Industry Players Not Concerned About PLESA Match Abuse

The U.S. Chamber of Commerce informed the Internal Revenue Service that there is little concern that plan participants will abuse pension-linked emergency savings accounts to obtain matching contributions to their retirement accounts.

PLESAs, or side-car accounts, are after-tax accounts that participants can contribute to for discretionary uses. The accounts are invested in lower risk assets and contributions must cease if the balance reaches $2,500. Sponsors with a PLESA must allow participants to withdraw from the account at least once a month. Making such withdrawals would not trigger a 10% tax penalty and participants making withdrawals are not required to show a hardship.

Since PLESA contributions are matched, assuming the sponsor offers a match, there was some concern among regulators that participants would contribute to the PLESA, obtain the match to their retirement account, and then immediately withdraw from the PLESA. This practice was referred to as “manipulative” or “potentially abusive,” in an IRS request for comment and interim guidance in January.

The Chamber of Commerce responded to the IRS that “We have not heard from our members that there is concern that individuals would use contributions to PLESAs to manipulate the matching contribution.” The comment period ended on April 5. A total of eight comments were submitted, but only one has been made public so far.

The letter argued that any risk of manipulation is already addressed by the statute. For one, participants can only receive up to $2,500 in matching contributions per year for PLESA contributions, or even less if the sponsor sets the maximum balance at a lower number. Secondly, sponsors can limit PLESA withdrawals to once per month, which would limit the liquidity to those trying to game the match.

Chantel Sheaks, the vice president for retirement policy at the Chamber of Commerce and the author of the letter, says “this was not a concern,” and “I was a little confused that this was even an issue.” She adds that “it would take a lot of work,” to manipulate the match for any considerable benefit and that highly compensated employees cannot even have a PLESA, so those who would manipulate it may not even have the means to do so.

In the January interim guidance, the IRS said that some measures to reduce manipulation are unreasonable and would not be allowed until further guidance is issued. These include forfeiting matching contributions, suspending eligibility for the PLESA and suspending eligibility for matching contributions.

The guidance also clarified that sponsors are not required to police manipulation at all if they do not want to.

The Chamber of Commerce commented in its letter that it “does not believe further guidance is needed with respect to the anti-abuse provisions for PLESAs.”