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PLESA Meet You- Pension-Linked Emergency Savings Accounts Are Here

Pension-Linked Emergency Savings Accounts, or PLESAs, are a product of SECURE Act 2.0. They offer a new type of savings vehicle that may encourage participants to think twice before dipping into their retirement savings before they retire (thus incurring certain tax penalties). PLESAs are short-term savings accounts within a defined contribution plan whereby non-highly compensated employees may contribute Roth contributions, i.e. after tax contributions, to the PLESA. In January, the Department of Labor, in consultation with the Department of Treasury and Internal Revenue Service issued a set of FAQs regarding PLESAs.   

If an employer wishes to include the option of a PLESA to the defined contribution plan, the employer may also choose to automatically enroll its employees into the PLESA, but cannot set an automatic enrollment above 3% of income (less is okay).  In addition, the employees may choose a greater percentage to be contributed or choose to opt out and withdraw their money at no charge.  Contributions to the PLESA are also eligible for matching contributions.

Currently, there is a maximum limit of $2,500 that may be “attributable to participant. contributions.  It is up to the employer to decide whether earnings are included or not when calculating the $2,500 limit.  PLESAs must allow participants the ability to withdraw from the account balance at least once a month and, unlike a traditional hardship withdrawal, participants do not need to demonstrate an emergency or even a need before making a withdrawal.  While participants may not be assessed any fees or charges related to the first four withdrawals in a plan year, reasonable fees may be charged for subsequent withdrawals.  In addition, after a participant withdraws money from the PLESA, the participant may replenish the PLESA up to the $2,500 limit.

As the general public becomes familiar with PLESAs, it will be interesting to see whether employers will consider adopting and incorporating these into their defined contribution plans and whether the employees will take advantage of the ability to set aside after-tax contributions for a rainy day and leave the pre-tax contributions for retirement.

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