On January 12, 2024, the IRS released Notice 2024-22, which provides preliminary guidance to assist plan sponsors with implementing Pension-Linked Emergency Savings Accounts (PLESAs). Specifically, the notice addresses anti-abuse measures to discourage potential manipulation of the PLESA matching contribution rules.

Created by Section 127 of the SECURE 2.0 Act, PLESAs are individual accounts in defined contribution plans (such as 401(k) and 403(b) plans) that are designed to allow eligible non-highly compensated employees to save for financial emergencies. PLESAs are treated as designated Roth accounts.

Generally, the maximum permitted balance in a participant's PLESA (attributable to contributions) is $2,500 (as indexed annually), unless the plan sponsor sets a lower limit. Subject to certain restrictions, the plan must match PLESA contributions at the same rate as other elective contributions to the defined contribution plan. PLESAs also must permit participants to withdraw their balance in whole or in part, at their discretion, at least monthly. Such withdrawals are not subject to the additional tax otherwise applicable to early plan withdrawals.

The SECURE 2.0 Act allows plan sponsors to adopt reasonable procedures to prevent manipulation of the PLESA matching contribution rule and directs the IRS to issue related guidance. The notice, which reflects the IRS's initial effort to provide such guidance, highlights statutory provisions that a plan may consider in establishing anti-abuse procedures and provides examples of measures that are prohibited.

First, the notice reminds plan sponsors that matching contributions under the plan are treated first as attributable to a participant's elective deferrals other than PLESA contributions. As a result, any elective deferrals a participant makes to the underlying defined contribution plan will be matched first and will lower the availability of matching contributions that will be made on account of participant PLESA contributions. Additionally, matching contributions due to PLESA contributions cannot exceed the maximum account balance limit for the plan year. As noted above, a plan sponsor can set a lower PLESA balance limit than $2,500, which would result in a correspondingly lower cap on annual matching contributions that could be subject to abuse. The sponsor could also limit the number of withdrawals to a maximum of one per month. The guidance clarifies that a plan sponsor could decide these statutory limitations were adequate and not impose other anti-abuse restrictions, even if a participant made and withdrew their PLESA contributions annually after receiving the corresponding match.

Second, the notice explains that reasonable additional restrictions imposed by the plan sponsor must be “solely to the extent necessary to prevent manipulation of the plan rules to cause matching contributions to exceed the intended amounts or frequency.” According to the guidance, requiring the forfeiture of matching contributions attributable to the PLESA, suspending participant PLESA contributions, or suspending matching contributions to the underlying defined contribution plan are not reasonable restrictions.

Plan sponsors considering offering PLESAs but concerned about the accounts being used only to gain matching contributions and not for the intended purposes should review this initial guidance. The IRS is also seeking comments regarding other reasonable anti-abuse procedures (and examples thereof) that effectively balance the policy of incentivizing emergency savings while discouraging potentially abusive practices. Sponsors interested in submitting comments must do so in writing on or before April 5, 2024, in accordance with the instructions in the notice.

Notice 2024-22 »