Tag: COVID-19

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Questions about the Paycheck Protection Program (PPP)? Here’s the latest clarification:

The CARES ACT created a new small business loan program called the Paycheck Protection Program (PPP), which allows small businesses to obtain a loan to help cover payroll and business costs during the COVID-19 Pandemic. One of the main features of the PPP loan is that qualifying expenses incurred during the 8-week period provided by the PPP are eligible for full forgiveness as long as certain benchmarks are met. PPP funding that is not utilized during the eligible period, or falls into an ineligible expense category, is subject to loan provisions set forth by the Small Business Association (SBA), which include a 6 month delay period on the first repayment, and an interest rate of 1%.

The Paycheck Protection Program Flexibility Act (PPPFA) of 2020 was approved by the House on May 28, 2020, the Senate on June 4, 2020, and president on June 5, 2020. This Act is designed to enhance the Paycheck Protection Program (PPP) that was enacted under the CARES Act.

Highlights of the PPPFA are:

  • Extended forgiveness period – moving from 8 weeks to 24 weeks
  • Extend the June 30 rehiring and loan forgiveness deadline to December 31, 2020
  • Increases the current limitation of forgiveness on non-payroll related expenses from 25% to 40%
  • Extend the loan terms from two years to five years
  • Allow for full access to payroll tax deferment

Now that the PPPFA has been signed into law, the new SBA guidance will state that 60% of the total loan obtained through the PPP must be used towards authorized payroll costs to be eligible for full forgiveness. Included in these payroll costs is “The employer share of certain retirement benefits for employees.”  As of today, there has been NO guidance as to what constitutes the employer share of retirement benefits for employees, and not all retirement plan contributions are eligible.

Questions about whether this includes discretionary contributions, like certain match or profit-sharing plans, or only non-discretionary safe harbor types of contributions, are impossible to answer with certainty. New guidance based on the recently released PPP loan forgiveness form may allow certain 2019 employer contributions, made in the covered period, to be forgiven as part of the payroll cost. More information on this will be communicated as it becomes available.

Aegis Retirement Partners is continuing to monitor the situation as it unfolds and is committed to staying at the forefront of legislative changes to better serve our clients. In the meantime, we are happy to have this discussion with you if you are preparing your PPP loan forgiveness application. We also want to encourage you to contact your accountant and/or attorney for their interpretation if you plan to use PPP funding for qualified plan expenses.

If you have questions or would like to discuss specifics as it relates to your plan, please do not hesitate to contact your Aegis representative.

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Partial Plan Terminations? Important Information For Plan Sponsors From Aegis Retirement Partners

With an increasing number of businesses currently being affected by the COVID-19 Pandemic, Plan Sponsors are facing new challenges. Many sponsors are taking unfortunate, but necessary steps to weather these events, such as suspending or reducing employer contributions, or laying off and furloughing employees. As a result, Partial Plan Terminations are becoming more common. If you are a Plan Sponsor who offers an employer contribution which is subject to a vesting schedule, there are important rules you should be aware of.

What is a Partial Plan Termination?

Though the Internal Revenue Code does not specifically define what constitutes a Partial Plan Termination, the Internal Revenue Service (IRS) will examine each case by the facts and circumstances looking for a significant reduction in the number of participants in the plan.

The two main factors that the IRS uses to make its determination are:

  • Percentage of reduction in participants
    • If the reduction is over 40%, it should be presumed that a partial plan termination has occurred.
    • If the reduction is less than 40%, but at least 20%, there is a rebuttable presumption that a partial plan termination has occurred. This determination has come down on both sides of the line.
    • If the reduction is less than 20%, there is a rebuttable presumption that a partial plan termination has not occurred.
  • Facts and Circumstances
    • Who is involved (vested and non-vested participants)?
    • Who initiated the terminations and what was the reason?
      • Even if an employee voluntarily terminated, they may still be counted toward the 20% benchmark if they did so with the belief they were going to be terminated.
    • What is the period of time?
    • Other significant facts or circumstances.

 

Consequences to a Partial Plan Termination

If your plan is deemed to have a Partial Plan Termination, all affected participants become immediately 100% vested in their funded benefits.

 

Why can this be an issue?

If an affected participant received a distribution from the plan prior to the determination, they may have been paid out with a portion of their employer contribution balance improperly forfeited.

These forfeited amounts, which may have been utilized to reduce employer contributions, or pay plan related expenses, are now due to the participant along with potential earnings assessed through the Employee Plans Compliance Resolution System (EPCRS).  See Fixing Common Plan Mistakes –  Vesting Errors in Defined Contribution Plans for more information.

What can be done to make sure this is handled the right way?

There are two widely accepted options:

  1. Immediately 100% vest all participants utilizing EPCRS for any participant affected with prior termination dates, and ensure that proper distributions are processed.
  2. Seek IRS determination. The IRS will review the relevant facts and circumstances to determine whether a partial plan termination has occurred. This involves filing the Form 5300, which also has a IRS filing fee, along with any preparation fees to your plan provider.

Are there any special changes or exemptions due to the COVID-19 Pandemic?

As of the date of this writing, there is no special relief due to COVID-19.

Many employers have asked whether rehiring all the participants who were laid off means a partial plan termination can be reversed. There are arguments for both sides of this issue. The conservative approach would be to fully vest participants, understanding the cost of doing so would be to forgo any forfeitures of non-vested employer contribution accounts, and follow EPCRS guidance if necessary.

Partial Plan Terminations can be very confusing, and the regulations surrounding them are vague.  Luckily, you are not alone. By engaging with your Third Party Administrator, Legal Counsel, and Tax Advisor, you can determine whether or not you have had a partial plan termination.  At Aegis Retirement Partners, we will work directly with our clients to ensure that whatever action is taken is appropriate in light of current legislation.

This document provides general information and shouldn’t be considered recommendations or legal advice.

For additional information, please visit the IRS website at https://www.irs.gov/retirement-plans/retirement-plan-faqs-regarding-partial-plan-termination.

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Coronavirus Aid, Relief, and Economic Security Act (CARES Act) is Now Law

On Friday March 27, 2020, President Trump signed into law the Coronavirus Aid, Relief, and Economic Security Act (CARES Act). The CARES Act is a stimulus package that provides financial relief to businesses and individuals during this unprecedented pandemic.

You can access the CARES Act in its entirety (800 pages) through the link provided at the end of this document. However, the paragraphs below outline the components that pertain solely to your retirement plan, and how Aegis is facilitating the necessary compliance for our clients.

1. COVID-19 Withdrawal: This is a NEW distribution option that deals specifically with the coronavirus. This new distribution is available immediately to a participant who is diagnosed with the virus SARS-CoV-2 or with coronavirus disease 2019 (COVID-19); whose spouse or dependent is diagnosed with such virus; who experiences adverse financial consequences as a result of being quarantined, furloughed, laid off or having work hours reduced due to such virus; being unable to work due to lack of child care due to such virus; or closing or reducing hours of a business due to such virus. A participant may take a distribution of up to the lesser of 100% of their vested account balance or $100,000. Unlike most distributions taken under the current hardship distribution rules, the 10% early withdrawal penalty DOES NOT apply to this distribution.

Two additional features meant to reduce the financial tax impact of this withdrawal have been included in the CARES Act.

  1. Unlike hardship withdrawals where the taxation applies in the year the withdrawal is taken, taxation for this distribution can be spread out over 3 year.
  2. If elected, participant withdrawals may be repaid PRETAX all or in-part within 3 years from the date of the withdrawal.

Notably, prior distributions taken since January 1, 2020 will qualify for this favorable tax treatment if all other conditions above are met. Finally, no documentation is required. A participant can “SELF-CERTIFY” that they are eligible for the withdrawal.

2. Participant Loans: The CARES Act enhances loan provisions; they apply to existing loans as well as to any new loan taken. The maximum amount that may be taken as a loan is now the lesser of $100,000 (previously $50,000) or 100% (previously 50%) of a participants vested account balance. If a participant meets the qualifications for a COVID-19 withdrawal (from #1 above), repay ments may be SUSPENDED for one year. Interest that accrues on the loan will simply be added to the outstanding loan balance and the payment will be re-amortized by adding on 1 additional year to the original loan end date. These repayment changes are OPTIONAL and may be applied on a participant by participant basis.

3. Required Minimum Distributions: Required minimum distributions (aka Age 70 ½ or 72 distributions, depending when the participant was required to begin taking) in 2020 are WAIVED. If a participant has already taken their 2020 required minimum distribution, this distribution is now eligible to be rolled over to an IRA or an eligible retirement plan (your Plan) if it can be rolled over within 60 days of the distribution.

When Aegis sponsors your Plan document, we prepare the necessary amendments to ensure compliance with any changes from Washington. All plans will need to be amended no later than the last day of 2022 Plan year. We are working closely with our record keeping partners to ensure the features included in the CARES Act can be accommodated on their systems as soon as possible.

Please let us know if you have any questions. We will get through this crisis, we always do. In the meantime, thank you for your support, please stay safe and be healthy.

The complete CARES Act is located at: https://www.congress.gov/116/bills/hr748/BILLS-116hr748eas.pdf

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