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FebruaryWhat is a Pension-Linked Emergency Savings Account?
Thanks to the SECURE 2.0 Act signed in 2022, employers are now able to offer their workers an emergency savings account linked to their retirement savings plans [such as 401(k), 403(b), and 457(b) plans]. Officially named pension-linked emergency savings accounts (PLESAs), the new savings options are sometimes called sidecar accounts. Additionally, if an employer matches contributions to the linked retirement savings plan, it must also match contributions to the PLESA even if the employee does not participate in the main plan.
Employees may take advantage of a PLESA if they are eligible to participate in their retirement savings plan and are not considered highly compensated employees (i.e., they earn less than $160,000 in 2025). They do not have to actively participate in the retirement plan in order to save through the PLESA. In addition, an employer may automatically enroll employees into a PLESA up to a maximum contribution rate of 3% of income (employers must provide automatically enrolled employees a minimum of 30 days to opt out).
Employee contributions are deducted automatically from an employee’s paycheck (also known as payroll deduction). The contributions are placed in Roth-type accounts, which means they are not tax deductible; however, withdrawals are tax free. The law limits contributions to $2,500 in 2025, but employers can set lower limits. Although an employee is not allowed to contribute any more than the limit, the account may continue to grow. Money is invested in lower-risk vehicles, and employees must be allowed to make withdrawals at least once per month for generally any reason. No fees may be imposed on the first four withdrawals in a year; reasonable fees may be imposed on subsequent withdrawals.
If an employer matches contributions to the linked retirement plan, it is generally required to match PLESA contributions at the same level. However, those matching contributions must be placed in the retirement plan account (which means they are subject to plan rules and generally not eligible for distribution except under certain circumstances spelled out in the Summary Plan Description). In essence, employees can save for emergencies while the employer helps them save for retirement. Employers are not required to offer PLESAs, so check with your plan administrator.
Prepared by Broadridge Advisor Solutions. © 2025 Broadridge Financial Services, Inc.
This content has been reviewed by FINRA.
Advisory services offered through Per Stirling Capital Management, LLC. Securities offered through B. B. Graham & Co., Inc., member FINRA/SIPC. Per Stirling Capital Management, LLC, DBA Per Stirling Private Wealth and B. B. Graham & Co., Inc., are separate and otherwise unrelated companies.
