Emergency Savings Provisions

Sponsored by: MFS Investment Management 

The SECURE 2.0 Act included two provisions geared towards helping employees handle financial emergencies. One provision is a penalty-free distribution of $1,000 per year from the 401(k) account and the other is the PLESA (Pension Linked Emergency Savings Account). We first asked sponsors about their interest in these provisions in January of last year and at the time (still early in processing all the provisions in the act), more than half were unsure, more than a third were not interested in either, and ten percent were interested in adding the distribution provision only.

To capture trends and interest on these provisions we re-asked plan sponsors about their plans to implement them or not last week. Interest in the two provisions has not changed much at all – the only thing that has changed is that a large chunk of those who were unsure last year are now not interested in either. Comments follow.

                                                   Jan 2023        Jan 2024
          Neither                                      35.5%              50.4%
          Both                                            2.2%                2.4%
          Distribution Only                   10.4%              9.8%
          Sidecar/PLESA Only             0.0%                 0.8%
          Unsure                                       51.9%               36.6%

Comments:
 

• Considering it but not in a rush to implement
• Considering, but not sure if it will be in 2024 or 2025
• Don't like taking anything from retirement savings, and our company has an employee critical needs fund of up to $2000/yr
• If we do, it would likely be the emergency distribution only
• It's not worth the additional administrative burden to have these within the Plan. We are looking at out-of-plan solutions to offer to our employees to encourage them to save.
• Its not on our radar but not saying we won't ever.
• Little action or guidance from our payroll and retirement recordkeeper on this. We are trying for April 1, when our annual raises go into effect.
• Our ownership wants to promote LT saving for the employees, so we don't offer them anyway to get their money out early.
• Retirement savings is not emergency savings. We do not plan to correlate the two.
• The time involved and cost of administering these provisions outweighs their value to our participants.
• Too cumbersome to administer – value to participants isn't worth the effort, we'll look at other products.
• Waiting for more clarification and guidance on the rules.
• Waiting for more info from our TPA on how they'll be implemented.
• We are considering.   A lot of administration involved with so little value.
• We are looking into it and may or may not implement but definitely interested.
• We are not planning on implementing immediately, but will review again in 2025.
• We are sponsoring an Emergency Savings Account separate from the 401k. Employees receive a bonus for saving at different points.
• We believe that an emergency savings account outside of the 401(k) Plan is more advantageous to employees since there is no maximum balance and the PLESA is limited to 2,500.
• We do not have a match – profit sharing. We do not offer hardships now so will not offer the $1,000 emergency distribution.
• We most likely will only choose one or the other, but are weighing the two options to see which would be more beneficial to our participants.
• Will continue to evaluate and balance priorities of other SECURE 2.0 provisions.
• Would consider the emergency distribution once RK can handle.  I would use this as a "marketing" strategy to increase participation in the 401(k) - we do not have auto-enrollment.