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in-service withdrawals to narrow factual account. In this respect, while partici- ■ PLESAs would require yet another
situations, requiring participants to attest pant inertia under an automatic contri- participant notice.
to those facts, imposing age or frequency bution feature may result in increased While SECURE 2.0 does not require
restrictions, and, in some cases, impos- retirement savings, it may not be an employers to offer PLESA accounts,
ing the disincentive of a 10% penalty. advantage with respect to automatic plan sponsors who adopt them, in the
By contrast, PLESAs do not require PLESA contributions. absence of Treasury regulations, have
any particular facts or even any self- PLESAs also have the potential to little discretion over their operation. The
certification by the participant establish- increase administrative burdens and act authorizes the Labor Department
ing that an emergency exists. While Sec. costs for plan sponsors in the follow- and Treasury to issue and coordinate on
402A(e)(5)(A)(i) requires a PLESA ing ways: PLESA regulations and other guidance
notice disclosure to state that “the pur- ■ In a plan with an eligible automatic as needed, such as expanding IRS cor-
pose of the account … is for short-term contribution arrangement applicable rection programs to PLESA failures,
emergency savings,” “emergency” is not to the PLESA, a new, separate providing model plan language and
otherwise defined. PLESA account would have to be set PLESA notices, and managing interac-
So, what are PLESAs doing in up for each plan participant who fails tions between PLESAs and safe-harbor
employer-provided retirement to opt out. 401(k) plans. The agencies are also
plans? According to a Senate Finance ■ PLESA withdrawals as frequently charged with promulgating anti-abuse
Committee summary of SECURE as monthly might greatly increase rules regarding the amount and timing
2.0, almost half of all Americans would the number of distributions that a of employer contributions. Employers
struggle to pay an unexpected $400 third-party administrator would have may be wise to wait for such guidance
expense. Many seek to cover even small to administer in a year. before implementing a PLESA feature.
emergency expenses by tapping into ■ The requirement to hold PLESA The Labor Department and Treasury
their retirement savings prior to retire- contributions in cash, a savings will be required to conduct a study and
ment, for example, by taking a distribu- deposit account, or CD may require report to Congress on various PLESA
tion from a prior employer’s retirement new relationships with federally issues, including whether the $2,500
plan, upon termination of employment, regulated financial institutions. limit is sufficient; the extent to which
or upon attaining age 59½. It is thought ■ The prohibition on a minimum plan sponsors voluntarily offer, and
that easy access to PLESA funds may PLESA balance may require employ- low- and middle-income households
indirectly prevent “leakage” from partici- ers to pay for maintaining additional voluntarily participate in, PLESA ac-
pant retirement savings. accounts for active employees with counts; the effect of PLESAs on retire-
Further, the liquidity of PLESA very little money in them. The ment savings plan “leakage”; minimizing
funds may protect an employee from mandatory cash-out rules applicable the compliance and reporting burdens
having to unexpectedly sell retirement to terminated vested employees with applicable to PLESAs; and providing
account investments at a loss to cover a vested accrued benefit of not more rules for default investments. The report
emergency expenses in a down market. than $7,000 does not apply to the is due not later than seven years after the
The monthly access to PLESAs may PLESAs of active participants. date of enactment.
also be useful during periods of high ■ The crediting of matching contribu- From Joni Andrioff, J.D. (Joni.Andrioff@
inflation or unemployment by making tions on PLESA contributions to a rsmus.com), Washington, D.C., and
available small amounts several times a non-PLESA account in the plan may Christy Fillingame, CPA (Christy.Fillingame@
year on an as-needed basis. give rise to operational defects. The rsmus.com), Raleigh, N.C.
However, the feasibility of PLESAs deemed increase in the contribution
remains to be seen. The adoption of a percentage of a non-PLESA account
PLESA feature may not be for every if the $2,500 maximum PLESA Estates, Trusts & Gifts
employer. Because PLESAs must be account balance is exceeded, and
held in cash, in a savings account, or the potential transfer of PLESAs to Estate planning and income
in CDs, participants who for whatever another participant account in the tax: 10 questions to consider
reason fail to withdraw their after-tax plan upon termination of employ- It is important to consider the income
money on account of an emergency ment or the employer’s termination tax ramifications of each decision
may miss out on the greater investment of the PLESA feature, may be prone throughout the estate planning process
earnings that the same contributions to error and may unduly complicate to avoid unintended consequences. After
might have produced in another plan nondiscrimination testing. all, an individual’s death and the gifting

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