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February 02, 2024 at 03:21 PM
The Internal Revenue Service and Department of Labor have issued initial guidance for employers who are considering offering employees the ability to participate in pension-linked emergency savings accounts under Secure 2.0 Act.
Such accounts are treated as Roth accounts, and participants must be entitled to make withdrawals at least once a month. The IRS notes that employers may wish to limit withdrawals to a maximum of once per month to reduce the potential for abusing the matching contribution rules.
If an employer makes matching contributions to the related defined contribution plan, the employer must make matching contributions on behalf of eligible participants based on their contributions to the emergency accounts at the same rate as any other matching contributions made based on the participants’ elective contributions. The matching contributions — which will be made to the individual’s retirement account, not the emergency accounts — cannot exceed the maximum account balance under Section 402A(e)(3)(A).
We asked two professors and authors of ALM’s Tax Facts with opposing political viewpoints to share their opinions about whether the newly issued guidance on the emergency accounts will have a positive impact when it comes to encouraging employers to offer the savings option.
Below is a summary of the debate that ensued between the two professors.
Their Votes:
Bloink
Byrnes
Their Reasons:
Bloink: This is exactly the type of detailed guidance that we need to encourage plan sponsors to start offering these valuable emergency savings accounts. Yes, the guidance is lengthy. But it gives employers a clear and comprehensive picture of what they must do and what they are permitted to do with respect to these accounts. Offering these emergency savings accounts will go a long way toward stopping employees from tapping retirement plans when they encounter unexpected costs.
