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Funding of 401(k) using PPP loan


rblum50
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2 hours ago, rblum50 said:

Can the required matching contributions to a 401(k) be paid with proceeds from a PPP loan? 

The PPP money can be physically used for anything you want.  If you are really asking if matching contributions to your plan will qualify for the compensation component (the current 75% minimum requirement) for forgiveness, the best answer at this point is yes!  We are awaiting official rules, but they clearly allowed 100% of the 2019 employer contribution to be used for the calculation of the PPP amount.  Also, it appears that ANYTHING contributed in the 8 week period to the plan (employer contribution) will count for the reimbursement,  not just what is applicable to the 8 week period or a pro rata amount of the annual amount.  So, it appears that if you fund the whole year's expected contribution in the 8 week period, it will all count.  

Lawrence C. Starr, FLMI, CLU, CEBS, CPC, ChFC, EA, ATA, QPFC
President
Qualified Plan Consultants, Inc.
46 Daggett Drive
West Springfield, MA 01089
413-736-2066
larrystarr@qpc-inc.com

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9 minutes ago, Larry Starr said:

The PPP money can be physically used for anything you want.  If you are really asking if matching contributions to your plan will qualify for the compensation component (the current 75% minimum requirement) for forgiveness, the best answer at this point is yes!  We are awaiting official rules, but they clearly allowed 100% of the 2019 employer contribution to be used for the calculation of the PPP amount.  Also, it appears that ANYTHING contributed in the 8 week period to the plan (employer contribution) will count for the reimbursement,  not just what is applicable to the 8 week period or a pro rata amount of the annual amount.  So, it appears that if you fund the whole year's expected contribution in the 8 week period, it will all count.  

Is that wishful thinking or have you seen anything published that addresses what will and what won't count?

Hit reply button and I had more to add:

Since PPA, DB plans have typically migrated to where the maximum deductible is often very high. So much so that a plan sponsor is likely able to contribute an amount for either 2019 or 2020 during the applicable 8 week window that would ensure 100% forgiveness.  

For those that sponsor a DB plan (or adopt one before the end of the 8 week window) is it really that simple?

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44 minutes ago, Mike Preston said:

Is that wishful thinking or have you seen anything published that addresses what will and what won't count?

Hit reply button and I had more to add:

Since PPA, DB plans have typically migrated to where the maximum deductible is often very high. So much so that a plan sponsor is likely able to contribute an amount for either 2019 or 2020 during the applicable 8 week window that would ensure 100% forgiveness.  

For those that sponsor a DB plan (or adopt one before the end of the 8 week window) is it really that simple?

In the official Interim Final Rules they told us how to calculate EXACTLY the amount to request, and for a sole prop they took the employer contribution off of the Schedule C (the whole amount).  Do you need me to find that for you?  I'm sure I can. 

And yes, it APPEARS that it is just that simple; we are advising clients to WAIT until they are six weeks into their 8 weeks with the hope that we will have more official guidance.  And there is talk right now of making changes in the PPP, like making it 16 weeks, or making it some period of time AFTER the business is allowed to open up, or changing the percentage to 50/50 instead of 75/25, and a whole bunch of other ideas.  No one knows for sure where it is going, but we are not seeing anything that would NOT count a BIG DB contribution toward the 75% rule ( in fact, all by itself, it very well could be 100% in the right circumstances).

 

Lawrence C. Starr, FLMI, CLU, CEBS, CPC, ChFC, EA, ATA, QPFC
President
Qualified Plan Consultants, Inc.
46 Daggett Drive
West Springfield, MA 01089
413-736-2066
larrystarr@qpc-inc.com

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Mike, are you thinking, with all respect to Larry, that a narrower application of the acceptable contributions may be more appropriate?  I've seen every opinion from anything goes as long as it's deposited in the 8 week term, to only fixed-type contributions that can be specifically tied to the compensation paid during the 8 week period. 

Larry and Mike, are you anticipating that further guidance will actually be coming?  It seemed, unless I heard incorrectly, that at least one presenter in last week's ASPPA online conference was suggesting that more guidance may not be coming.

Thanks.

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Something doesn;t feel quite right about jacking up a cash blance allocation 95% allocated to the owners in that 8 week window and applying it towards uncle sam forgiving a 6 or 7 figure loan.  I just don;t think I could sleep at night taking such a position.

Becuase things that seem to good to be true often turn out to be untrue, and because the PPP is already too good to be true (except of course it is) I have been advising to just fund what is customary for that business.  If you always fund 10%, of pay, then fund 10% of the 8 weeks during the window.  If you just do 3% Safe Harbor Nonelective, for several years running, then funding 10% during the 8 week window just feels a bit too aggressive for my blood.

But I always tell my clients "if someone is adviing you an employer contribution is eligible, then I will run the calculation."  Of all the things I am responsible for, determining eligiblity for a ppp loan forgiveness just is not one of them.

Austin Powers, CPA, QPA, ERPA

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1 hour ago, Gilmore said:

Mike, are you thinking, with all respect to Larry, that a narrower application of the acceptable contributions may be more appropriate?  I've seen every opinion from anything goes as long as it's deposited in the 8 week term, to only fixed-type contributions that can be specifically tied to the compensation paid during the 8 week period. 

Larry and Mike, are you anticipating that further guidance will actually be coming?  It seemed, unless I heard incorrectly, that at least one presenter in last week's ASPPA online conference was suggesting that more guidance may not be coming.

Thanks.

It is the wild wild west.  Nobody knows so all sorts of things will be talked about.

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11 minutes ago, Mike Preston said:

It is the wild wild west.  Nobody knows so all sorts of things will be talked about.

https://www.bpas.com/blog/cares-act-2020-paycheck-protection-loans-funding-defined-benefit-pension-plans-sponsored-small-businesses/

Too rich for my blood.

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4 hours ago, Gilmore said:

Mike, are you thinking, with all respect to Larry, that a narrower application of the acceptable contributions may be more appropriate?  I've seen every opinion from anything goes as long as it's deposited in the 8 week term, to only fixed-type contributions that can be specifically tied to the compensation paid during the 8 week period. 

Larry and Mike, are you anticipating that further guidance will actually be coming?  It seemed, unless I heard incorrectly, that at least one presenter in last week's ASPPA online conference was suggesting that more guidance may not be coming.

Thanks.

I don't know who said that on the online conference (I'm so busy doing free webcasts I have no time for our non-free ones!).  But I am willing to bet big bucks that we will get more guidance, because we have to! The banks that handled the SBA loans are the entities that have to adjudicate the forgiveness; they simply cannot do it at this point with the information that has been provided so far. PERIOD.  There has to be more guidance; there just is no option.

Of course, what we don't know is what that guidance will be.  SO FAR, they don't appear to be limiting anything on the payroll equation except the $100k annual comp limit and the disallowance of any retirement or health benefits for sole props or partners.  

I too have seen all those opinions; I just believe that none of them are right.  They are being way too conservative and will cost their clients money; watch for possible lawsuits against advisors for BAD ADVICE that didn't have to be bad advice.

Lawrence C. Starr, FLMI, CLU, CEBS, CPC, ChFC, EA, ATA, QPFC
President
Qualified Plan Consultants, Inc.
46 Daggett Drive
West Springfield, MA 01089
413-736-2066
larrystarr@qpc-inc.com

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4 hours ago, austin3515 said:

Something doesn;t feel quite right about jacking up a cash blance allocation 95% allocated to the owners in that 8 week window and applying it towards uncle sam forgiving a 6 or 7 figure loan.  I just don;t think I could sleep at night taking such a position.

Becuase things that seem to good to be true often turn out to be untrue, and because the PPP is already too good to be true (except of course it is) I have been advising to just fund what is customary for that business.  If you always fund 10%, of pay, then fund 10% of the 8 weeks during the window.  If you just do 3% Safe Harbor Nonelective, for several years running, then funding 10% during the 8 week window just feels a bit too aggressive for my blood.

But I always tell my clients "if someone is adviing you an employer contribution is eligible, then I will run the calculation."  Of all the things I am responsible for, determining eligiblity for a ppp loan forgiveness just is not one of them.

There's a lot that ISN'T right about PPP.  A restaurant that got PPP money can't open for the next 8 weeks because the local jurisdiction won't authorize at least 75% occupance (which is the MINIMUM that almost any restaurant needs to make a profit).  How can they spend the money on salaries in the 8 weeks from the date they obtained the funds? Answer: they can't.  Doesn't feel quite right, does it?  How come I (as the sole STOCKHOLDER) of a C Corp get to count my entire retirement plan contribution toward the PPP money, but if I was a sole prop, I can't count one penny?  Doesn't feel quite right, does it?  

I think you are actually being more "aggressive" than I am.  I am telling my clients to put in NOTHING during the first six weeks of the current 8 week rule, with the firm hope (and strong belief) that we will (we have to) get more clear guidance. If the guidance is "bad", then they have conserved their cash and can use it elsewhere.  If it is good, they can throw all the money that they want for their plan (but again I suggest no more at this point than would meet at least the 75% test and possibly the 100% test).  

Because there are also the other two rules that have to be met (number of employees employed and determination of any reduction in pay of the workers), and because there will be additional guidance there as well (just the other day they confirmed that someone who was called back but doesn't return counts as someone who is actually employed for purposes of the employee count test! CRAZY!  But necessary!!!), until we know all the rules on forgiveness, we really know nothing very little about forgiveness where businesses CAN'T open by operation of local jurisdictions.

This is really the definition of SNAFU with regard to government programs that are supposed to "help" people.  Think of Johnson's Great Society and how it hobbled several generations of disadvantaged citizens.  

 

Lawrence C. Starr, FLMI, CLU, CEBS, CPC, ChFC, EA, ATA, QPFC
President
Qualified Plan Consultants, Inc.
46 Daggett Drive
West Springfield, MA 01089
413-736-2066
larrystarr@qpc-inc.com

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3 hours ago, Larry Starr said:

Of course, what we don't know is what that guidance will be.  SO FAR, they don't appear to be limiting anything on the payroll equation except the $100k annual comp limit and the disallowance of any retirement or health benefits for sole props or partners.

Couple of things.  By now you've seen the link to the article saying 100% of contributions to a DB plan constitute forgivable monies.  A bit agressive for my blood.  Agreed? Also, can you identify a specific cite where they disallowed retirement benefits for sole props and partners? What if DB plan jas sole prop and one rank and file? Part allowable, part not? Is the disallowance solely with respect to forgiveness but includable in maximum  loan calculation?  Oy.

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3 hours ago, Mike Preston said:

Couple of things.  By now you've seen the link to the article saying 100% of contributions to a DB plan constitute forgivable monies.  A bit agressive for my blood.  Agreed? Also, can you identify a specific cite where they disallowed retirement benefits for sole props and partners? What if DB plan jas sole prop and one rank and file? Part allowable, part not? Is the disallowance solely with respect to forgiveness but includable in maximum  loan calculation?  Oy.

I found this in the FAQs:

15. Question: Should payments that an eligible borrower made to an independent contractor or sole proprietor be included in calculations of the eligible borrower’s payroll costs? Answer: No. Any amounts that an eligible borrower has paid to an independent contractor or sole proprietor should be excluded from the eligible business’s payroll costs. However, an independent contractor or sole proprietor will itself be eligible for a loan under the PPP, if it satisfies the applicable requirements. 

I don't see any mention of partners in a partnership, And this is just addressing payroll costs. Could it be that one can't use amounts paid in the determination of the loan, but those amounts qualify for forgiveness?

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8 hours ago, Larry Starr said:

I think you are actually being more "aggressive" than I am.  I am telling my clients to put in NOTHING during the first six weeks of the current 8 week rule, with the firm hope (and strong belief) that we will (we have to) get more clear guidance

My point of course is that what I described would fit into anyone's definition of eligible retirement contributions.  There is nothing aggressive about funding the same safe harbor match you have always funded just for the 8 week period.  It is clearly what was intended.

Austin Powers, CPA, QPA, ERPA

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3 hours ago, Mike Preston said:

I found this in the FAQs:

15. Question: Should payments that an eligible borrower made to an independent contractor or sole proprietor be included in calculations of the eligible borrower’s payroll costs? Answer: No. Any amounts that an eligible borrower has paid to an independent contractor or sole proprietor should be excluded from the eligible business’s payroll costs. However, an independent contractor or sole proprietor will itself be eligible for a loan under the PPP, if it satisfies the applicable requirements. 

I don't see any mention of partners in a partnership, And this is just addressing payroll costs. Could it be that one can't use amounts paid in the determination of the loan, but those amounts qualify for forgiveness?

You found a nice Q&A, but it has nothing to do with this topic. I'll get everyone the reference when I am in the office shortly.  This is addressing whether payments made by the business to non-employees counts in the payroll; of course we know it doesn't but I guess there were some people who needed to see it in writing! And no, it doesn't mean they count for forgiveness (that's just plain silly!).  Those people who get the revenue as independent contractor will have their own ability to apply for PPP and have their own rules for forgiveness.

Lawrence C. Starr, FLMI, CLU, CEBS, CPC, ChFC, EA, ATA, QPFC
President
Qualified Plan Consultants, Inc.
46 Daggett Drive
West Springfield, MA 01089
413-736-2066
larrystarr@qpc-inc.com

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1 hour ago, austin3515 said:

My point of course is that what I described would fit into anyone's definition of eligible retirement contributions.  There is nothing aggressive about funding the same safe harbor match you have always funded just for the 8 week period.  It is clearly what was intended.

I understand your position, but you can't say it was clearly what was intended since they clearly allowed 100% of the employee contribution on the schedule C for a sole prop to be included in the application side (the determination of monthly comp).  We  shall see how it shakes out.  I think it best to assume they didn't think about what they intended!

Lawrence C. Starr, FLMI, CLU, CEBS, CPC, ChFC, EA, ATA, QPFC
President
Qualified Plan Consultants, Inc.
46 Daggett Drive
West Springfield, MA 01089
413-736-2066
larrystarr@qpc-inc.com

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7 minutes ago, Larry Starr said:

understand your position, but you can't say it was clearly what was intended

I can say that actually. [I'm not talking about some nuanced thing about a Schedule C. That's a tiny sliver of what matters here]

Austin Powers, CPA, QPA, ERPA

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10 hours ago, Larry Starr said:

A restaurant that got PPP money can't open for the next 8 weeks because the local jurisdiction won't authorize at least 75% occupance (which is the MINIMUM that almost any restaurant needs to make a profit).  How can they spend the money on salaries in the 8 weeks from the date they obtained the funds? Answer: they can't.

Well they can, they would be paying people to stay home, or using funds that will be (or at this point should be) forgiven to offset employee cost while the business is not making a profit. It isn't the best use of the money from a business owner perspective though.  

 

 

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10 hours ago, Larry Starr said:

I don't know who said that on the online conference (I'm so busy doing free webcasts I have no time for our non-free ones!).  But I am willing to bet big bucks that we will get more guidance, because we have to! The banks that handled the SBA loans are the entities that have to adjudicate the forgiveness; they simply cannot do it at this point with the information that has been provided so far. PERIOD.  There has to be more guidance; there just is no option.

Agreed.  We will absolutely get more guidance.  It isn't just mom n pop stores struggling to figure out what will count towards forgiveness etc, the biggest CPA firms in country are waiting on guidance as well since there are too many unanswered questions.

 

 

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On 5/12/2020 at 5:32 AM, Mike Preston said:

I found this in the FAQs:

15. Question: Should payments that an eligible borrower made to an independent contractor or sole proprietor be included in calculations of the eligible borrower’s payroll costs? Answer: No. Any amounts that an eligible borrower has paid to an independent contractor or sole proprietor should be excluded from the eligible business’s payroll costs. However, an independent contractor or sole proprietor will itself be eligible for a loan under the PPP, if it satisfies the applicable requirements. 

I don't see any mention of partners in a partnership, And this is just addressing payroll costs. Could it be that one can't use amounts paid in the determination of the loan, but those amounts qualify for forgiveness?

OK; here are the rules.  I have attached the SBA release that covers the issue.  See P. 11 of the attached, which is III 1 f i, which says the following (note highlighted words).  There is other guidance where it actually tells you where to get the numbers that go into the application amount, and it specifically includes the employee cost on the Schedule C, but specifically excludes the self employeds' contributions for retirement plans that is on the 1040.

f. What amounts shall be eligible for forgiveness?
The amount of loan forgiveness can be up to the full principal amount of the loan plus accrued interest. The actual amount of loan forgiveness will depend, in part, on the total amount spent over the covered period on:
i. payroll costs including salary, wages, and tips, up to $100,000 of annualized pay per employee (for eight weeks, a maximum of $15,385 per individual), as well as
covered benefits for employees (but not owners), including health care expenses, retirement contributions, and state taxes imposed on employee payroll paid by the employer (such as unemployment insurance premiums);

 

CARES Act. Interim Final Rule Self Employed.pdf

Lawrence C. Starr, FLMI, CLU, CEBS, CPC, ChFC, EA, ATA, QPFC
President
Qualified Plan Consultants, Inc.
46 Daggett Drive
West Springfield, MA 01089
413-736-2066
larrystarr@qpc-inc.com

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Larry, thanks for posting that guidance. I don't see any mention of partners in a partnership.  Do you think the prohibition referenced in this document targeted at those who file a 1040 Schedule C also applies to partners in a partnership?

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11 hours ago, Mike Preston said:

Larry, thanks for posting that guidance. I don't see any mention of partners in a partnership.  Do you think the prohibition referenced in this document targeted at those who file a 1040 Schedule C also applies to partners in a partnership?

No, I don't think so. I KNOW SO. And I'm pretty sure I also saw it somewhere in something.  But no doubt anyway.  It applies to all self-employed.  

Lawrence C. Starr, FLMI, CLU, CEBS, CPC, ChFC, EA, ATA, QPFC
President
Qualified Plan Consultants, Inc.
46 Daggett Drive
West Springfield, MA 01089
413-736-2066
larrystarr@qpc-inc.com

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2 hours ago, Larry Starr said:

No, I don't think so. I KNOW SO. And I'm pretty sure I also saw it somewhere in something.  But no doubt anyway.  It applies to all self-employed.  

So it would not apply to shareholders of an S-Corp, as they are not self-employed?

I carry stuff uphill for others who get all the glory.

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  • david rigby changed the title to Funding of 401(k) using PPP loan

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