[ON-DEMAND WEBINAR] PPP Forgiveness Guidance & CARES Act Impact On Financial Planning & Retirement

[ON-DEMAND WEBINAR] PPP Forgiveness Guidance & CARES Act Impact On Financial Planning & Retirement

• 2.
  PPP Forgiveness • LegislationPassed last Friday: • Covered measurement period can now be 24 weeks • Amount to be spent on payroll costs drops to 60% • Safe harbor employee restoration date moves to Dec 31 • Repayment period for amount not forgiven changes to 5 yrs • Borrower is not required to wait until end of 24 week covered measurement period to apply for forgiveness • Keep in mind that this does not change your PPP loan amount or other restrictions, though it is anticipated that the $100k gross comp cap would now be prorated over 24 weeks (= $46,154) • Still pending: tax deductibility of forgiven expenses?
• 3.
  Loan Forgiveness Application •Documentation Requirements • “The borrower shall not receive forgiveness without submitting all required documentation to the lender.” • “If the lender identifies errors in the borrower’s calculation or material lack of substantiation in the borrower’s supporting documents, the lender should work with the borrower to remedy the issue.” • All Borrowers must submit to their lender: • PPP Loan Forgiveness Calculation • PPP Schedule A
• 4.
  PPP Forgiveness • Lessonsfrom TARP • Inspector General; Audits • Long Tail (6 years) • Risk Mitigation – Document, Document, Document! • Revenues, expenses, liquidity, A/R, A/P, suppliers, contract changes, etc. • Rolling cash flow, budget changes • Meeting minutes, memos to file, e-mails • 3rd party correspondence
• 5.
  First Poll Question •What level of support would you like from your trusted advisor to prepare your forgiveness application? • Not much, I’m certain I can handle it. • I will need some hand holding from my trusted advisor, but I feel that with some support, I can get through this. • I want nothing to do with this. I would love to be able to outsource this project to my trusted advisor just like my annual tax preparation work.
• 6.
  Documentation Requirements • Notrequired to submit with application, but must have: • PPP Schedule A Worksheet or its equivalent and the following: • PPP Schedule A Worksheet Table 1, including the “Salary/Hourly Wage Reduction” calculation, if necessary. • PPP Schedule A Worksheet Table 2; specifically, that each listed employee received during any single pay period in 2019 compensation at an annualized rate of more than $100,000. • Documentation regarding any employee job offers and refusals, firings for cause, voluntary resignations, and written requests by any employee for reductions in work schedule. • Documentation supporting the PPP Schedule A Worksheet “FTE Reduction Safe Harbor.”
• 7.
  Basis of Accounting •Costs paid during the 8 week or 24 week period OR • Costs incurred during the 8 week or 24 week period and paid at the next pay date or invoice date for non-payroll costs • Clarified in latest Interim Final Rule • Example: Retirement benefits • Profit sharing contribution/deposit • Includable if paid during 8 week or 24 week period • Wait until end of your 8 week or 24 week period in case we get specific guidance that limits this?
• 8.
  Where to Start? •Start with Schedule A Worksheet • Get your employee census organized • Those that made less than $100,000 annualized for any pay during 2019 or new employees in 2020 • Those that made more than $100,000 annualized for any pay during 2019 • Determine which period you plan to use – eight-week period starting with loan disbursement or Alternative Payroll Covered Period • Determine your reference period; need to do the FTE calculation for this period also • Cash compensation may include bonus or hazard pay, but may not exceed $15,385 (8 weeks) or $46,154 (24 weeks)
• 9.
  Lender Good FaithReview • Interim Final Rule – SBA Loan Procedures • Confirm borrower certifications received • Confirm all required documentation attached • Confirm the borrower’s calculations on the application are correct • If all required supporting documentation is not provided, the borrower will not receive any forgiveness. • If the lender identifies errors in the borrower’s calculation or missing documentation, then they should work with the borrower to remedy the issue.
• 11.
  Plan Participants impactedby COVID-19 (Defined Contribution Plans) • Plans may permit COVID-19 distributions from a participant’s vested account balance, penalty-free. This relief is offered through December 31, 2020. This new type of distribution is also referred to as a CRD. • Plans may permit for an increase to qualified plan participant loan limits for qualified individuals. • Eligible participants include: • Participant diagnosed with COVID-19 • Spouse or dependent diagnosed with COVID-19 • Participant has suffered adverse financial consequences due to COVID-19 as a result of quarantine, furlough or lay-off, reduction in hours, inability to work due to childcare, business closure or other factors determined by the IRS. • Plan administrator may rely on a participant’s certification for eligibility.
• 12.
  COVID-19 Distributions (CRD) •Limited to $100,000 per tax year, aggregated across all plans of the employer or controlled group. • Distributions are not subject to 20% mandatory tax withholding. CRD’s are not considered an eligible rollover distribution. • Exempt for 10% early withdrawal penalty (generally applicable to participants 59 ½ or younger) • Plans with spousal consent still apply • RMD’s may be waived for 2020. This includes 403(b) and governmental 457 plans as well as IRA’s (including SIMPLE IRA’s and SEP’s).
• 13.
  COVID-19 Distributions (CRD) •May be indirectly rolled into IRA or employer plan within 3 years from date of distribution • Cannot be directly rolled over into another plan or IRA. • Amounts that are not indirectly rolled into an IRA or employer plan are included in gross taxable income, ratably, over 3 tax years, so the participant would only pay tax on one-third of the distribution each year. (Unless participant elects to include all amounts in a single year) • Regulatory guidance is needed, however, it is assumed that a participant who returns the CRD to a plan or IRA would be able to claim a tax credit for any income taxes previously paid. • If an employee takes a CRD and is later terminated, the termination should not impact the treatment of their CRD.
• 14.
  COVID-19 Loan Relief •Two types of loan relief are provided: • If allowed by the plan, the loan limit can be increased to the lesser of $100,000 or 100% of the participant’s vested balance. • This only applies to loans made on or before September 22, 2020 (180 days following the CARES Act enactment) • Upon request, plan sponsors must suspend loan payments due on outstanding loans that are in good order for a period of up to 12 months. • This relief expires on December 31, 2020. • The suspension period is to be added to the original loan term when repayments, including accrued interest, resume regardless of loan term.
• 15.
  COVID-19 Loan Relief •Plan restrictions on the maximum number of loans still apply. If a plan provides the participant may have only one outstanding loan, participants may: • Repay the existing loan • Refinance existing loan (if plan permits) • Plan amends to allow more than one loan • The twelve month look-back period still exists
• 16.
  Plan Amendments • TheCARES Act includes a remedial amendment period giving plan sponsors additional time to amend their plans for this relief. Plans will have to retroactively amend the plan no later than the last day of the first plan year starting on or after January 1, 2022. • If a plan sponsor wants to allow loans in a plan that currently does not permit loans, the amendment would likely be classified as a discretionary amendment and would need to be adopted by the last day of the plan year. • The IRS is expected to issue guidance about the CARES Act and document language. The best practice is to wait for this guidance before issuing CARES Act amendments. • Note- the IRS has extended the last day of the initial remedial amendment period for 403(b) plans from March 31, 2020 to June 30, 2020. Plan sponsors have until June 30, 2020 to update their preapproved and individually designed 403(b) plan documents.
• 17.
  Defined Benefit PlanRelief • All single-employer funding obligations due during 2020 are not required to be made until January 1, 2021, with interest for late payments. (Interest is the effective rate of interest for the plan) • A plan sponsor may elect the plan’s funded status for the 2019 plan year in determining the application on benefit restrictions for plan years which include calendar year 2020. • CRD’s are only available for participant’s age 59 ½ or older. • The IRS has also extended the deadline for employers to adopt a preapproved defined benefit plan from April 30, 2020, to July 31, 2020.
• 18.
  Plan Sponsor’s Responsibility •The CARES Act provisions are optional on a plan level. • Plan Sponsors are not required to adopt the increased loan limits, loan extensions, or CRD’s. • It is your decision on which provisions to offer, if any. • Keep good records. It is essential the plan sponsor, recordkeeper and TPA work together so the amendment is prepared correctly.
• 19.
  Plan Sponsor’s Responsibility •Why would I offer? • Company has been adversely affected by COVID-19 and employees are furloughed, laid off or had a reduction in hours • Company was shutdown » Restaurants » Dental Practices » Retail • Why not? • Business was essential • Business was minimally affected by or actually prospered due to COVID » Fitness Equipment » Delivery Services » Landscaping Companies
• 20.
  CARES Act asRelief. • Accessing COVID-19 Distributions in context of personal retirement planning • Accessing expanded loan provisions in context of personal retirement planning Securities and advisory services offered through Commonwealth Financial Network®, Member FINRA/SIPC, a Registered Investment Adviser. Investment Partners LTD is a Registered Investment Adviser. Additional advisory services offered by Investment Partners LTD are separate and unrelated to Commonwealth. Fixed insurance products and services offered through Investment Partners, LTD or CES Insurance Agency.
• 21.
  CARES Act asOpportunity! • Waiver of Required Minimum Distributions (RMDs) for 2020 • SECURE Act (2019) – Changes to RMDs and Stretch IRAs • Charitable Giving • Qualified Charitable Distributions (QCD) still permitted • New above the line deduction for charitable contributions • Health Savings Accounts (HSAs) & IRA conversion
• 22.
  CARES Act asOpportunity? • Using COVID-19 distributions as a tax opportunity for Roth conversions? • Using COVID-19 distributions as investment opportunity?
• 23.
  Questions? Douglas Feller, AIF®,CFP®, CFA Principal Financial Advisor Investment Partners, LTD [email protected] Doug Houser, CPA, MBA, CEPA Director of Construction & Real Estate Services Rea & Associates (614) 314-5937 [email protected] Brigette Lafferty, QPA, QKA Senior Plan Consultant Rea & Associates 220.201.2019 [email protected]