SECURE 2.0 OFFERS NEW TYPE OF EMERGENCY SAVINGS ACCOUNT BY LISA HABERMAN, ED.D., CHFC®, CLU®, ASCENSUS The recent passage of SECURE 2.0 has generated dozens of new provisions that affect virtually all types of retirement plans, with the intent of helping employees increase their retirement savings. Many new provisions also provide opportunities to access retirement nest eggs to offset unexpected expenses — including pension-linked emergency savings accounts (PLESAs). Effective for 2024 and later plan years, employers may permit participants who are considered non-highly compensated employees to contribute up to $2,500 (indexed), or less if dictated by the plan, to a PLESA as part of their 401(k), 403(b), or governmental 457(b) plan. Requirements Congress outlines specific requirements for PLESAs in Section 127 of SECURE 2.0. First, a PLESA cannot have a minimum contribution or account balance requirement. In addition, assets must be held in cash, an interest-bearing account, or in an investment offered by a state or federally-regulated financial organization that is designed to maintain the value of the contributions and provide a reasonable rate of return consistent with the liquidity needs of the account. PLESAs may also be subject to reasonable restrictions. Participants must be allowed to take distributions from their PLESA at least once each calendar month and processed as soon as practicable at no cost to the participant for the first four withdrawals during any plan year. However, a participant may be charged a reasonable fee for any subsequent withdrawals. Contributions Participants will either affirmatively elect or be automatically enrolled to make designated Roth contributions to a PLESA. The automatic enrollment feature will be capped at a maximum of 3%. The plan sponsor may also elect an automatic increase feature, with increases occurring no more frequently than annually. If a participant contributes to a PLESA and the employer makes matching contributions to the plan, the employer must match the participant’s contribution to the PLESA at the same rate as if the participant were making an elective pretax or Roth deferral; but the employer matching contribution will be made to the participant’s account in the plan that is not a PLESA. For purposes of matching contribution limits under the plan, matching contributions will first be attributable to elective deferrals rather than PLESA deferrals. Matching contributions on PLESA deferrals are limited to the maximum account PLESA account balance of $2,500 (or a lesser amount permitted under the plan). Once a participant has reached the limit, an employer may need to stop matching on the participant’s PLESA deferrals but continue to match on the participant’s non-PLESA deferrals. Excess PLESA Contributions Employers have three options to manage excess PLESA contributions: • Have participants elect to increase contributions to their designated Roth accounts; • Use a “deemed election” to increase contributions to participants’ designated Roth accounts; or • Do not accept the excess contribution. Distributions All PLESA distributions are considered “qualified” distributions for purposes of the Roth basis recovery rules and the PLESA is considered a separate 18 In Touch
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