April 7, 2020 - The passage of the Coronavirus Aid, Relief and Economic Security (CARES) Act that President Trump signed into law March 27, coupled with the Families First Coronavirus Response (FFCR) Act signed on March 18, provides a wide range of relief for employers and workers in response to the COVID-19 pandemic.
Here we highlight key aspects of both the CARES Act and FFCR Act that could have an impact on your business and your company's Qualified Retirement Plans. At the end you will find links to several resources that offer additional information and perspective on these topics.
Your B. Riley Wealth Management financial advisor has access to many resources through B. Riley Financial affiliates to help business owners and qualified plan administrators navigate these new guidelines and programs.
Loans for Small Business Owners
For small business owners, the Paycheck Protection Program will come as a welcome relief. About $350 billion in guaranteed loans will be provided by the government to small businesses with less than 500 employees, 501(c)(3) non-profits with 500 or less employees, and certain businesses with up to 1,500 employees. Loans are capped at $10 million with proceeds used to fund certain business expenses incurred between February 15 and June 30.
As long as businesses who take on such loans continue normal payroll payments to their employees (with caps on employees making more than $100,000 per annum), they may qualify to have some or all of their loan forgiven for the portion used to cover payroll costs, mortgage interest, rent, and utility payments for the first 8 weeks after the loan is issued.
The Small Business Administration ("SBA") website has additional details on the Paycheck Protection Program, as well as other loan assistance programs. The application process for these loans is being administered by U.S. banks which began to accept applications as of Friday, April 3rd.
You do not need to wait to understand the entire CARES Act. It is important to start the process now to determine if you might be eligible for loans fully guaranteed by the Small Business Administration on favorable terms.
We advise you to do these things right now:
- Contact your bank first to see if it is a CARES Act lender. If it isn't, then find one that is.
- Start submitting applications now.
- Try to evaluate which relief program is right for your business. Most small to mid-sized businesses are going to be best served by the Paycheck Protection Program ("PPP").
- Complete the application (links below) and put together the required documents that you must have to send to the bank and SBA to qualify for the loan.
These loans will be made through banks with SBA lending programs:
- Here is a link to the application form you will need to send your banker
- Here is a link to the most active SBA lenders by state
- Here is a link to the program's full details on the SBA website
Expanded Paid Sick Leave and Family Leave for Employees
Employees (both part-time and full time) who are unable to work or telework due to specified reasons related to COVID-19 are eligible for expanded paid sick leave. The new provisions allow for 2 weeks (up to 80 hours) of paid sick leave.
The CARES Act also expands the Family Leave provided in the Families First Coronavirus Response Act. Employees covered by the act can get up to 12 weeks of family leave (with the first 2 weeks unpaid) if they must stay home with children whose schools and day care centers have closed because of the pandemic.
For small and midsize employers, the CARES Act offers assistance through two new refundable payroll tax credits, designed to immediately and fully reimburse them, dollar-for-dollar, for the cost of providing Coronavirus-related leave to their employees. Find more about this relief for businesses with fewer than 500 employees here.
Qualified Retirement Plans Could Be Impacted by Expansion of Unemployment Benefits
The CARES Act expands unemployment benefits with an additional federal payment of $600 per week to be paid to individuals for up to 4 months. Additionally, state unemployment eligibility of 26 weeks has been extended for up to a total of 39 weeks.
Individuals who haven't been laid off but can't work due to a variety of reasons related to COVID-19, as outlined in the CARES Act, would also be eligible for unemployment checks. Additionally, workers who are furloughed, but haven't been fully laid off, are eligible.
Employers that are faced with difficult decisions about their work force should carefully consider the repercussions severance of employment may have on the organization's Qualified Retirement Plan.
Depending upon the terms and provisions of the plan, severance may be a distributable event; may accelerate the due date of a participant's outstanding loan; and, if more than 20% of the organization's employees are severed, then it could be a partial plan termination—a condition that requires full vesting of the affected participants.
Even when there is not a severance of employment, plan loan provisions may still be impacted. If the plan takes advantage of the CARES Act provisions, loan payments may be suspended for up to 1 year and/or the loan term can be extended for up to 1 year.
While companies can start utilizing any of these provisions immediately, the qualified plan must be formally amended for the new options generally no later than the last day of the first plan year beginning on or after January 1, 2022.
This article from the American Society of Pension Professionals and Actuaries provides more detail on these considerations. Plan administrators should consult with their legal advisors for specific guidance.
Retirement Plan Distributions and Loans
Normally, individuals who withdraw funds early from retirement accounts (typically before age 59 1/2) must pay a 10% penalty as well as ordinary income taxes. The stimulus relief package, however, provides that hardship distributions of up to $100,000 may be allowed for COVID-19 related reasons, without the early withdrawal penalty being applied. The sum withdrawn may be re-contributed to a retirement account within three years, without being subject to the usual annual contribution caps. If it's not repaid, the withdrawal will be taxed at ordinary income tax rates over a three-year period.
In addition, the limit for retirement plan loans has been temporarily raised from the normal $50,000 to $100,000, while the current rule that loans may not exceed half of a 401(k) participant's vested account balance has been waived. The plan sponsor is not required to verify whether a participant qualifies for a loan and may rely on a participant's certification for eligibility.
Plan administrators will need to consider the recordkeeping burden when deciding to what degree to incorporate these provisions in their corporate plans. Due to potential complications, we recommend that plans strongly consider leaving loan provisions unchanged while allowing suspension of loan payments and permitting hardship withdrawals.
Defined Benefit Plan Funding Requirements
Single employer defined benefit plan funding requirements for 2020, including quarterly contributions, may be deferred until January 1, 2021, at which time they must be paid with interest. In determining the application of benefit restrictions in plan years containing the 2020 calendar year, a plan sponsor may elect to apply the plan's 2019 funded status.
Business Interruption Insurance Assistance
With businesses across most industries impacted by COVID-19, business interruption insurance can provide much-needed relief when disaster strikes. However, filing a claim requires detailed analysis and documentation. The process can be daunting and time consuming for businesses at a time when they are focused on their own recovery efforts. Read more about business interruption coverage and how the B. Riley Financial team is well-positioned to assist your business with the evaluation of existing coverage and filing a claim.
ADDITIONAL RESOURCES ON THESE TOPICS:
American Retirement Association FAQ: https://www.asppanet.org/sites/asppa.org/files/ARA_Covid_QA.pdf
American Society of Pension Professionals and Actuaries: https://www.asppa.org/
Society for Human Resource Management:
Small Business Association:
US Department of Treasury - Paycheck Protection Program / Assistance for Small Businesses:
This information is provided for informational purposes only. B. Riley Wealth Management does not provide tax or legal advice. Consult with your tax or legal professional. The preceding is an overview compilation of CARES Act information available at the time of publication and does not address all aspects of the CARES Act provisions. For complete details, visit: www.congress.gov or www.treasury.gov.