DOL Issues Guidance On New 401(K)-Linked Emergency Savings Accounts

An employer may automatically enroll employees in the new retirement plan-linked Emergency Savings Account program, but the employees must be given the chance to opt out of the program, the Department of Labor said last week.

“Automatic enrollment is not the same as mandatory participation,” the department said, in a set of Frequently Asked Questions on the new program. “Employees must be given written notification before they are automatically enrolled into a PLESA program, and they have the right under federal law to opt out and withdraw their money at no charge.”

The program began this month; it was created under a provision of SECURE 2.0. The emergency savings accounts are treated as designated Roth accounts. Contributions are not tax deductible, but withdrawals generally are considered tax free. Participants may withdraw funds held in PLESAs at least once a month, as needed.

The department said that while ERISA states that the portion of an account attributable to participant contributions may not exceed $2,500, that figure will be periodically indexed for inflation.

And while the program uses the word “emergency,” the department said that nothing in the law requires a participant to demonstrate the existence of an emergency in order to withdraw funds. Instead, withdrawals may be made at the discretion of a plan participant.

PLESAs cannot be subject to any fees or charges solely on the basis of the withdrawal of funds for the first four withdrawals, the department said. However, PLESAs may be subject to “reasonable fees or charges” in connection with additional withdrawals, the department added.

PLESAs may not have a minimum contribution or account balance and penalties cannot be imposed for that purpose, according to the DOL. However, the guidance stated that in order to assist in plan simplicity, employers may require that contributions take the form of whole percentage points or whole dollars.

Plan fiduciaries are permitted to select any prudent investment product that satisfies the law, department officials said.

DOL noted that the department has the authority to impose reasonable restrictions on PLESA administration, however, department officials do not intend to establish restrictions on how PLESA funds may be districted to plan participants right now. The department also said that DOL officials are evaluating whether a model plan notice that administrators would use could be helpful. The department said that such a model notice may be provided in the future.

The department said that the 2023, Form 5500—the annual reports of employee benefit plans—does not contain a specific reporting requirement for PLESAs since the law did not go into effect until Jan. 1, 2024. The department said officials are developing a PLESA feature code for plans so they may indicate that they offer a PLESA.

Labor Department officials also said they are evaluating what changes should be made to enable them to collect the data needed to report to Congress on whether the amount of the dollar limitation is sufficient and the extent to which plan sponsors are offering such accounts, as well as employee participation.

They added that the department’s evaluation will include the impact on retirement savings leakage and the impact the emergency accounts have on plan participation by low- and moderate-income households.


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