SECURE 2.0 Act – Section 127. Emergency Savings Accounts Linked to Individual Account Plans
Section 127 of the SECURE 2.0 Act (SECURE 2.0) establishes a new short-term savings vehicle: plan-linked emergency savings accounts (PLESA).
A PLESA is an account established under an individual account plan such as a 401(k) plan, with few restrictions on a participant’s ability to withdraw the funds prior to retirement. Unlike traditional retirement savings vehicles, the purpose of the PLESA is to encourage savings to address short-term financial emergencies.
Only employee contributions would be permitted to a PLESA, which must provide for contributions on an after-tax (Roth basis) only. Employer matching contributions can be made on employee contribution to a PLESA, but these matching contributions would be held in the participant’s matching account rather than the PLESA.
The maximum total balance in a participant’s PLESA at any time is $2,500, or a lesser amount determined by the employer. Any excess amounts credited to a PLESA can be transferred to a separate Roth account. Investment options for PLESA funds are limited to capital-preserving investments such as stable value or money market funds.
Participants must be permitted to withdraw funds from the PLESA at least once per month, and no fees or other charges can be imposed for the first four annual withdrawals. Withdrawn funds are taxed as Roth distributions and can be used for any purpose.
These PLESA rules are effective for the first plan year beginning after December 31, 2023.
The Department of Labor is directed to publish regulations concerning PLESAs no later than December 2023.
If you have any questions about SECURE 2.0, please contact a member of the Schneider Downs Retirement Solutions team at [email protected].
This article is part of a series highlighting the impact of the SECURE 2.0 on retirement plan sponsors, participants and retirees. You can view our full catalog of SECURE 2.0 articles here or download our comprehensive SECURE 2.0 eBook here.
About SECURE 2.0
SECURE 2.0 was signed into law by President Biden on Dec. 29, 2022, as part of a $1.7 trillion omnibus spending bill.
This massive piece of legislation builds on the foundation that was laid by the 2019 Setting Every Community Up for Retirement Enhancement (SECURE) Act to further improve upon the success of the private employer-based retirement system by making it easier for businesses to offer retirement plans and for individuals to save for retirement.
The full text of SECURE 2.0, including provisions that affect pension and cash balance plans, may be found on pages 2,046-2,404 of the omnibus Consolidated Appropriations Act of 2023.
This article is part of a series highlighting the impact of the SECURE 2.0 on retirement plan sponsors, participants and retirees. You can view our full catalog of SECURE 2.0 articles here or download our comprehensive SECURE 2.0 eBook here.
About Schneider Downs Retirement Solutions
Schneider Downs Retirement Solutions has experience in all facets of qualified and non-qualified plan delivery, which allows us to be flexible to the needs and direction of our clients. Our specialized team of advisers and consultants provide objective advice and expertise to help plan sponsors govern their retirement plans appropriately, mitigate risk, improve participant outcomes and support efficient and compliant plan operations.
Schneider Downs Wealth Management Advisors, LP (SDWMA) is a registered investment adviser with the U.S. Securities and Exchange Commission (SEC). SDWMA provides fee-based investment management services and financial planning services, along with fee-based retirement advisory and consulting services. Material discussed is meant for informational purposes only, and it is not to be construed as investment, tax or legal advice. Please note that individual situations can vary. Therefore, this information should be relied upon when coordinated with individual professional advice. Registration with the SEC does not imply any level of skill or training.
