May 14, 2025 | 7-9 Minute Read
SECURE 2.0 introduced several withdrawal options to allow participants of 401(k), 403(b), and governmental 457 plans to access retirement funds in emergencies. One of these optional provisions is the Pension-Linked Emergency Savings Account (PLESA), which is a Roth-based emergency savings account that is tied to the retirement plan. These accounts are designed to encourage non-highly compensated employees to build short-term savings for emergencies within their retirement account, without facing the 10% early withdrawal penalty.
Please note that Penalty Free Withdrawals are just one of the new distribution options provided under SECURE 2.0. For more information on the other types please see our other articles on new distribution types:
- SECURE 2.0: Disaster Relief Distributions and Loans for Retirement Plans
- SECURE 2.0: Penalty-Free Retirement Withdrawals for Victims of Domestic Abuse
- SECURE 2.0: Penalty-Free $1,000 Emergency Withdrawals
- SECURE 2.0: Penalty-Free Terminal Illness Withdrawals from Retirement Plans
When it Becomes Effective
This provision became available for plan sponsor to adopt into their plan on January 1, 2024.
How it Works
Here is how Pension-Linked Emergency Savings Accounts (PLESAs) work:
- Only non-highly compensated employees (any employee who has less than 5% ownership or has family attribution of less than 5% of ownership in the company and who earned less than the prior year’s income limit for Highly Compensated Employees), which is adjusted for cost of living annually are eligible to contribute to PLESA. For example, in 2025, non-owners earning less than $155,000 in 2024 are eligible to contribute. In 2026, non-owners earning less than $160,000 in 2025 will be eligible to contribute.
- The PLESA balance cannot exceed $2,500 in participant contributions, not including the earnings on those contributions.
- The contributions are made on a Roth-basis.
- If the retirement plan offers matching on regular employee deferrals, the employee must be matched on PLESA contributions at the same rate. The matching contribution still goes into the plans matching source, not the PLESA.
- Withdrawals are not subject to the 10% early withdrawal excise tax.
- Distribution of the earnings is still subject to income tax in the year it was distributed.
- Participants must be allowed to withdraw from their PLESA at least once per month.
- The law prohibits any fees or charges on the first four withdrawals per year.
- PLESAs must be invested in principal-preserving investments. Options include cash, an interest-bearing deposit account, or a stable-value product.
Other Considerations
PLESAs add a lot of administrative complexities and burdens to a Plan Sponsor. Prior to adopting this provision, Plan Sponsors should consider the following:
- PLESAs are separate sub-accounts in the retirement plan.
- Eligibility (non-HCEs) to contribute must be monitored annually.
- The $2,500 employee contribution limit must be tracked and enforced. This becomes more complicated as participants begin to take withdrawals, and the balance begins to have earnings.
- Employer matching contributions become more difficult to calculate. You will want to ensure that your payroll system can accommodate tracking matching on both regular deferrals and PLESA contributions.
- Employees could use the PLESA for match manipulation. For example, a participant could use the account as a method of churning contributions to increase employer match. The IRS has provided guidance that the following procedures are unreasonable for a plan sponsor to implement:
- Suspension of participant contributions to a PLESA on account of a withdrawal,
- Forfeiture of matching contributions,
- Or suspension of matching contributions to participant contributions.
- Self-Certification: Participants may self-certify that they qualify. No documentation required by plan sponsors.
- PLESAs enable frequent withdrawals that may increase your plan’s distribution processing. Remember, participants must be able to take at least one distribution per month.
- Not all recordkeepers support PLESAs currently. You will want to ensure that your recordkeeper has this capability prior to including it in your plan.
- There may be additional administrative fees to ensure compliance on these accounts.
- This is an optional plan feature, and the plan must be amended to allow for these withdrawals. Plans intending to adopt this provision can offer this feature now, but the amendment will need to happen by the end of the remedial amendment period (the end of 2026 for non-governmental plans and 2029 for governmental plans).
- Participants will need to receive communications of this added provision, through the distribution of the Summary of Material Modifications and Summary Plan Description. Your document provider can supply these documents for distribution.
- Many recordkeepers offer Emergency Savings Accounts that are NOT linked to the plan. These options still allow plan sponsors to offer an emergency savings option that is not tied to the plan and the rules that govern PLESAs, reducing plan sponsor liability, risk, and administration.
- SECURE 2.0’s Penalty-Free $1,000 Emergency Withdrawals are a simpler in-plan option that is available for plan sponsors to adopt.
While PLESAs might encourage those concerned about not having access to their retirement funds in an emergency to save in the plan, adoption of the other new SECURE 2.0 distribution options may provide a less complicated method for the Plan Sponsor to achieve this goal.
Benefits² Administrators clients: If you have questions about adding Pension-Linked Emergency Savings Accounts to your plan, we encourage you to reach out to your dedicated Retirement Analyst. They can help you determine if your recordkeeper is set up to allow for these accounts, if the plan document will need to be amended to allow this provision and if there will be any additional administrative costs to your plan.
For non-clients or plan advisors seeking guidance: Feel free to contact Leslie Wood (lwood@benefits2llc.com) for additional information and support. Leslie can provide an overview of the SECURE 2.0 Pension-Linked Emergency Savings Accounts, if a plan document needs to be amended for this provision, or additional strategies for increased retirement savings.
Whether you are a current client or not, our goal at Benefits² Administrators is to ensure every plan sponsor has the knowledge and support to remain compliant and help participants navigate difficult situations and succeed in saving for retirement.
JP Perryman, QKA
Jeremiah “JP” Perryman, QKA is the Compliance and Operations Manager at Benefits² Administrators. He has more than 15 years of experience working with qualified retirement plans.