Emergency Savings Proposal Introduced
Senators Todd Young (R-IN), and Cory Booker (D-NJ) have introduced the Emergency Savings Act of 2022. The proposal would allow “pension-linked” savings accounts for participants of up to $2,500 (subject to cost-of-living adjustments) to be used for unexpected expenses. The accounts would be treated in the same manner as after-tax contributions, and plan sponsors could automatically enroll a participant with a compensation deferral percentage not to exceed three percent. The account can be invested as cash, in an interest-bearing deposit account, or an investment product designed to preserve principal and provide a reasonable rate of return—and is not subject to any unreasonable fees, restrictions, expenses or charges in connection with the account or withdrawals.
While distributions from the account are not eligible for rollover to an eligible retirement plan, the account balance could be contributed to a designated Roth account of the participant or a Roth IRA upon the participant’s termination of employment. Distributions from the account will not be subject to withholding or an early distribution penalty. Contributions to this arrangement would be treated as elective deferrals and aggregated with plan contributions for nondiscrimination testing purposes.