The emergency savings account employee benefit is part of the SECURE 2.0 law geared towards employees facing emergencies. The actual name of this account is called pension-linked emergency savings (PLESA). It was provisionally effective for plan years beginning January 1, 2024.
In Notice 2024-22, the IRS recently released guidance about the accounts. For additional assistance, you can check out the FAQs published by the U.S. Department of Labor (DOL) regarding plan sponsors, participants, and employers’ roles.
Emergency Savings Account Employee Benefit Basics
The DOL defines PLESAs as “short-term savings accounts established and maintained within a defined contribution plan”. Some employers offer 457(b), 401(k), and 403(b) plans to their employees. In addition to those, they can also choose to offer PLESAs to non-highly compensated employees. Employees who earned $150,000 or more in 2023 will be considered a highly compensated employee for 2024.
Here are a few of the details of the emergency savings account employee benefit:
- If an employee has a PLESA and is not highly compensated, but becomes highly compensated as defined under tax law, he or she cannot make further contributions. However, they retain the right to withdraw the balance.
- Participants can make a withdrawal at least once per calendar month, and such withdrawals must be distributed “as soon as practicable”.
- Beginning in 2024, employers can offer to enroll eligible participants in these accounts. Or they can automatically enroll participants in them.
- The portion of the account balance attributable to participant contributions cannot exceed $2,500 (or a lower amount determined by the plan sponsor) in 2024. The $2,500 amount will be adjusted for inflation in future years.
- Contributions must be held as cash in an investment product or an interest-bearing deposit account.
You Don’t Have To Show Proof Of An Event
A participant in a PLESA does not need to provide proof that he or she is experiencing an emergency before making a withdrawal from an account. The DOL states that “withdrawals are made at the discretion of the participant”.
These are just some of the basic details of PLESAs. Feel free to contact us if you have questions about these or other fringe benefits and their tax implications.
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