Page 190 - TaxAdviser_Jan_Apr23_Neat

TAX CLINIC

If they are automatically enrolled, the arrangements and deferred compensation ■ Personal emergencies up to $1,000
PLESA contribution rate may not be plans and $15,500 under Sec. 408(p)(2)(E) (as indexed for inflation) annually
more than 3% unless the participant for SIMPLE IRA plans), the participant’s under Sec. 72(t)(2)(I), starting in
affirmatively elects at any time to opt PLESA contributions must be distributed 2024 under the SECURE 2.0 Act,
out or change the PLESA automatic first (Sec. 402A(e)(9)). Section 115;
contribution percentage. The participant Under ERISA Section 801(c)(2)(B), an ■ Domestic abuse up to $10,000 (or,
may separately opt out of or change employer may terminate a plan’s PLESA if less, 50% of the account balance)
an automatic PLESA contribution feature at any time. Upon a participant’s under Sec. 72(t)(2)(K), starting in
percentage without affecting auto- actual termination of employment, or 2024 under act Section 314;
matic contributions applicable to non- employer termination, the plan must (1) ■ Adoption or birth of a child up to
PLESA accounts. allow a participant to transfer some or all $5,000 under Sec. 72(t)(2)(H);
The plan must allow participants to of a PLESA account balance to another ■ Qualified medical expenses and
draw on their PLESA accounts at least designated Roth account in the plan, and unemployed individuals’ health
monthly, without any limit on the num- (2) for any amounts not so transferred, insurance premiums under
ber of PLESA withdrawals in a year or make such amounts available for distribu- Secs. 72(t)(2)(B) and (D); and
any restriction on the minimum PLESA tion (Sec. 402A(e)(8)). No amounts from ■ Qualified disasters under
balance. Under Secs. 402A(e)(7) and any other employer plan may be trans- Sec. 72(t)(11).
72(t)(2)(J), the 10% early-distribution ferred into the PLESA. In addition, certain retirement plans
penalty under Sec. 72(t) does not PLESA in-service distributions may may provide for hardship distributions
apply to PLESA withdrawals. PLESA not be rolled over; however, PLESA due to an immediate and heavy financial
funds may be held only in a regulated amounts paid upon a termination of need, although hardship distributions
financial institution and only in cash, employment or the employer’s termina- are generally subject to the 10% early-
in an interest-bearing savings account, tion of the PLESA are eligible roll- distribution penalty unless an exception,
or in certificates of deposit (CDs). No over distributions. such as those mentioned above, applies.
administrative fees are permitted on The plan sponsor is required to provide Moreover, the 10% early-distribution
the first four withdrawals in a year, but a PLESA disclosure notice (which may penalty does not apply to in-service
reasonable fees are permitted thereafter be consolidated with other required plan withdrawals by participants who have
(e.g., for use of paper checks) (ERISA notices) not less than 30 days or more attained age 59½ (or attained age 55
§§801(c)(1)(A)–(C)). than 90 days prior to the first PLESA upon a termination of employment)
Under Sec. 402A(e)(6), if the em- contribution, disclosing the terms of the or who satisfy certain other exceptions
ployer makes matching contributions PLESA (Sec. 402A(e)(5)(A)). under Sec. 72(t)(2). Plans may also pro-
under the plan, it is required to match ERISA Section 802 provides that any vide for participant loans for any reason,
PLESA contributions at the same rate state anti-garnishment laws that would provided that the requirements of
as other plan matching contributions. prevent automatic contributions are Sec. 72(p) are satisfied.
The maximum annual PLESA match- preempted. Further, under an anti-abuse How are PLESAs different?
ing contribution limit is the lesser of provision in Sec. 402A(e)(12), plans The purpose of an employer-provided
$2,500 (as indexed) or other amount may implement procedures to prevent retirement plan is to assist employees
designated by the plan sponsor (the manipulation of the rules to cause match- in funding their own retirements by ac-
same limit as for PLESA contributions). ing contributions to exceed the intended cumulating tax-favored savings over the
PLESA matching contributions must be amounts or frequency but without requir- long haul, taking advantage of invest-
credited to a designated account under ing suspension of matching contributions ment growth over time, subject to sig-
the plan other than the PLESA after a participant’s withdrawal. nificant restrictions on taking the money
(Sec. 402A(e)(6)(A)). out prior to retirement. PLESAs, on the
PLESA contributions must be ag- PLESA issues other hand, are not retirement accounts.
gregated for nondiscrimination testing Why do we need PLESAs? They allow participants to accumulate
purposes with elective contributions Individual account plans are already highly liquid, easily accessible funds for
credited to non-PLESA accounts. If a permitted to provide in-service with- the purpose of paying short-term, emer-
participant exceeds the maximum annual drawal provisions for certain emergency gency expenses. They are not intended
contribution limit under the plan (i.e., purposes that are exempt from the 10% to fund a participant’s retirement.
for 2023, $22,500 under Secs. 402(g) early-withdrawal penalty, including ex- Accordingly, existing rules seek to
and 457(b)(2) for cash-or-deferred penses for: preserve retirement savings by limiting

10 April 2023 The Tax Adviser