IRS Notice 2024-22 (Jan. 12, 2024)
The IRS has issued initial guidance regarding anti-abuse rules for pension-linked emergency savings accounts. These accounts were added by the SECURE 2.0 Act, effective for plan years beginning after December 31, 2023. Generally, the SECURE 2.0 Act permits a plan sponsor to amend its defined contribution plan to establish plan-linked emergency savings accounts for its non-highly compensated employees that are treated as designated Roth accounts. If an employer makes any matching contributions to a plan with an emergency savings account, the employer also must make matching contributions with respect to the participant’s emergency savings account contributions. Plans with pension-linked emergency savings accounts may impose reasonable anti-abuse procedures to limit the frequency or amount of matching contributions, but solely to the extent required to prevent manipulation of the rules to cause matching contributions to exceed the intended amounts or frequency.
A major concern identified in the notice is that participants may make contributions to their emergency savings accounts and take distributions in a way that maximizes the matching contributions they receive, while maintaining little to no contributions in their accounts. The Code includes provisions intended to curb abuse (e.g., matching ordering rules under which elective deferrals made under the plan are treated first as attributable to a participant’s elective deferrals other than emergency savings account contributions, and limitations on contributions to an emergency savings account and the annual amount of corresponding matching contributions), and plan sponsors may conclude that this is enough to prevent abuse. Similarly, the Code does not require plans to permit more than one withdrawal a month, and plan sponsors may decide that this limitation is sufficient to avoid abuse. However, plan sponsors may adopt additional anti-abuse procedures to discourage potential manipulation of the rules, so long as the additional procedures are reasonable. A reasonable anti-abuse procedure is one that balances participants’ interests in using the emergency savings account for its intended purpose with plan sponsors’ interests in preventing manipulation of the plan’s matching contribution rules. Procedures that are deemed unreasonable include: (1) forfeiture of matching contributions; (2) suspension of participant contributions to the emergency savings account; and (3) suspension of matching contributions on participant contributions to the underlying defined contribution plan.
EBIA Comment: Pension-linked emergency savings accounts are designed to permit and encourage employees to save for financial emergencies. These accounts are optional under the SECURE 2.0 Act, and plan sponsors may determine that the burden in providing these accounts outweighs the benefits of offering them. For more information, see EBIA’s 401(k) Plans manual at Sections VIII.E (“Roth Contributions”) and XIV.K (“10% Additional Tax on Early Distributions”).
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