IRS Provides Guidance on Implementing Pension-Linked Emergency Savings Accounts (PLESAs); Comments Due April 5

The Internal Revenue Service (IRS) released guidance to help employers with implementation of pension-linked emergency savings accounts (PLESAs) under Section 127 of the SECURE 2.0 Act. IRS Notice 2024-22 provides guidance on reasonable measures employers who offer PLESAs can take to discourage potential manipulation of the PLESA matching contribution rules.

PLESAs are individual accounts in defined contribution (DC) plans and are designed to permit and encourage employees to save for financial emergencies. 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 DC plan.

Employees who are eligible to participate in an employer's DC 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 DC plan. 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.

The abuse that plan sponsors might be concerned about is that a participant could contribute to their PLESA and take distributions in a way that maximizes matching contributions received but maintains little to no participant contributions in the PLESA.

Statutory provisions that limit manipulation of the rules of the plan to cause matching contributions to exceed the intended amounts or frequency include:

A plan sponsor might view these provisions as sufficient anti-abuse provisions, and therefore decide not to impose any other restrictions meant to prevent manipulation of matching contributions. 

Or, a plan sponsor might decide to use additional reasonable procedures to prevent abuse.

IRS determined that the following procedures are unreasonable for a plan sponsor to implement (and are not allowed):

IRS invites comments on or examples of reasonable anti-abuse procedures which effectively balance the policy of incentivizing emergency savings while discouraging potentially abusive practices.