The Pension-Linked Emergency Savings Account (PLESA) offers a new benefit option for employees facing emergencies and became effective on January 1, 2024. To help employers, plan sponsors, and its participants understand how the savings account works, the IRS and Department of Labor (DOL) recently released guidelines and frequently asked questions.
As defined by the DOL, the PLESA is a “short-term savings accounts established and maintained within a defined contribution plan.” The PLESA functions similarly to a traditional emergency savings account, allowing individuals to contribute funds on a regular basis or as needed. The funds are held separately from their primary retirement savings but can be easily accessed in the event of an emergency. Employers with 401(k), 403(b) and 457(b) plans can opt to offer PLESAs to employees making less than $150,000 per year.
Here are some other details you will need to know to decide if offering the PLESA to your employees is a good decision for your business.
Enrollment into the savings plan can be done by the employer or automatically
The participant's contribution can not exceed $2,500 within the year 2024
There is no minimum contribution amount, or minimum balance required
Contributions must be held as cash, in an interest-bearing deposit account or in an investment product
Contributions are made on a Roth basis, meaning they are included in an employee’s taxable income but participants won’t have to pay tax when they make withdrawals
If an employee has a PLESA but becomes "highly compensated" afterwards, he or she will not be able to make any further contributions but retains the right to withdraw the balance
Participants are not subject to withdrawal fees for their first 4 withdrawals within a plan year
Withdrawals are made at the discretion of the participant, and will require no proof of an “emergency” to do so
If after reviewing the basics of the PLESA and are interested in incorporating the savings plan for your employees, let us know. We can help address any further concerns regarding fringe benefits and other tax implications.