DOL Guidance: Pension-Linked Emergency Savings Accounts (PLESAs)

We previously reported that the IRS has also released guidance on Pension-Linked Emergency Savings Accoungs (PLESAs).  See this blog for more information, along with a general description of PLESAs.

On January 17, 2024, the U.S. Department of Labor (DOL) issued guidance in the form of Q&As on PLESAs. Under the SECURE 2.0 Act, employers are permitted (but not required) to offer PLESAs in conjunction with their 401(k) plans, effective for plan years beginning after December 31, 2023.

The DOL separately issued a news release generally describing the Q&As. Among other things, the release discloses that the DOL and the IRS consulted with each other in developing their respective guidance.

Q&As: Pension-Linked Emergency Savings Accounts

Along with other matters, the DOL’s Q&As make the following clarifications:

• Individuals must be eligible to participate in a plan’s PLESA if they meet any age, service, and other eligibility requirements, assuming they are not “highly compensated employees” (generally, employees earning compensation in excess of $155,000 for 2024);
• Employers may not establish a minimum dollar amount for opening a PLESA or require a minimum balance requirement (or charge penalties or fees in this regard); however, employers may require contributions to be:
  • No less than one percent of compensation;
  • Made in whole percentage increments; or, alternatively,
  • Made in whole dollar amounts;
• Employers may automatically enroll employees in a PLESA (subject to a limit of 3% of compensation), provided that employees receive written notification before actual enrollment, and can opt out of participation and/or withdraw their money free of charge;
• Importantly, contributions made to PLESAs count towards the Internal Revenue Code’s annual limit on elective deferrals ($23,000 for 2024);
• Contributions to PLESAs must be deposited to the plan’s trust as soon as they can “reasonably be segregated” from the employer’s general assets, but no later than the 15th business day of the month following the month in which such contributions are withheld from pay;
• Employers may not impose fees or charges based on the first four withdrawals made from a PLESA in a plan year –
  • Subsequent withdrawals may be subject to “reasonable” reimbursement, account maintenance or similar fees;
  • Additionally, reasonable fees, expenses, or charges associated with the administration of the PLESA may be imposed against an employee’s account in the underlying 401(k) plan;
• Employers may combine required PLESA notices with other ERISA-required notices in certain circumstances, as set forth in the Q&As; and
• PLESAs generally may be invested in cash, interest-bearing deposit accounts, or in other investments designed to preserve principal and provide reasonable rates of return, consistent with liquidity needs –
  • Certain limited-duration “qualified default investment alternatives” (QDIAs) are also permissible for use as PLESA investments. (More information about QDIAs is available on the Dashboard.)

NOTE: This article is intended as a general overview of the DOL Q&As as they affect most 401(k) plans and is not meant to offer a comprehensive analysis of all of the topics covered in the Q&As, qualification rules applicable to 401(k) plan accounts, contributions and distributions, or related issues. It also does not address the recent IRS guidance on PLESAs. As always, be sure to consult with your own ERISA attorney or other professional advisor for individualized advice with respect to your plan’s unique situation.