January 2024 Compliance News

PLESA Anti-Abuse Guidance

The Internal Revenue Service (IRS) issued Notice 2024-22 (Notice) which gives initial guidance to help employers with implementation of pension-linked emergency savings accounts (PLESAs). PLESAs were included in the SECURE 2.0 Act of 2022 and are effective for plan years beginning in 2024.

Background

PLESAs are short-term Roth savings accounts established and maintained in connection with a defined contribution plan. Generally, balances within a PLESA cannot exceed $2,500, and it is not available to individuals making more than $155,000 for 2024. If the plan sponsor offers a PLESA, participants must be allowed the ability to withdraw from the account at least once a month. Those withdrawals are not eligible for rollover while the participant is actively employed and would not be subject to the 10% additional income tax penalty for early withdrawals.

Anti-Abuse

Because PLESAs may be matched, there have been concerns that participants will contribute to PLESAs solely for the purpose of maximizing employer matching contributions.

The Notice does not require plan sponsors to monitor PLESA abuse. However, a plan sponsor can employ reasonable procedures to prevent abuse. It did not offer reasonable measures to mitigate abuse that were not already noted in SECURE 2.0, such as matching on PLESA contributions last or setting a lower PLESA maximum than the $2,500 allowable.

The Notice stated, though, that the following enforcement techniques are unreasonable and not allowed:

Forfeiture of a matching contribution if the participant takes a withdrawal from the PLESA
Suspension of the ability to contribute to a PLESA if the participant takes a withdrawal from the PLESA
Suspension of matching contributions made on account of participant elective deferrals

Comments Requested

Comments are welcome related to reasonable procedures and examples to discourage abusive practices. Comments should be submitted in writing on or before April 5, 2024, and should reference Notice 2024-22. Comments may be submitted using one of the following alternatives:

Electronically via the Federal eRulemaking Portal at www.regulations.gov
By mail to the Internal Revenue Service, Attn: CC:PA:LPD:PR (Notice 2024-22), Room 5203, P.O. Box 7604, Ben Franklin Station, Washington, D.C. 20044.

The subject matter in this communication is educational only and provided with the understanding that Principal^® is not rendering legal, accounting, investment or tax advice. You should consult with appropriate counsel, financial professionals and other advisors on all matters pertaining to legal, tax, investment or accounting obligations and requirements.

Insurance products and plan administrative services provided through Principal Life Insurance Company^®, a member of the Principal Financial Group^®, Des Moines, IA 50392.

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