US Department of Labor issues guidance on new emergency savings accounts

WASHINGTON – The U.S. Department of Labor announced today that its Employee Benefits Security Administration has issued guidance to improve retirement security through pension-linked emergency savings accounts, part of the implementation of the SECURE 2.0 Act of 2022.

The SECURE 2.0 Act amended the Employee Retirement Income Security Act to authorize the establishment of pension-linked emergency savings accounts, which are short-term savings accounts established and maintained as part of an individual’s retirement savings plan, such as a 401(k) plan.

“These savings accounts will enhance retirement security by reducing retirement plan leakage and, at the same time, offering additional flexibility to workers,” said Assistant Secretary for Employee Benefits Security Lisa M. Gomez. “Far too often, unexpected expenses, like emergency dental care, a broken refrigerator or automotive repairs, force workers to tap into their retirement savings plans through loans and hardship withdrawals simply because they don’t have personal savings at the ready to absorb those unplanned expenses. Plans can offer these accounts to workers as an additional option that provides them access to needed funds when emergency situations arise.”

Employers may automatically enroll their employees into PLESAs, make employee contributions to the PLESAs through payroll deductions and make matching employer contributions to the linked retirement plans. Participating employees can easily withdraw funds saved in their PLESA without the penalties of drawing from retirement savings. Employers may set a limit of up to $2,500 for contributions. The PLESA feature is available for plan years beginning after Dec. 31, 2023.

This guidance, which was developed after communication with stakeholders, consists of 20 frequently asked questions and responses. The department consulted with the Department of the Treasury and Internal Revenue Service in developing the FAQs. The department is also considering additional guidance. In addition, the IRS provided initial guidance regarding anti-abuse rules under section 402A(e)(12) of the Internal Revenue Code to assist in the implementation of the PLESA provisions. The IRS guidance, which was issued on Jan. 12, 2024, was developed in consultation with the department.

Read Frequently Asked Questions: Pension-Linked Emergency Savings Accounts.