The passing of SECURE 2.0 in December 2022 has spurred significant activity among plan sponsors, leaving them to navigate new compliance hurdles. The journey is far from over, with additional provisions yet to come into effect. Among these changes, plan sponsors have entered 2024 with the need to understand and, for those interested, to implement the latest updates to Pension Linked Emergency Savings Accounts (PLESAs). This new and optional addition, while not categorized strictly as a retirement account, falls squarely within the purview of plan sponsors.

PLESAs, optional short-term savings accounts, came about as a need for quick access to emergency funds and are listed under the Employee Retirement Income Security Act of 1974 (ERISA), with corresponding provisions in the Internal Revenue Code. The emergency funds' importance was reinforced through the COVID-19 pandemic and the overall economic panorama and as such, SECURE 2.0 provides an update to the PLESAs. Under Section 127, SECURE 2.0 enables eligible participants to withdraw up to $2,500 from their accounts, effective for plans on or after January 1, 2024. Acknowledging the complexity and confusion surrounding the updated PLESAs, the Department of Labor (DOL) recently published its FAQs to assist plan sponsors. However, integrating PLESAs as a feature introduces a new level of compliance requirements and potential risks for plan sponsors.

Navigating the ins and outs of PLESAs

To start, plan sponsors must grasp the eligibility process. A participant qualifies for a PLESA if they are eligible for a qualified plan provided by their employer and are not classified as a highly compensated employee. The threshold for "highly compensated" status is defined as $155,000 for 2024. Consequently, PLESA eligibility is contingent upon individual employees' earnings not exceeding this amount.