What is the last day on which a coronavirus loan can be made?

[Peter Gulia]

CARES § 2202(b)(1) refers to a loan “made during the 180-day period beginning on [March 27.]”

 

Of the many explanations law firms, accounting firms, retirement-services providers, and others have published, some describe the end of that period as September 23, and some say September 22.

 

Many BenefitsLink mavens are careful about how to read a text, and about how to count things.

 

What do you say: does the 180-day period end on September 22 or 23?

[Larry Starr]

1 minute ago, Peter Gulia said:

CARES § 2202(b)(1) refers to a loan “made during the 180-day period beginning on [March 27.]”

 

Of the many explanations law firms, accounting firms, retirement-services providers, and others have published, some describe the end of that period as September 23, and some say September 22.

 

Many BenefitsLink mavens are careful about how to read a text, and about how to count things.

 

What do you say: does the 180-day period end on September 22 or 23?

Peter,

How many angels can dance on the head of a pin? ?

We will eventually be told by IRS what the actual date is. Can't imagine at this point it matters.  Are you planning closings for Sept 23? 

[RatherBeGolfing]

I have used 23rd, but...   I think it is the 22nd.  The 23rd would be day 181

[Peter Gulia]

Larry Starr, while I too sometimes suggest not answering a question or resolving an ambiguity until one needs to, today’s question won’t wait.

 

Even in ordinary plan administration, some fiduciaries communicate about a plan’s changed provisions without waiting for a rule-based time for a restated summary plan description or a summary of material modifications.

 

My question arose in my work for an employer/administrator that soon will furnish its description of the plan’s coronavirus provisions.

 

A participant might want to know when the $100,000/100% provision ends.  And even if an administrator believes no one needs or wants to know, a description that omits a condition of a provision might be misleading or otherwise not “sufficiently comprehensive”.  While it’s possible to describe this condition without stating a date, such a description might not “be written in a manner calculated to be understood by the average plan participant[.]”

 

RatherBeGolfing thank you for your count.

[Bill Presson]

Seems to be the smart move would be to announce 9/22 "based on our current interpretation" and state that "the IRS might provide further clarification at a later date."

[Mike Preston]

1 hour ago, Bill Presson said:

Seems to be the smart move would be to announce 9/22 "based on our current interpretation" and state that "the IRS might provide further clarification at a later date."

The winner!

[Larry Starr]

9 hours ago, Peter Gulia said:

Larry Starr, while I too sometimes suggest not answering a question or resolving an ambiguity until one needs to, today’s question won’t wait.

 

Even in ordinary plan administration, some fiduciaries communicate about a plan’s changed provisions without waiting for a rule-based time for a restated summary plan description or a summary of material modifications.

 

My question arose in my work for an employer/administrator that soon will furnish its description of the plan’s coronavirus provisions.

 

A participant might want to know when the $100,000/100% provision ends.  And even if an administrator believes no one needs or wants to know, a description that omits a condition of a provision might be misleading or otherwise not “sufficiently comprehensive”.  While it’s possible to describe this condition without stating a date, such a description might not “be written in a manner calculated to be understood by the average plan participant[.]”

 

RatherBeGolfing thank you for your count.

I get it; and if I had to pick a date before the IRS confirmed what it was, then I would just use the earlier one and not worry about if I was cutting it a day short.  No big deal.

[Luke Bailey]

The statute states the 180-day period "beginning on the date of enactment...," so 3/27 would be day 1, and 9/22 day 180. If it said 180 days "after" or "from" date of enactment, then I think it would be 9/23, because the convention (e.g. for financial instruments as built into the HP-12C and other financial calculators) to resolve any arguable ambiguity in those alternative phrasings is to exclude the first day of the period and include the last, so then you would be counting 3/24 as day 1 and 9/23 would be day 180. I guess given the strength of that convention the IRS could go with 9/23, but I agree with everyone else that plans should wait and see if IRS goes that we before assuming it will.

[AMDG]

Here's the bigger question:  When do repayments start?

[Luke Bailey]

19 hours ago, AMDG said:

Here's the bigger question:  When do repayments start?

AMDG, Congress states that any suspended payment is due a year later, and also provides for an extension of the loan period by the length of the suspension, and for reamortization with accrued interest. For example, suppose a qualifying individual had taken out a loan on January 1, 2018 for $10,000, with monthly payments of $200, all of which were timely made through 2/28/2020. The loan was not a home loan,, so due to be paid off 12/31/2022. As of 3/31/2020, the remaining principal amount of the loan was $6,000, say, and a payment of $200 was due 3/31/2020. Assuming the employer was able to act fast enough to suspend the 3/31/2020 $200 payment, and provided the participant with the maximum suspension, you would accumulate interest on all of the missed payments from 3/31/2020 through 2/28/2021, say $600, add that to the principal as of 3/31/2020 of $6,000, and reamortize the resulting $6,600 over the period from 3/31/2021 through 12/31/2023. (Note: I have not taken the numbers in the example from an actual calculation, so the implied interest amounts may be inconsistent and/or unrealistic. Just trying to illustrate how the calculation would be done in concept).

[Mike Preston]

6 hours ago, Luke Bailey said:

AMDG, Congress states that any suspended payment is due a year later, and also provides for an extension of the loan period by the length of the suspension, and for reamortization with accrued interest. For example, suppose a qualifying individual had taken out a loan on January 1, 2018 for $10,000, with monthly payments of $200, all of which were timely made through 2/28/2020. The loan was not a home loan,, so due to be paid off 12/31/2022. As of 3/31/2020, the remaining principal amount of the loan was $6,000, say, and a payment of $200 was due 3/31/2020. Assuming the employer was able to act fast enough to suspend the 3/31/2020 $200 payment, and provided the participant with the maximum suspension, you would accumulate all of the missed payments from 3/31/2020 through 2/28/2021 with interest, add the missed payments and interest (say, $3,000) to the principal as of 3/31/2020 of $6,000, and reamortize the resulting $9,000 over the period from 3/31/2021 through 12/31/2023.

I think your description needs modification. A payment of $200 on an initial loan of $10,000 requires an interest rate of 7.677%. The outstanding loan is $6,153.57 not $6,000, on 3/31/2020. I think you only accumulate missed interest (not missed payments), which is $472.41, resulting in $6,625.98 as the amount to be amortized and a new payment of $215.35 from 3/31/2021 through 12/31/2023. Total payments are ($200 * 26) + ($215.35 * 34) = $12,521.90 versus the original $12,000.  Therefore, the one year delay results in higher total payments of $521.90.

Doing it your way results in an increase of about $3,000 rather than about $500. The one year delay costs a whole heck of a lot more.

Anybody know what a bank would do?  Anybody think what a bank would do matters?

Doing it your way increases the outstanding principal on the reamortization date to be effectively higher by about 12 payments (roughly $200 * 12; about $2,400).  That is, you are forcing the borrower to add roughly $2,400 in new principal, without any additional funds.

 

[Bird]

8 hours ago, Mike Preston said:

I think you only accumulate missed interest (not missed payments), which is $472.41, resulting in $6,625.98 as the amount to be amortized and a new payment of $215.35 from 3/31/2021 through 12/31/2023.

I agree with the concept.  I think it would be acceptable, and perhaps more appropriate, to compound the interest so the new balance would be slightly higher.  For me it will be easier to just plug 0's into a spreadsheet for the payments not made (effectively compounding the interest) and come up with the new balance.  Nobody's going to quibble either way though.  You're definitely not supposed to be adding the missed principal and interest.

8 hours ago, Mike Preston said:

Anybody know what a bank would do?  Anybody think what a bank would do matters?

I'm pretty sure they would do it they way I described, by plugging 0's into an amortization schedule and coming up with a new balance.  I don't think it matters what they would do...what matters is how recordkeepers will handle it, at least if the plan is record-kept.

[RatherBeGolfing]

6 minutes ago, Bird said:

I think it would be acceptable, and perhaps more appropriate, to compound the interest so the new balance would be slightly higher.  For me it will be easier to just plug 0's into a spreadsheet for the payments not made (effectively compounding the interest) and come up with the new balance.

I agree.  Compound interest is more appropriate, and something that most admin software or spreadsheet will take care of.

[Luke Bailey]

Mike, I just used plug numbers. Did not bother to run an actual example, so the inferred interest rate was not intended. I was just trying to illustrate the concept of how each payment is delayed a year, then when the first new payment is due (a year later) you reamortize and tack a new year on to the end of the original (typically-five-year) period. You're right about the rest of it. Of course the missed principle payments are not really missed, just delayed. It was late last night. I should have proof-read. Editing now.

[Mike Preston]

5 hours ago, Luke Bailey said:

Mike, I just used plug numbers. Did not bother to run an actual example, so the inferred interest rate was not intended. I was just trying to illustrate the concept of how each payment is delayed a year, then when the first new payment is due (a year later) you reamortize and tack a new year on to the end of the original (typically-five-year) period. You're right about the rest of it. Of course the missed principle payments are not really missed, just delayed. It was late last night. I should have proof-read. Editing now.

You miss my drift.  I was congratulating you on throwing out an example which lends itself to a detail analysis that holds water. It certainly brings the issue I was concerned with into focus. I'm working on a spreadsheet that calculates the re-amortization amount but as you might expect it gets complicated.  I'm allowing for three separate interest rates: original loan interest rate, interest rate to use during the deferral period, and re-amortization interest rate.  Yes, they can all be the same rate; they just don't have to be.  And for the re-amortization to have a repayment frequency different than the original loan (but both are restricted to weekly, bi-weekly, semi-monthly, monthly and quarterly.  May be a few weeks before I'm ready to publish.

[RatherBeGolfing]

7 minutes ago, Mike Preston said:

You miss my drift.  I was congratulating you on throwing out an example which lends itself to a detail analysis that holds water. It certainly brings the issue I was concerned with into focus. I'm working on a spreadsheet that calculates the re-amortization amount but as you might expect it gets complicated.  I'm allowing for three separate interest rates: original loan interest rate, interest rate to use during the deferral period, and re-amortization interest rate.  Yes, they can all be the same rate; they just don't have to be.  And for the re-amortization to have a repayment frequency different than the original loan (but both are restricted to weekly, bi-weekly, semi-monthly, monthly and quarterly.  May be a few weeks before I'm ready to publish.

For your spreadsheet, are you allowing a full years delay of each payment before it is re-amortized, or are you re-amortizing the entire delayed amount when the first delayed payment reaches a year?

[Mike Preston]

The latter.  The former leads to 52 reamortizations in the case of weekly payments.  Austin's pdf which displayed a weekly amortization schedule only had 1 reamortization, didn't it? 

[Luke Bailey]

36 minutes ago, Mike Preston said:

You miss my drift.  I was congratulating you on throwing out an example which lends itself to a detail analysis that holds water. It certainly brings the issue I was concerned with into focus. I'm working on a spreadsheet that calculates the re-amortization amount but as you might expect it gets complicated.  I'm allowing for three separate interest rates: original loan interest rate, interest rate to use during the deferral period, and re-amortization interest rate.  Yes, they can all be the same rate; they just don't have to be.  And for the re-amortization to have a repayment frequency different than the original loan (but both are restricted to weekly, bi-weekly, semi-monthly, monthly and quarterly.  May be a few weeks before I'm ready to publish.

Thanks, Mike. and thanks also for pointing out that my original post double-counted the delayed principal. Certainly needed to fix that!