IRS Posts Initial Employer Guidance on Emergency Savings Accounts

The IRS has issued initial guidance to help employers with implementation of pension-linked emergency savings accounts (PLESAs).

Authorized under the SECURE 2.0 Act of 2022, PLESAs are individual accounts in defined contribution plans—designed to permit and encourage employees to save for financial emergencies. However, the IRS acknowledges that the notice “…is not intended to provide comprehensive guidance with respect to Section 127 of the SECURE 2.0 Act, but rather it provides initial guidance regarding anti-abuse rules under Section 402A(e)(12) of the Internal Revenue Code (Code) to assist in the implementation of SECURE 2.0 Act section 127 provisions.”

PLESA Provisions

The IRS reminds that employers can offer PLESAs in plan years beginning after Dec. 31, 2023—which means, of course, that, in some cases, eligible employees could have begun contributing to a PLESA as early as Jan. 1, 2024. The IRS also notes that, subject to certain restrictions, matching contributions are made regarding PLESA contributions at the same rate as contributions to the linked defined contribution plan.

Employees who are eligible to participate in an employer’s defined contribution plan and qualify to contribute to a PLESA, IF their employer offers one (remember that, like many of the SECURE 2.0 provisions, this is optional), may contribute to the PLESA even if they don’t participate in the employer’s defined contribution plan. In Notice 2024-22, the IRS notes that “a plan which includes a PLESA may cease to offer such accounts at any time.”

Note also that, in general, the maximum balance in a participant’s PLESA (attributable to contributions) is $2,500, though employers can choose to set a lower limit.

The IRS comments that PLESAs are treated as designated Roth accounts which means that contributions are not tax deductible—but withdrawals are generally tax free. Note also that participants can withdraw funds held in the PLESA at least once a month, as necessary.

Matching Contributions

The notice also points out that if an employer makes any matching contributions to a DC plan of which a PLESA is a part, the employer must (subject to the limitations of IRC Section 402A(e)(3)) make matching contributions on behalf of an eligible participant on account of the participant’s contributions to the PLESA. 

Those matching contributions must be at the same rate as any other matching contribution on account of an elective contribution by the participant—and will be made to the participant’s account under the defined contribution plan which is not the PLESA. Note also that the matching contributions on account of contributions to the PLESA must not exceed the maximum account balance under IRC Section 402A(e)(3)(A) for the plan year. The notice also explains that for purposes of any applicable limitation on matching contributions, any matching contributions made under the plan are treated first as attributable to the elective deferrals of the participant other than contributions to a PLESA.

‘Discouraging’ Words

Guidance on reasonable measures employers who offer PLESAs can take to discourage potential manipulation of the PLESA matching contribution rules can be found in Notice 2024-22, now posted on IRS.gov. For example, Notice 2024-22 explains that

…simply because plans are not required to permit participants to take more than one distribution per month, plan sponsors may view the option of limiting the number of permissible withdrawals to a maximum of once per month as a sufficient constraint on the potential to manipulate the matching contribution rules.

Notice 2024-22 also explains that

a plan of which a PLESA is a part may employ reasonable procedures to limit the frequency or amount of matching contributions with respect to contributions to such account, 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. 

The notice also comments that IRC Section 402A(e)(12)(B) provides that a plan of which a PLESA is a part is not required to suspend matching contributions following any participant withdrawal of contributions, including elective deferrals and employee contributions, whether or not matched and whether or not made pursuant to an automatic contribution arrangement.

The notice points out that if a plan sponsor decides to employ additional procedures to prevent abuse, “Section 402A(e)(12)(A) provides that reasonable procedures are permitted 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,” and that a “reasonable anti-abuse 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.”

Unreasonable Provisions

That said, procedures outlined in Notice 2024-22 that have been deemed UNreasonable by the Treasury Department and the IRS are:

• forfeiture of matching contributions
• suspension of participant contributions to PLESA
• suspension of matching contributions on participant contributions to the underlying defined contribution

The notice also requests public comment and explains how to submit comments. Specifically that they should be submitted in writing on or before April 5, 2024, and should include a reference to Notice 2024-22. 

Comments may be submitted electronically via the federal eRulemaking portal at www.regulations.gov (type “IRS Notice 2024-22” in the search field on the regulations.gov home page to find this notice and submit comments). Alternatively, comments may be submitted by mail to:

Internal Revenue Service
Attn: CC:PA:LPD:PR (Notice 2024-22), Room 5203
P.O. Box 7604
Ben Franklin Station
Washington, D.C. 20044.

The Treasury Department and the IRS will publish, for public availability, any comment submitted electronically or on paper to its public docket.