by Any employee can experience a financial emergency like unexpected medical expenses or a vehicle breakdown. Many employees have been compelled to seek loans or hardship withdrawals from their retirement plans in order to meet the emergency. A new option, linked to their retirement plan, may be a source for cash. For plan years beginning in 2024, employers are able to set up short-term savings accounts known as Pension-Linked Emergency Savings Accounts (PLESAs) as part of their 401(k) or other retirement savings plans. PLESAs can provide employees with a no-penalty resource for unexpected expenses without having to resort to loans or withdrawals from the retirement plan.
As explained in new regulations issued by the Employee Benefits Security Administration this month:
- PLESAs can be set up by the employer for voluntary or automatic employee enrollment.
- Employees may make after-tax contributions to PLESAs through payroll deductions.
- Employers can set contribution caps of up to $2,500 for PLESAs.
- Participating employees can withdraw funds in their PLESA without the penalties associated with withdrawals from retirement savings.
For more information, see the U.S. Department of Labor FAQs: https://www.dol.gov/agencies/ebsa/about-ebsa/our-activities/resource-center/faqs/pension-linked-emergency-savings-accounts. In addition, the IRS has published guidance for plan sponsors regarding setting up and administering PLESAs: https://www.irs.gov/pub/irs-drop/n-24-22.pdf.
