Note: what follows is general information on the PPP and employer retirement contributions. Please consult with your CPA in all matters relating to the Paycheck Protection Program and the potential ppp loan forgiveness. The Small Business Administration (SBA) has not specifically ruled on many of the matters addressed below and therefore the answers may change when future guidance is issued. However, those businesses that received their PPP loan early in the process are approaching the end of their 8 week period and therefore we are releasing the following information for your consideration.
Can any type of employer use all or a portion of the PPP loan towards an employer retirement plan contribution and have this amount potentially forgiven by the SBA?
Corporations have the option to make an employer retirement plan contribution and have this amount part of the forgiveness calculation. Although, sole proprietors and partners in a partnership cannot include retirement contributions personally attributable to them in this calculation, it appears that employer retirement contributions made on behalf of their employees can be included in the forgiveness calculation.
I thought that for the PPP loan to be completely forgiven at least 75% of the loan proceeds must be spent on payroll costs. Is this true?
Yes, that is correct; however, per the law and SBA guidance, the term “payroll costs” among other things, includes employer retirement contributions.
What types of retirement plans are included in this forgiveness calculation?
It appears that employer contributions to Cash Balance, Defined Benefit, 401(k), profit sharing, money purchase, 403(b), SIMPLE and SEP plans are eligible to be included. It also appears that this list is not exhaustive and may include employer contributions to non-qualified retirement plans such as Top Hat plans. (Please discuss this with your CPA).
Must the employer retirement contribution be made during the 8-week period?
If you have received a Paycheck Protection Program loan, you most likely know that the proceeds must be spent during the 8 weeks after receiving these funds. Initially, the SBA guidance stated that the 8-week period began on the day the loan was received; however, recent guidance suggests that the 8-week period can begin on the first bi-weekly payroll date following the receipt of the funds, thus slightly extending the 8-week period. It is not clear if this extension also applies to employer retirement plan contributions. We recommend that retirement contributions to the retirement trust account be made no later than the 7th week following the date the funds were received.
Must these retirement contributions be only attributable to the 8-week period or can these contributions be attributable to 2019 and/or 2020?
So far, it appears that the guidance from the Small Business Administration has not placed any restrictions on the employer retirement contributions and that they can be attributable to 2019 and/or 2020. The exception appears to be employer matching funds which cannot match employee deferrals that have not yet occurred. (All the following examples assume that the employer sponsoring the retirement plan is a corporation and the employer retirement contribution is made within the 8-week PPP period.)
Example 1: Employer A maintains a Cash Balance plan and contributes
$150,000 for the 2019 plan year and $200,000 for the 2020 plan year.
Assuming that both contributions are approved by the plan’s actuary, it
appears that they can be included in the PPP forgiveness calculation.
Example 2: Employer B maintains a Safe Harbor 401(k) plan with a 3%
nonelective contribution and contributes $100,000 to the plan to fund the 2019 Safe Harbor contribution and $105,000 to the plan to fund the anticipated 2020 Safe Harbor contribution. Since neither contribution is matching an employee deferral (but instead is allocated as a percentage of the eligible plan participant’s compensation), it appears that both contributions can be included in the PPP forgiveness calculation.
The 2019 contribution can be completely allocated to the plan participants’ accounts and the year-to-date 2020 contribution can be allocated as well. However, any portion of the 2020 contribution that is attributable to anticipated compensation earned after the 8- week period has expired will need to be placed into an unallocated account within the 401(k) trust and later allocated into the participant accounts with future payrolls.
Example 3: Employer C maintains a Safe Harbor 401(k) plan with a Safe
Harbor Match. The 2020 employer match that has accrued through the end of the 8-week period can be contributed to the 401(k) plan and allocated and this can be included in the PPP loan forgiveness calculation. Note that the Safe Harbor matching contribution for 2019 generally must have already been contributed to the 401(k) plan and therefore is not part of this example.
Example 4: Employer D maintains a 401(k) plan with a discretionary match. This employer can declare an employer match for the 2019 plan year and include this in the PPP forgiveness calculation. Further, the employer can declare an employer match for the 2020 year-to-date employee deferrals through the end of the 8-week period and include this in the PPP forgiveness calculation.
Example 5: Employer E maintains a profit sharing plan and has not yet funded this plan for 2019 or 2020. This employer can make a profit sharing
contribution for 2019 and this contribution can be allocated to the participants’ accounts since 2019 compensation and hours-worked are known at this point. Further, this employer can make a profit sharing contribution for 2020 and place this into an unallocated account within the profit sharing trust to be allocated in the future.
Can RPS assist with the above allocations of employer contributions?
Yes, but additional fees will apply if the allocation is an interim allocation and not a year-end allocation. The staff at RPS will address this question on an individual basis.
If my PPP loan is forgiven, will I be taxed by the IRS on the forgiven amount?
No, the SBA has confirmed that forgiven loans will not be subject to taxation.
Will I also be able to claim a tax deduction on the employer retirement plan
Perhaps. There is pending legislation that would allow a tax deduction on employer retirement plan contributions that are part of the PPP forgiveness calculation.
Can I also pay my plan administrative fees and include this in the PPP forgiveness calculation?
No, but you could make an additional employer contribution to your retirement plan, above what you would otherwise contribute, and include this total amount in the PPP forgiveness calculation. Then you could pay your plan’s administrative fees from your plan’s trust assets. However, your plan document may need to be amended first to allow for the payment of such fees from trust assets. If your plan document needs to be amended, there will be an amendment fee associated with the preparation of the
amendment, employee notice, corporate resolution, and modifications to the plan’s Summary Plan Description.
Please note that as of 6/1/2020 (the date of this writing) the SBA has not issued specific guidance on which types of employer retirement plan contributions are permissible or impermissible in the PPP forgiveness calculation. Therefore, if the employer makes a retirement plan contribution that would otherwise have been made and this amount is
later removed from the forgiveness calculation, the employer is no worse off for having made the contribution.
If you have further questions, after discussing this with your CPA, you can also contact your assigned Plan Analyst at RPS.