“SECURE 2.0 Act Introduces PLESAs: How This New Retirement Benefit Can Impact Your Savings”

The passage of the SECURE 2.0 Act by Congress has brought about significant changes to traditional employer-offered retirement plans, with the introduction of pension-linked emergency savings accounts (PLESAs) being one of the most notable developments. These accounts are designed to provide employees with a $2,500 cushion for emergencies, with employers having the option to offer PLESAs as part of their existing retirement benefits package.

One key feature of PLESAs is that they must be composed of Roth contributions, meaning that contributions are made with after-tax income and withdrawals are not taxed. Employees are also allowed to withdraw from their PLESA once per month, with the ability to refill the account if the balance falls below $2,500, up to a maximum contribution limit of $2,500.

Brian Dobbis, the head of IRA business at investment management company Lord, Abbett & Co LLC, highlights two important aspects of PLESA contributions. Firstly, if an employee exceeds the $2,500 maximum contribution limit, they can choose to have the excess amount transferred to a Roth account. Secondly, PLESA contributions are counted towards the annual employee elective salary deferral limit, which could impact the amount employees can contribute to other retirement accounts such as 401(k)s.

For the year 2024, the elective salary deferral limit is $23,000, meaning that fully funding a PLESA could reduce the amount an employee can contribute to other eligible accounts to $20,500. This underscores the importance of understanding how PLESAs fit into an overall retirement savings strategy and the potential trade-offs involved in allocating contributions across different accounts.

Overall, the introduction of PLESAs under the SECURE 2.0 Act represents a significant step towards encouraging individuals to save for retirement and build financial resilience through emergency savings. Employers and employees alike will need to carefully consider the implications of PLESAs on their retirement planning and make informed decisions to maximize the benefits of these new savings accounts.