defined contribution plan

Companion bills have been introduced in the U.S. House of Representatives and Senate to provide additional capital to small businesses hardest hit by the coronavirus (COVID-19) pandemic. The Prioritized Paycheck Protection Program (P4) Act is sponsored in the Senate by Democrats Chris Coons (DE), Ben Cardin (MD), and Jean Shaheen (NH), and in the House by Democrats Angie Craig (MN), and Antonio Delgado (NY).

The P4 Act would authorize additional Paycheck Protection Program (PPP) loans to businesses with 100 or fewer employees—including sole proprietorships and other self-employed—that have already expended the proceeds of a prior PPP loan or are on-pace to do so, and that can demonstrate a loss of business revenue of 50 percent or more due to the COVID-19 pandemic.

PPP is a Small Business Administration lending program created by the Coronavirus Aid, Relief, and Economic Security (CARES) Act to help small employers meet payroll and other expenses as businesses and the nation deal with the economic effects of the novel coronavirus pandemic.

Importantly, if certain conditions are met, PPP loans can be forgiven and treated as a grant. Payroll expenses can include employer contributions to defined contribution and defined benefit retirement plans, as well as providing group health care coverage, including payment of insurance premiums.

The IRS has issued Notice 2020-50, providing additional guidance on several aspects of the Coronavirus Aid, Recovery, and Economic Security (CARES) Act, legislation enacted in March of this year in response to the coronavirus (COVID-19) pandemic.

A “qualified individual” who has experienced health or financial effects from the COVID-19 pandemic is eligible for certain retirement plan distribution, penalty exemption, plan loan and loan repayment, taxation, and repayment benefits.

Qualified Individual Further Defined

Initial guidance defines a “qualified individual” as

• an individual (or the spouse or dependent of the individual) who is diagnosed with the COVID-19 disease or the SARS-CoV-2 virus in an approved test; or
• an individual who experiences adverse financial consequences as a result of being quarantined, being furloughed or laid off or having work hours reduced due to such virus or disease, being unable to work due to lack of child care due to such virus or disease, closing or reduced hours of a business owned or operated by the individual due to such virus or disease, or other factors as determined by the Treasury Secretary.

Notice 2020-50 adds new circumstances to the definition of “qualified individual.”

• An individual who has experienced a reduction in pay (or self-employment income) due to COVID-19, or has had a job offer rescinded or a start date for a job delayed due to COVID-19.
• A person whose spouse or a member of her household has
  • been quarantined, furloughed or laid off, or had work hours reduced due to COVID-19;
  • been unable to work because of a lack of childcare due to COVID-19,
  • had a reduction in pay (or self-employment income) due to COVID-19; or
  • had a job offer rescinded or a start date for a job delayed due to COVID-19.
• A person whose spouse or a member of her household has experienced the closing or a reduction of hours of their business due to COVID-19.

For purposes of applying these additional factors, a member of the individual’s household is someone who shares the individual’s principal residence.

CARES Act Loans

Notice 2020-50 provides examples of how to apply the special plan loan provisions of the CARES Act, and includes a safe harbor method. In addition, the Treasury Department and IRS recognize that there may be additional reasonable ways to administer loan repayments under the CARES Act.

This guidance is being further analyzed, and additional details will be shared.

The Department of Labor’s Employee Benefits Security Administration (EBSA) has released a pre-publication version of a request-for-information (RFI) seeking public comments on issues pertinent to pooled employer plans (PEPs) and multiple employer plan (MEPs).

This initiative follows enactment in December 2019 of the Setting Every Community Up for Retirement Enhancement (SECURE) Act, some provisions of which were intended to enhance the ability of multiple entities to join together in a single retirement plan, and—if certain conditions were met—be treated as a single employer, allowing potential administrative efficiencies and cost savings. The SECURE Act established statutory conditions for the establishment of new affiliations to be known as PEPs, which would require the designation of a “pooled plan provider” that would be a fiduciary of the PEP. 

Issues that EBSA anticipates could include the “possible parties, business models, and conflicts of interest that … will be involved in the formation and ongoing operation of PEPs,” according to an EBSA news release. EBSA is also seeking “information on similar issues involving multiple employer plans sponsored by employer groups or associations or professional employer organizations.” 

The comments received could shape potential future EBSA guidance on the operation of these arrangements, including whether EBSA should propose a new prohibited transaction class exemption.

The RFI contains instructions for submitting comments and is scheduled to be published in tomorrow’s Federal Register.

Scheduled for publication in next Tuesday’s Federal Register is a Small Business Administration (SBA) interim final rule on the agency’s Paycheck Protection Program (PPP). This guidance is being issued in response to enactment on June 5 of the Paycheck Protection Program Flexibility Act of 2020, legislation that made enhancements to this SBA loan program intended to help small employers meet payroll and other expenses as they deal with the economic effects of the novel coronavirus (COVID-19) pandemic.

If certain conditions are met, PPP loans can be forgiven and treated as a grant. Payroll expenses can include not only wages and salary, but also employer contributions to defined contribution and defined benefit retirement plans, as well as providing group health care coverage, including payment of insurance premiums.

The SBA issued a previous interim final rule in April 2020 to provide guidance in implementing PPP. But with the program changes made by the June 5 legislation, that April rule no longer reflects certain important features of PPP as it now exists, requiring the issuance of a new interim final rule. These important PPP changes include the following.

• Extends from 8 to 24 weeks from a loan’s origination the period in which expenses paid with a PPP loan could be eligible for loan forgiveness (not to extend beyond December 31, 2020)
• Reduces from 75 percent to 60 percent the portion of a loan that must be used for payroll expenses (vs. overhead, etc.) and remain fully eligible for loan forgiveness
• Extends from 2 to 5 years the period for loan repayment for borrowed amounts that are not forgiven (applies to loans made on or after June 5, 2020)
• Allows a borrower who received a PPP loan before enactment of the June 5 legislation to elect that the covered period run for 8 (vs. 24) weeks

The SBA notes that this interim final rule is effective without advance notice and public comment because of its time sensitivity and specific authorization by the Coronavirus Aid, Relief, and Economic Security (CARES) Act, the legislation that created the PPP lending program. Nonetheless, comments are invited and must be submitted within 30 days of the guidance’s publication in the Federal Register.

President Trump signed into law Friday, June 5, the Paycheck Protection Program Flexibility Act of 2020, legislation that the Senate approved Wednesday night. The legislation extends elements of and makes certain other adjustments to the Paycheck Protection Program (PPP). This Small Business Administration lending program was created by the Coronavirus Aid, Relief, and Economic Security Act to help small employers meet payroll and other expenses as businesses and the nation deal with the economic effects of the novel coronavirus pandemic.

Importantly, if certain conditions are met, PPP loans can be forgiven and treated as a grant. Payroll expenses can include employer contributions to defined contribution and defined benefit retirement plans, as well as providing group health care coverage, including payment of insurance premiums.

Among its provisions, this legislation will have the following effects.

• Extends from 8 to 24 weeks from the time of loan origination the period in which expenses paid with a PPP loan could be eligible for loan forgiveness (not to extend beyond December 31, 2020)
• Reduces from 75 percent to 60 percent the portion of a loan that must be used for payroll expenses (vs. overhead, etc.) and remain eligible for loan forgiveness
• Extends from 2 to 5 years the period for loan repayment for borrowed amounts not forgiven
• Provides no impediment to loan forgiveness for the documented inability to hire similarly qualified placement employees or to rehire former employees
• Allows a borrower who received a PPP loan before enactment of this legislation to elect that the covered period run for 8 (vs. 24) weeks

On Wednesday night, the U.S. Senate approved by voice vote H.R. 7010, the House-passed Paycheck Protection Program Flexibility Act of 2020. The legislation extends elements of and makes certain other adjustments to the Paycheck Protection Program (PPP). This Small Business Administration lending program was created by the Coronavirus Aid, Relief, and Economic Security Act, to help small employers meet payroll and other expenses as businesses and the nation deal with the economic effects of the novel coronavirus pandemic.

Importantly, if certain conditions are met, PPP loans can be forgiven and treated as a grant. Payroll expenses can include employer contributions to defined contribution and defined benefit retirement plans, as well as providing group health care coverage, including payment of insurance premiums.

Among its provisions, the legislation now presented to President Trump—who is expected to sign it into law—would have the following effects.

• Extend from 8 to 24 weeks from the time of loan origination the period in which expenses paid with a PPP loan could be eligible for loan forgiveness (not to extend beyond December 31, 2020) 
• Reduce from 75% to 60% the portion of a loan that must be used for payroll expenses (vs overhead, etc.) and remain eligible for loan forgiveness
• Extend from 2 to 5 years the period for loan repayment for borrowed amounts not forgive
• The documented inability to hire similarly qualified placement employees or to rehire former employees will not be an impediment to loan forgiveness
• A borrower who received a PPP loan before enactment of this legislation may elect that the covered period run for 8 (vs 24) weeks

Nearly seven months after releasing proposed regulations, the Department of Labor (DOL) has released final regulations on default electronic delivery of retirement plan disclosures.

The U.S. House of Representatives passed by a 417-1 margin on Thursday, May 28, the Paycheck Protection Program Flexibility Act of 2020. This legislation would modify certain core terms of this Small Business Administration (SBA) emergency lending program. The Paycheck Protection Program (PPP) was created by the Coronavirus Aid, Relief, and Economic Security (CARES) Act, signed into law on March 27, 2020. Under the program, qualifying small businesses may apply for loans from the SBA to retain employees on their payrolls, and—especially attractive to business owners—the loans are forgiven if certain conditions are met.

As provided in the CARES Act, PPP loans taken to cover 8 weeks of program-eligible expenses can be forgiven (no repayment required). Although mortgage, rent, and other business expenses are included, to be eligible for forgiveness, 75 percent of a loan amount must—under current rules—be used for employee payroll expenses. Certain employee benefits, including defined contribution and defined benefit plan employer contributions, health insurance benefits (including premium payments), and certain employee leave benefits can be considered payroll expenses.

Today’s House-passed legislation would extend the 8-week period to 24 weeks, and would change the 75 percent payroll requirement to 60 percent.

The legislation would also relax certain loan forgiveness provisions in recognition that an employer may be unable to rehire some former employees or to find similarly qualified employees. Loan amounts not forgiven could be repaid over a period of 5 years instead of 2 years as under current rules.

Members of the U.S. Senate have been discussing a similar bill, one said to expand the 8-week period to 16, not 24 weeks. If the Senate is unable to pass its version of PPP revisions this week, which seems likely, its bill could be taken up when the Senate returns to Washington, D.C., next week.

The House of Representatives late Friday passed H.R. 6800, the Health and Economic Recovery Omnibus Emergency Solutions (HEROES) Act, providing additional aid to many who are adversely affected by the novel coronavirus (COVID-19) pandemic. The bill also contained non-COVID-19-related provisions considered likely to prove controversial in the Senate.

Unlike the Families First Coronavirus Response Act, and the Coronavirus Aid, Relief, and Economic Security (CARES) Act—both of which moved fairly rapidly through Congress—the HEROES Act has been called “dead on arrival” by Senate Majority Leader Mitch McConnell (R-KY), who—with Republican colleagues—envisions a much less comprehensive bill. Sen. McConnell has also expressed a desire to move slowly and gauge the effectiveness of earlier relief. Most expect no additional COVID-19-related legislation to be enacted before sometime in June.

As announced last week, the House bill contains provisions for the following.

• Continued financial assistance to unemployed workers
• Financial assistance to state, local, tribal, and territorial government entities
• Waiver of 2019 required minimum distributions (RMDs)
• Waiver of the 60-day and one-rollover-per-12-month rules for otherwise-required RMDs waived for 2019 and 2020
• Amendments to the Emergency Family and Medical Leave Expansion Act
• Relief for participants in health flexible spending arrangements (FSAs)
• Codifying the ability of employers to deduct certain expenses covered by loans that are forgiven under the SBA Paycheck Protection Program
• Providing money purchase pension plans the early distribution and loan relief that the CARES Act provided to other qualified retirement plans
• A new retirement “composite plan,” with features that include those of 401(k) and defined benefit (DB) pension plan
• Relief for multiemployer (collectively-bargained) DB pension plans
• Amortization relief for single employer DB pension plans
• Further funding relief (beyond that provided by the SECURE Act) to certain community newspaper DB plans
• Aid to certain federal agencies affected by the pandemic, including the Departments of Homeland Security, Interior, Health and Human Services, Labor, Transportation, Housing and Urban Development, and Education
• Enhanced Medicare and Medicaid benefits
• Medical supply chain enhancement
• Testing and reporting enhancement
• National strategic stockpile for pandemic response
• Bankruptcy protections for homeowners
• Certain student loan relief and protections
• Additional aid to veterans during the COVID-19 pandemic
• Federal election early and by-mail voting procedure

Published in today’s Federal Register are final regulations issued by the Department of Labor’s (DOL’s) Employee Benefits Security Administration (EBSA) that provide an additional safe harbor for ERISA retirement plans to deliver DOL-required disclosures by electronic means. A pre-publication version was released by EBSA on May 21. (The regulations’ preamble notes that the agency has chosen not to extend the guidance to welfare benefit plans at this time.)

These regulations become effective 60 days from today’s publication date. The EBSA noted in the guidance, however, that retirement plans may rely on these regulations immediately; no enforcement action will be taken against a plan for premature reliance due to the impact of the coronavirus (COVID-19) pandemic.