Automatic enrollment might be the single biggest factor that has boosted 401(k) savings over the past 18 years, and it could soon be used to sign up employees for emergency savings accounts.
Wednesday, the Department of Labor issued a set of guidance in the form of answers to frequently asked questions about pension-linked emergency savings accounts, a workplace benefit that is available this year under provisions of the Secure Act 2.0.
Those accounts differ from the emergency savings programs that employers have been rolling out for their workers over the past few years. The pension-linked emergency savings accounts, or PLESAs, would be part of the defined-contribution plans companies provide, whereas existing emergency savings accounts are separate from retirement plans.
Whether employers opt to add the new, Roth-style accounts instead of out-of-plan emergency savings programs is a big question, as PLESAs add some complexity that companies may not want to deal with. But PLESAs have some additional benefits that out-of-plan options lack.
“Auto enrollment is the big win. The ability to auto enroll employees at 3 percent with the ability to opt out is a massive win in terms of automating outcomes and enabling employees to save in a frictionless manner,” Laurel Taylor, CEO of workplace student-debt program provider Candidly, said in a statement.
Another significant point the DOL clarified Wednesday concerns matching contributions. If a worker is contributing to a PLESA, that money will count as it would for employer matches in the 401(k) plan, the DOL stated. The account contributions are limited to $2,500 and count toward the elective deferral limits for tax-qualified accounts, which for 2024 are $23,000, not including
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