligible employees could have begun contributing to a PLESA as early as Jan. 1, 2024. Subject to certain restrictions, matching contributions are made with respect to PLESA contributions at the same rate as contributions to the linked defined contribution plan.
Employees who are eligible to participate in an employer’s defined contribution plan and qualify to contribute to a PLESA, if their employer offers one, may contribute to the PLESA even if they don’t participate in the employer’s defined contribution plan. In general, the maximum balance in a participant’s PLESA (attributable to contributions) is $2,500, though employers can choose to set a lower limit.
PLESAs are treated as designated Roth accounts. This means that contributions are not tax deductible, but withdrawals are generally tax free. Participants can withdraw funds held in the PLESA at least once a month, as necessary.
Comments related to the IRS initial guidance should be submitted in writing on or before April 5, 2024, and should include a reference to Notice 2024-22. Comments may be submitted electronically via the Federal eRulemaking Portal at www.regulations.gov (type “IRS Notice 2024-22 in the search field on the home page to find the notice and submit comments).
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