The Department of Labor (DOL) recently issued new federal guidance on pension-linked emergency savings accounts (PLESAs) that employers should be aware of.
PLESAs are a result of one of two provisions of SECURE Act 2.0 that went into effect this year. Under the provision, employers are able to establish an emergency savings account within an employee’s retirement plan.
Here are the key details of the new guidance that HR pros need to know.
PLESAs and SECURE Act 2.0
Before we dive into the guidance, here’s a brief overview of SECURE Act 2.0 and the authorization of PLESAs.
SECURE Act 2.0 – builds on the Setting Every Community Up for Retirement Enhancement (SECURE) Act of 2019 to enhance retirement-readiness with improved retirement savings options.
The act amended the Employee Retirement Income Security Act (ERISA) to allow employers to establish PLESAs, which are short-term savings accounts within a defined contribution plan.
The authorization of these savings accounts aims to help improve retirement security by “reducing retirement plan leakage and, at the same time, offering additional flexibility to workers,” Assistant Secretary for Employee Benefits Security, Lisa M. Gomez, said in a press release.
Under the provision, retirement plan sponsors are authorized to offer a linked emergency savings account. Non-highly compensated employees – those earning up to $155,000 in 2024 – can make after-tax contributions, and employees can withdraw balances as often as monthly, without the penalties of withdrawing from a retirement account.
Employees may be automatically enrolled at up to 3% of their pay, unless they elect to contribute a lower amount or opt out. There is a $2,500 cap for the balance, and the plan may set a lower cap.
Employees can make contributions through payroll deductions, and employers can match contributions to the employee’s linked retirement plan.
DOL guidance and FAQs
The DOL’s Employee Benefits Security Administration released a list of frequently asked questions (FAQs) about compliance under ERISA. The document goes over eligibility and participation, contributions, distributions and withdrawals, and administration and investment.
Here are a few key details that HR pros should know:
- All of ERISA’s protections apply to the PLESA regardless of whether the employee participates in the retirement savings portion of the plan.
- Employees must be given written notification before they are automatically enrolled into a PLESA program, and they have the right to opt out and withdraw their money at no charge.
- A plan cannot impose a minimum requirement on the amount required to open a PLESA or a minimum balance to be maintained in a PLESA.
- PLESA contributions must be Roth contributions
- Although there is an account balance limit, plans cannot include an annual limit for participant contributions to the PLESA.
- Withdrawals are made at an employee’s discretion, and employees do not need to demonstrate an emergency in order to withdraw funds.
- Plans have the discretion to allow withdrawals more, but not less, frequently than once per calendar month.
- Employers should remit amounts withheld from wages to the PLESA as of the earliest date possible, but no later than the 15th business day of the month after the month the contribution is withheld or received by the employer.
The full list of FAQs can be found here.