New IRS guidance on PLESAs under SECURE 2.0

On January 12, the IRS released new guidance for plan sponsors implementing Pension-Linked Emergency Savings Accounts (PLESAs) authorized by SECURE 2.0. 

PLESAs – which are short-term saving accounts designed to help non-highly compensated employees save for financial emergencies – were authorized under Section 127 of the Setting Every Community Up for Retirement Enhancement (SECURE) Act of 2019 to help improve retirement-readiness.

The guidance, which was released along with DOL guidance for employers offering PLESAs, focuses on anti-abuse rules. Here’s what to know.

Fast facts about SECURE 2.0 and PLESAs

In case you missed our initial coverage of SECURE 2.0 and PLESA guidance, here are the basics: 

• 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 unless the plan sponsor sets a lower amount.
• Employees can make contributions through payroll deductions, and employers can match contributions to the employee’s linked retirement plan.
• PLESA contributions must be Roth contributions, and
• Plans have the discretion to allow withdrawals more, but not less, frequently than once per calendar month.

The DOL released a full list of frequently asked questions here. 

IRS guidance: Notice 2024-22

The IRS published Notice 2024-22 to provide initial guidance on anti-abuse procedures.

Specifically, the guidance points out that SECURE 2.0 allows plan sponsors to implement reasonable procedures to limit manipulation of the matching contribution rule. These procedures should be implemented “solely to the extent necessary to prevent manipulation of the rules of the plan to cause matching contributions to exceed the intended amounts or frequency,” per the notice. 

Under Section 127, any matching contributions made under the plan are treated first as attributable to a participant’s elective deferrals other than PLESA contributions to lower the availability of matching contributions made to the PLESA.

The contribution cap – set at $2,500 – can be set to a lower amount by the plan sponsor. “A lower limit on the portion of the PLESA balance attributable to participant contributions would result in a correspondingly lower cap on annual matching contributions,” per the notice. 

If a company chooses, it can also implement other reasonable measures to limit manipulation of matching contributions.

Unreasonable anti-abuse procedures

A reasonable procedure is one that “balances the interests of participants in using the PLESA for its intended purpose with the interests of plan sponsors in preventing manipulation of the plan’s matching contribution rules,” according to the IRS. 

The notice goes on to list procedures that would be considered unreasonable to limit manipulation, including: 

• Forfeiture of matching contributions. A plan may not provide that matching contributions already made on account of participant contributions to the PLESA will be forfeited by reason of a participant’s withdrawal from the PLESA.
• Suspension of participant contributions. A plan may not suspend a participant’s ability to contribute to the participant’s PLESA on account of a withdrawal from the PLESA.
• Suspension of matching contributions on participant contributions to the underlying defined contribution plan. A plan may not suspend matching contributions made on behalf of participant elective deferrals to the underlying defined contribution plan.

Notice 2024-22 clarifies that the list of unreasonable procedures is not exhaustive.