§1193 Pension-linked Emergency Savings Accounts

Summary

Plans may add a pension-linked emergency savings account and either offer workers the chance to join or automatically enroll them. An "eligible participant" is someone who meets the plan’s age and service rules and is not a highly compensated employee (that term is defined in tax law, section 414(q) of title 26). If someone already enrolled later becomes highly compensated, they cannot keep adding money but can still withdraw their balance. The account must have no minimum deposit or balance. Participants must be allowed to withdraw money, in whole or in part, at least once a month and get the money as soon as practicable after they ask. The money must be held as cash, a deposit account, or a simple investment that preserves principal and is liquid, offered by a regulated financial institution. The first 4 withdrawals in a plan year cannot be charged withdrawal-only fees; later withdrawals may have reasonable fees (including check-handling costs). The plan must keep separate records and include the feature in the plan document, and the sponsor can end the feature at any time. Participant contributions cannot make the emergency-account portion exceed the lesser of $2,500 or an amount the sponsor sets. For taxable years after December 31, 2024, the $2,500 limit will be adjusted for inflation starting from the quarter beginning July 1, 2023, and increases will be rounded down to the next $100. If contributions would exceed the limit, the plan can redirect excess into another designated Roth account if the participant has one, or else refuse the excess. A default automatic contribution may be set at no more than 3% of pay unless the worker picks a different rate or opts out; the sponsor picks the default and may change it once a year. Plan administrators must give clear notice 30–90 days before the first contribution or any change and at least once a year, explaining purpose, limits, fees, how to opt out or withdraw, investment choice, and post-employment options. Employers must match these contributions at the same rate as other elective contributions, but matching funds go into the main retirement account and must follow the same limits. On job end or plan removal, participants may move the emergency balance into another Roth account in the plan or receive the money within a reasonable time. Plans may limit matching rules to stop abuse, and Treasury, with Labor, had to issue guidance within 12 months after December 29, 2022.