Secure 2.0 Act provisions would offer workers easier access to emergency savings
Two of the optional provisions included in the Act provide retirees with the ability to access savings in the event of an emergency or unplanned expense.
In December of 2022 Congress passed the Secure 2.0 Act which improves access to retirement savings. Two of the optional provisions included in the Act provide retirees with the ability to access savings in the event of an emergency or unplanned expense.
Commonwealth, a national nonprofit that builds financial security and opportunity for financially vulnerable individuals, conducted a study to gauge interest and demand on the new emergency provisions put forth in the Act.
According to the study, workers earning low and moderate income levels expressed interest in both of the optional provisions.
The first provision allows employers or plan sponsors to implement a pension-linked emergency savings account (PLESA) capped at $2,500 as part of the plan. The second provision allows employees to withdraw $1,000 once a year, with a three-year repayment window, from their retirement account for “meeting unforeseeable or immediate financial needs relating to necessary personal or family emergency expenses.”
While employers can offer either plan, both or neither, the study found that participants favored the $2,500 PLESA provision when asked to choose between both options.
Survey participants favored the PLESA plan due to the ease of account setup and the fact that the account holder doesn’t have to establish intentional saving behavior to begin contributing funds to the account. As part of the PLESA, employees can contribute up to 3% of their paycheck post-tax to the account. Respondents also liked the PLESA plan for its accessibility to liquid funds, without tapping into their retirement savings.
A majority of survey participants also responded favorably to the $1,000 withdrawal provision. Some preferred this option as an alternative to taking a loan or accruing debt in the case of an unexpected expense. Many respondents also liked the plan for the ability to withdraw money, penalty-free.
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As a result of the research, Commonwealth recommends that employers and plan providers should seriously consider offering the $2,500 PLESA provision as a part of their retirement packages.
Research from the Federal Reserve has demonstrated that 37% of people living in the U.S. do not have savings to cover a $400 unexpected expense – a rate that increases to 58% amongst individuals making less than $60,000 per year.
Optional provisions offered in the Secure 2.0 Act could help employees better prepare for emergencies and unexpected expenses in the future through their retirement savings plans.