On January 12, 2024, the IRS issued Notice 2024-22, initial guidance on emergency savings accounts linked to 401(k) plans under the SECURE 2.0 Act. The new provisions, effective for plan years beginning after December 31, 2023, generally permit (but do not require) employers to offer “pension-linked emergency savings accounts” (PLESAs) to non-highly compensated employees as part of their defined contribution plans, subject to a number of rules and restrictions.
The IRS separately issued a “plain language” fact sheet briefly describing the content of the Notice.
NOTE: The Department of Labor (DOL) has also recently issued guidance on PLESAs in the form of Q&As which we will be covering in a separate blog.
What is a PLESA?
Generally stated, a PLESA is a separate, designated Roth (after-tax) account that is included in a non-highly compensated employee’s regular 401(k) plan account. The purpose is to help enable and encourage employees to save for financial emergencies. Employees must be eligible for but do not need to contribute to the underlying plan in order to contribute to the PLESA. A PLESA:
- May accept only employee contributions;
- Is subject to a maximum balance of $2,500 (as adjusted), or a lesser plan-set limit;
- May be combined with an automatic contribution arrangement (optional);
- Must provide that employee contributions to the PLESA be matched by the employer (if the plan has matching contributions), made at the same rate as to those made to the employee’s underlying plan account;
- Is not subject to the 10% additional tax on early withdrawals;
- Must separately account for contributions to the PLESA and maintain separate recordkeeping with respect to the PLESA;
- Must allow for withdrawals from the PLESA at least once per month; and
- Is subject to a number of additional requirements relating to fees and charges, rollovers, and notices to eligible employees.
IRS Notice 2024-22:
Among other things, Notice 2024-22 makes the following clarifications:
- Matching contributions made under a plan are treated first as attributable to elective deferrals other than contributions to the PLESA;
- Matching contributions made with respect to contributions to the PLESA cannot exceed the maximum PLESA account balance for the plan year ($2,500, as adjusted, or a lower plan-set limit, if applicable);
- Plan sponsors may adopt “reasonable” anti-abuse procedures to discourage potential manipulation of the timing, limits, and similar rules; however, the Notice specifies that the following measures are NOT considered reasonable anti-abuse rules:
- Plans may not forfeit matching contributions already made based on contributions to the PLESA due to an employee’s withdrawal from the PLESA;
- Plans may not suspend an employee’s ability to contribute to the PLESA due to withdrawal from the PLESA; and
- Plans may not suspend “regular” matching contributions (i.e., those based on elective deferrals made to the underlying 401(k) plan).
Public comments may be submitted in writing in accordance with instructions in the Notice on or before April 5, 2024.
NOTE: This article is intended as a general overview of Notice 2024-22 as it affects most 401(k) plans and is not meant to offer a comprehensive analysis of the Notice, qualification rules applicable to 401(k) plan accounts, contributions and distributions, or related issues. It also does not address recent DOL guidance on PLESAs. As always, be sure to consult with your own ERISA attorney or other professional advisor for individualized advice with respect to your plan’s unique situation.