IRS Issues Limited Guidance for PLESAs Under SECURE 2.0

The IRS has released Notice 2024-22, providing guidance on anti-abuse rules under Section 127 of the SECURE 2.0 Act with respect to Pension-Linked Emergency Savings Accounts (PLESAs). PLESAs are an optional feature that can be added to a 401(k), 403(b), or governmental 457(b) plan beginning on January 1, 2024. If the employer provides matching contributions under the plan, such contributions must also be made at the same rate on account of any PLESA contributions (but made to the participant’s account in the plan that is not a PLESA). Participants must be permitted to withdraw any amount from their PLESA at least once each calendar month. 

Plan sponsors may be concerned that a participant could contribute to the participant’s PLESA and take distributions in a way that maximizes matching contributions received but maintains little to no contributions in the PLESA. The IRS indicates that a reasonable anti-abuse procedure is one that balances the interests of participants in using the PLESA for its intended purpose with the interests of plan sponsors in preventing manipulation of the plan’s matching contribution rules. The IRS has provided examples of procedures that are NOT reasonable for a plan sponsor to implement.

  • Forfeiture of matching contributions: A plan may not provide that matching contributions already made on account of participant contributions to the PLESA will be forfeited by reason of a participant’s withdrawal from a PLESA;
  • Suspension of participant contributions to PLESA: A plan may not suspend a participant’s ability to contribute to the participant’s PLESA on account of a withdrawal from the PLESA; and
  • Suspension of matching contributions on participant contributions to the underlying defined contribution plan: A plan may not suspend matching contributions made on account of participant elective deferrals to the underlying defined contribution plan.

Additionally, the IRS indicates that Revenue Rulings 74-55 and 74-56 are not applicable in the context of PLESA arrangements. The IRS invites comments on this notice and any other aspect of section 127 by April 5, 2024.