I’m a Financial Advisor: How Employer-Matched Savings Accounts Can Impact Your Benefits
Written by
Austin Bernhardt
Edited by
Cynthia Measom
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With the passage of the SECURE 2.0 Act, Congress has approved a number of changes to traditional employer-offered retirement plans in an effort to encourage people to save.
One of the biggest changes — particularly for people who make less than $155,000 a year — is the creation of pension-linked emergency savings accounts, or PLESAs.
Here’s more about PLESAs, including insight from a financial advisor on how they can impact your retirement benefits.
What Is a PLESA?
Just like it sounds, a PLESA is intended to provide employees with a cushion for emergencies — $2,500 of cushion, to be exact. As of January 2024, employers can offer PLESAs as part of their existing retirement offerings and can even match employee contributions into a PLESA at the same rate they do other employer-matched retirement accounts.
Unlike some other employer-offered retirement accounts, PLESAs must be composed of Roth contributions. Essentially, this means that employers contribute their after-tax income and are therefore not taxed when they withdraw from the account.
The other major difference from other employer-matched retirement offerings is that employees can withdraw from their PLESA up to once per month. If the balance of the account dips below $2,500, an employee (or an employee with the help of an employer match) can refill the account back up, but total contributions can’t exceed $2,500.
How Do Employer-Matched Savings Accounts Affect My Existing Retirement Accounts?
In his rundown of the ins and outs of PLESAs, Brian Dobbis, the head of IRA business for investment management company Lord, Abbett & Co LLC, makes clear two important aspects of PLESA contribution.
First, Dobbis says, “Should participant PLESA contributions exceed the $2,500 maximum … the plan may provide that the participant can elect to increase their contributions to their Roth account.”
So if an employee contributes over the cap, it’s not a big deal: They can opt to have excess contributions moved over to a Roth account if they have one.
Second, Dobbis notes that “It appears PLESA contributions are counted toward the annual employee elective salary deferral limit.”
This is the difference likelier to impact employees’ retirement benefits. Since PLESA contributions come out of the same elective salary deferral pool as other employer offerings, for example, 401(k)s, contributing to a PLESA decreases the amount you’d otherwise be able to contribute to other accounts.
For 2024, the elective salary deferral limit is $23,000, meaning that if an employee (or an employee plus employer match) fully funds their PLESA, they would then only be able to contribute $20,500 to other salary deferral limit-eligible accounts.
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