The Department of Labor (DOL) has recently released guidance for employers on the implementation of emergency savings accounts linked to workers’ retirement plans. These accounts, known as pension-linked emergency savings accounts (Plesas), are a result of the Secure 2.0 Act, a comprehensive retirement reform bill that was signed into law in December 2022.
The primary purpose of Plesas is to provide a financial safety net for employees facing unexpected expenses. Instead of tapping into their 401(k) plans and potentially incurring a 10% penalty for hardship withdrawals, employees can rely on these emergency savings accounts. This prevents them from jeopardizing their ability to retire comfortably in the future.
According to Lisa Gomez, the assistant secretary for employee benefits security, “These savings accounts will enhance retirement security by reducing retirement plan leakage and, at the same time, offering additional flexibility to workers.” By offering Plesas as an alternative option, retirement plans provide workers with essential funds during emergency situations.
Statistics have shown that early withdrawals from retirement accounts have been on the rise. Bank of America reported a 36% annual increase in the number of Americans taking early withdrawals last August. Additionally, a Capitalize survey revealed that 51% of Americans with retirement accounts had resorted to early withdrawals. The estimated penalties associated with these transactions were projected to reach $6.12 billion in the previous year.
To assist businesses and plan advisors in understanding the provisions of the Secure 2.0 Act concerning Plesas, the DOL has compiled a series of frequently asked questions. These resources serve as valuable references during the setup and management of these emergency savings accounts for employees.