Funding ER contributions with PPP

A client wants to fund the employer profit sharing with the PPP loan that they received.   It's a new comp plan with 1,000 hour last day rule.     What would be the best way to calculate the amount they can put into the plan?    could it be deposited to the participants accounts or would they need a suspense account?    

you said yourself it is 1,000 hour and last day rule. how could you deposit to the participant accounts before allocation conditions are met? many in our industry are using a suspense account. its debatable that a new comp formula would be determinable at this point in the year though. good luck!

I thought the PPP loan requirements required payments to go to employees in the first eight weeks from the loan in order to forgivable.  They should consider amending the plan to delete the last day rule for 2020.  

Proceeds must be used for "payroll" expenses within 8 weeks, although there are discussions that could get extended. Payroll includes benefits and retirement contributions in addition to wages. Payments to cover health and welfare benefits don't go "to" employees but are made for the benefit of employees, so how would retirement contributions be any different? And if the contribution went to a DB plan it doesn't get allocated to individual employees at any time regardless.

However, I would steer my clients to their accountant and/or attorney if they are considering using PPP to fund retirement plans beyond what they would normally fund for the subject 8-week period, like matching and/or safe harbor contributions funded on a payroll period basis. I'm not saying it can't or shouldn't be done, and I am a proponent of serious consideration for doing this - but it is a tax and legal issue without a lot of exacting guidance, so those are the people who should be advising clients on this, not their plan providers or TPAs.

48 minutes ago, Degrand said:

I thought the PPP loan requirements required payments to go to employees in the first eight weeks from the loan in order to forgivable.  They should consider amending the plan to delete the last day rule for 2020.  

Currently (until they change it) it is the contribution made in the 8 weeks that counts toward forgiveness.  I doubt that eliminating the last day rule does anything since it is unlikely that anyone has 1000 hours at this point or will have if the 8 weeks is already running.

Just now, Larry Starr said:

 

4 minutes ago, CuseFan said:

Proceeds must be used for "payroll" expenses within 8 weeks, although there are discussions that could get extended. Payroll includes benefits and retirement contributions in addition to wages. Payments to cover health and welfare benefits don't go "to" employees but are made for the benefit of employees, so how would retirement contributions be any different? And if the contribution went to a DB plan it doesn't get allocated to individual employees at any time regardless.

However, I would steer my clients to their accountant and/or attorney if they are considering using PPP to fund retirement plans beyond what they would normally fund for the subject 8-week period, like matching and/or safe harbor contributions funded on a payroll period basis. I'm not saying it can't or shouldn't be done, and I am a proponent of serious consideration for doing this - but it is a tax and legal issue without a lot of exacting guidance, so those are the people who should be advising clients on this, not their plan providers or TPAs.

 

Maybe because I am an Enrolled Agent with the same authority as a CPA except for audit ability, I have no problem making a recommendation.  But (as said a bunch of times in other messages), while I believe the rule does mean that 100% of the contribution to any plan during the 8 weeks will "count" towards the 75% requirement for forgiveness, I tell all clients that this is our best guess and we really don't know what the rules will be because they haven't been issued yet. Therefore, hold off putting ANYTHING in until you are at least 6 weeks into the 8 week period, with the hope that we will have additional guidance by that time.  And if we don't, it's a crap shoot right now. And any other accountant or lawyer who says they know what people should do will possibly be guilty of malpractice if their conservative advice (say, pro-rate the contribution) turns out to make them ineligible for full forgiveness.  This is dangerous territory to do anything but hedge your comments.

Spitballing..... Could an 11g amendment made during the 8 week period help?

38 minutes ago, Mike Preston said:

Spitballing..... Could an 11g amendment made during the 8 week period help?

Ummmm.... it couldn't hurt!  

Help what?

Newest release from SBA today; no one who got under $2mill for PPP has to worry about "necessary" issue.

46. Question: How will SBA review borrowers’ required good-faith certification concerning the necessity of their loan request? Answer: When submitting a PPP application, all borrowers must certify in good faith that “[c]urrent economic uncertainty makes this loan request necessary to support the ongoing operations of the Applicant.” SBA, in consultation with the Department of the Treasury, has determined that the following safe harbor will apply to SBA’s review of PPP loans with respect to this issue: Any borrower that, together with its affiliates, received PPP loans with an original principal amount of less than $2 million will be deemed to have made the required certification concerning the necessity of the loan request in good faith. SBA has determined that this safe harbor is appropriate because borrowers with loans below this threshold are generally less likely to have had access to adequate sources of liquidity in the current economic environment than borrowers that obtained larger loans. This safe harbor will also promote economic certainty as PPP borrowers with more limited resources endeavor to retain and rehire employees. In addition, given the large volume of PPP loans, this approach will enable SBA to conserve its finite audit resources and focus its reviews on larger loans, where the compliance effort may yield higher returns. Importantly, borrowers with loans greater than $2 million that do not satisfy this safe harbor may still have an adequate basis for making the required good-faith certification, based on their individual circumstances in light of the language of the certification and SBA guidance. SBA has previously stated that all PPP loans in excess of $2 million, and other PPP loans as appropriate, will be subject to review by SBA for compliance with program requirements set forth in the PPP Interim Final Rules and in the Borrower Application Form. If SBA determines in the course of its review that a borrower lacked an adequate basis for the required certification concerning the necessity of the loan request, SBA will seek repayment of the outstanding PPP loan balance and will inform the lender that the borrower is not eligible for loan forgiveness. If the borrower repays the loan after receiving notification from SBA, SBA will not pursue administrative enforcement or referrals to other agencies based on its determination with respect to the certification concerning necessity of the loan request. SBA’s determination concerning the certification regarding the necessity of the loan request will not affect SBA’s loan guarantee.

4 hours ago, Degrand said:

I thought the PPP loan requirements required payments to go to employees in the first eight weeks from the loan in order to forgivable.  They should consider amending the plan to delete the last day rule for 2020.  

Spitballing with respect to use of an 11g amendment in lieu of an amendment to delete last day rule.

4 minutes ago, Mike Preston said:

Spitballing with respect to use of an 11g amendment in lieu of an amendment to delete last day rule.

Mike, the issue presented is one of putting money into a plan during the year and having it allocated currently.  You hypothesized doing an -11g  during the 8 weeks. An -11g is clearly contemplated as a retroactive corrective amendment adopted for the prior plan year.  While it might be possible to adopt it for a current year (for example, fixing an identified problem with BRF issues during the year), I don't see how you can do an -11g amendment during the 8 weeks that deals with the problem of making the contribution allocable within the 8 weeks now running. And if you could do it, wouldn't it just be an amendment, not an -11g amendment with all the rules attributed to that section?  Am I missing something?

55 minutes ago, Larry Starr said:

Mike, the issue presented is one of putting money into a plan during the year and having it allocated currently.  You hypothesized doing an -11g  during the 8 weeks. An -11g is clearly contemplated as a retroactive corrective amendment adopted for the prior plan year.  While it might be possible to adopt it for a current year (for example, fixing an identified problem with BRF issues during the year), I don't see how you can do an -11g amendment during the 8 weeks that deals with the problem of making the contribution allocable within the 8 weeks now running. And if you could do it, wouldn't it just be an amendment, not an -11g amendment with all the rules attributed to that section?  Am I missing something?

Not sure.  We here on the left Coast have come to think of 11g amendments as additional layers rather than incorporated provisions.  I think it also goes to retention of reliance.  It depends on what is being changed/added, of course, but if I want to eliminate the last day requirement for a specific set of participants for a single year I think 11g in lieu of creating an individually designed plan.

We have a small employer who wants to make a profit sharing contribution to their plan for 2020 plan year in July, 2020, with the understanding that it can count towards the PPP loan forgiveness.  Eligible participants employed on 12/31/20 can share in the contribution with no hours worked requirement.  Terminees have to work 501 hours.  

(1) Has any new guidance been provided that would confirm that the above is permitted and count towards the PPP loan forgiveness?

(2) Does the deposit have to be into a segregated participant account or can the some/all of the deposit be into an unallocated account, to be allocated after year end?

Thank you

On 7/6/2020 at 9:57 AM, Santo Gold said:

We have a small employer who wants to make a profit sharing contribution to their plan for 2020 plan year in July, 2020, with the understanding that it can count towards the PPP loan forgiveness.  Eligible participants employed on 12/31/20 can share in the contribution with no hours worked requirement.  Terminees have to work 501 hours.  

(1) Has any new guidance been provided that would confirm that the above is permitted and count towards the PPP loan forgiveness?

(2) Does the deposit have to be into a segregated participant account or can the some/all of the deposit be into an unallocated account, to be allocated after year end?

Thank you

 

Question 1: The best answer is that all of the guidance so far seems to allow for the full contribution made during the covered period (the 8 or 24 weeks) counts toward the forgiveness (except for those who file Schedule SEs: sole props, and partners).

Question 2: PPP does not require that it go into an allocated account; you need to follow your plan document with regard to how you handle employer contributions made during the year. If an unallocated account is provided for that purpose, PPP doesn't not limit its use.

Larry, has the issue of C-corp and S-corp owners "share" of contributions not being eligible for forgiveness been resolved?

15 hours ago, Mike Preston said:

Larry, has the issue of C-corp and S-corp owners "share" of contributions not being eligible for forgiveness been resolved?

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.  

18 hours ago, Larry Starr said:

Question 1: The best answer is that all of the guidance so far seems to allow for the full contribution made during the covered period (the 8 or 24 weeks) counts toward the forgiveness (except for those who file Schedule SEs: sole props, and partners).

Question 2: PPP does not require that it go into an allocated account; you need to follow your plan document with regard to how you handle employer contributions made during the year. If an unallocated account is provided for that purpose, PPP doesn't not limit its use.

 

 

Larry - in regard to question 1:  when you say the "full contribution for the covered period (8-24 weeks)", does that mean:  (1) any employer contributions deposited in the covered period count towards forgiveness?  (2) if an employer makes an ER contribution deposit in the covered period in an amount estimated to be for the entire 2020 plan year for all participants, does the entire amount count towards forgiveness?

Thanks

4 hours ago, shERPA said:

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.  

I am part of Alan Gassman's team.  We are collectively of the opinion that for C or S corporate owners who are also employees, any retirement contributions made during the covered period (the 8 or 24 weeks) COUNTS toward the compensation limit.  There is a note on the EZ form for forgiveness that confuses the issues (and the same note is NOT on the long form!) but we see no justification in any of the laws or IFRs or FAQs that would limit the contributions for C and S corps made during the covered period, which would include contributions for 2019 (on extension) or 2020.  Of course, the SBA can always add MORE confusion by giving us more rules on this area.  For now, we are recommending the above treatment.  This is also what we are telling the hundreds of accts and others attending our Boston Tax Institute seminars where we do a 4-5 hour deep dive through every line on the reimbursement forms and reference them to the instructions or the FAQs or whatever.....  I am on faculty of BTI.

4 hours ago, Santo Gold said:

Larry - in regard to question 1:  when you say the "full contribution for the covered period (8-24 weeks)", does that mean:  (1) any employer contributions deposited in the covered period count towards forgiveness?  (2) if an employer makes an ER contribution deposit in the covered period in an amount estimated to be for the entire 2020 plan year for all participants, does the entire amount count towards forgiveness?

Thanks

Answers: 1) Yes.  2) Yes.