shERPA

And I tell them the same thing. If they know they can change at any time, no one gets worked up about it.

1. OK, I understand not buying long term contracts on ees who are short term, that is a waste. But what's the compelling benefit to the owner or other HCE of life insurance in the plan vs buying insurance outside of the plan? Yes, I know the "buying with pre-tax dollars" argument, but they still have to pay tax on the annual term cost, so it's not tax free. And the internal policy growth is just another plan investment with high expenses. 2. How, without violating the incidental limits? 3. Sure, as long as the insured group passes 410(b). Wouldn't do so for long assuming turnover.

As Mike says, of course you can so argue. And in an after-the-fact situation you’d be remiss not to. But is it reasonable to knowingly put a client in a place where making such arguments may become necessary? What’s the benefit to the client that justifies the cost and the risk?

SRM cited RR 2004-21 for you. IRS looks at things like "purchase rights" as separate BRFs.

I'm not aware of any further clarification. There is an author who has been covering PPP for Forbes, Alan Gassman, who seems to be convinced that the "owner-employee" limitations apply to corporate shareholders.

Four years worth of work? I would politely decline that "offer". Payment in full first. After four years there is demonstrated bad faith. Unless you want to settle for 50%, as that is all you will see.

IAWMP. Just get the funds out, document how the stock was deposited and trace the proceeds of the sale and put all that info in the plan file. It is money that doesn't belong to the plan, it is more like a banking error than anything else. Sometimes stuff happens, just fix it.

Yeah, payment within 30 days, then send past due statement, 60 days, another statement and follow up by phone and email, 90 days stop all work. It astounds me how many TPAs carry multi-year receivables. If you ever go to sell your business, a buyer will consider AR over 120 days at effectively zero value.

It might be a good idea, but of course the terminated employees would need to have continued access to that email account. SOP is typically to shut off access immediately upon termination. Employers probably don't want company-wide communications unrelated to plan disclosure going to terminees. Maybe the workaround is to have a plan specific subdomain and set up an email account for terminees there. So John Smith terminates, his john.smith@acme.com is shut down and he is assigned john.smith@401k.acme.com where he still has access.

It's reasonable to explicitly follow the instructions on any form that is submitted to any government agency. The instructions right now don't limit the amount of contribution. But the instructions might change, the client needs to understand this. We don't write the instructions. Yes I agree that if there is any question about when/whether or not to make a contribution it is best to wait until close to the end of the PPP period.

A TPA really shouldn't discuss much of this with them, but instead refer them to legal counsel. In addition to qualification issues all the improperly excluded employees have possible claims against the plan, plan sponsor and fiduciaries. And there are substantial civil penalties in ERISA as well as criminal penalties for some things. The sponsor needs to understand all of this and they need to do so under the protection of attorney-client privilege.

I don't see this as a major risk for a TPA. We don't tell them what to contribute or whether or not it is forgivable. As Sgt. Friday says, we provide "just the facts". The first fact is right now the guidance doesn't limit the amount of plan contribution to a pro-rated amount. The second fact is that this may change. So what are the strategic implications? 1. If the question involves a 2019 contribution receivable that the client will have to contribute by 9/15/20 anyway (in order to claim a 2019 deduction), then the advice is pretty easy. Go ahead and contribute it during the PPP covered period. If it ends up all included in the forgiveness, great! If not, they are no worse off than they would have been (assuming the ~3 month acceleration of the contribution doesn't create a huge cash flow issue). 2. If they are considering a 2020 pre-contribution, again if it is one they will have to make anyway, then it's just a timing/cash flow issue. If they can swing the cash flow, go for it during the covered period. Same result as (1). 3. If they are considering a contribution that they would not otherwise make, they need to understand that there is a risk that later guidance may exclude some or much of the contribution from the forgivable amount. And they can't take the contribution out of the plan once deposited. If they are good with this risk, go for it. If they are not good with it, don't.

If you look at the loan forgiveness application, the instructions for line 1, at the bottom of page 1, say to enter the amount of payroll cost incurred or paid during the covered period. And on the PPP Schedule A Instructions it says enter the total amount the employer paid. AFAIK that is the extent of the guidance, at least for now. Probably the best thing to do is quit talking/asking about it and leave things as they are. But that won’t happen of course. I’m telling my clients if they have the cash available and are going to contribute anyway, plan to fund their plans sufficiently to get 100% forgiveness, but don’t be surprised if later guidance limits the employer contribution. And wait until they are near the end of the eight weeks to see if more guidance comes out in case something changes that would disrupt this approach. https://www.sba.gov/sites/default/files/2020-05/3245-0407 SBA Form 3508 PPP Forgiveness Application.pdf

Is there an echo in here?

I would guess he is talking about a weighting factor often applied to deferral and per pay period matching contributions deposited during the year to a pooled plan. So earnings are then allocated on BOY account balance plus 1/2 of the contributions made during the year. A reasonable approximation if the contributions come in evenly throughout the year. But an IRC "safe harbor"?

Thanks, yes you got what I was driving at. As to the Corp/unincorporated differences, yeah, it doesn’t make sense. Cue Frank Zappa again. If this holds maybe those who are operating as single member LLCs (disregarded entities) or LLCs taxed as partnerships should consider making an S-corp election. Making this change just for purposes of PPP may not make sense, but if it’s something they were considering anyway....

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

IAWMP

Yeah I didn't look until yesterday either for the same reason. Agree with the above, regardless of deposit date, a contribution isn't allocated until the plan says it's allocated. The earnings or loss mentioned in (2) [when deposited to the plan] and (3), are allocated as earnings to the entire plan, not just the recipients of that $100K contribution. Which I think agrees with Mike and Larry too.

For TPAs the uncertainty is whether or not their clients will survive this and be able to pay the plan admin bills. This won't show up in the first 8 weeks, but we will know more soon enough. Article in NYT yesterday suggested 40% of small business going away. So yeah, there is plenty of uncertainty to go around.

Yes, it does defeat the explicit provision in the law that the PPP forgiveness is not income, unlike other debt forgiveness. And I think Grassley was quoted in today's WSJ article saying exactly this. Although it's not really a surprise that there are glitches in a hastily drafted piece of legislation. So Congress may or may not act to fix it, we will see. Could end up being cannon fodder for other political agendas. As Frank Zappa said: "The United States is a nation of laws, badly written and randomly enforced."

Well yes, if you introduce other variables, the outcome is different.

Be sure to check out IRS Notice 2020-32. IRS says a company can not deduct the expenses it pays with the forgiven amount of the loan. So even though the act itself says the forgiven amount is not taxable income, by disallowing a deduction for the expenses paid with the forgiven amount, economically it comes out the same as if it were taxed as loan forgiveness.

Effen, your second case is similar to what I experienced almost 20 years ago. When the client's attorney came to me the sponsor was out of business (due to owner medical issues) and the plan was underfunded, with a few years of no admin, valuations, etc. First thing I did was contact PBGC, called a few times, spoke to several people, trying to get their attention and point out that it would be better if they took the plan over sooner rather than later and before burning through the plan assets with fees. No one was interested.

Thanks, AndyH. That's a good point about other sponsor assets, I don't know but will certainly point this out to them.