Subject to limits on self-employed individuals and owner-employees, Nova believes that employer contributions made during the PPP window are forgivable. This would appear to apply to a wide variety of employer retirement contributions including matching, profit sharing, defined benefit and cash balance contributions. It is also possible this would apply to both the 2019 and 2020 plan years.
While there is nothing 100% on point, the issued guidance supports forgiveness for employer retirement contributions. Of course, the final determination will be made by some combination of the lender, the SBA and the borrower – not Nova.
Below are the resources we have reviewed along with our comments.
Payroll Protection Program Loan Forgiveness Application
Retirement contributions are one type of “payroll cost”. On page 2 of the instructions for the application, there is additional information on “Eligible payroll costs”.
Payroll costs are considered incurred on the day that the employee’s pay is earned…Otherwise, payroll costs must be paid during the Covered Period (or Alternative Payroll Covered Period)…. Count payroll costs that were both paid and incurred only once.
This is interesting because it seems to change the requirement from “incurred and paid” to “incurred or paid.” So, it seems to lend further support to the idea that maybe we don’t know when a profit sharing or defined benefit plan cost was incurred, but if we pay if during the window, we should be able to get forgiveness.
On the instructions for PPP Schedule A, the instructions for line 7 add a little more clarity.
Enter the total amount paid by the Borrower for employer contributions to employee retirement plans, excluding any pre-tax or after-tax contributions by employees.
That is all it says. This would have been the perfect time to expand on any retirement contributions that they wanted excluded. Instead, the text is broad and inclusive.
Lastly, the instructions on page 10 specify what documentation to include regarding retirement plan contributions.
c. Payment receipts, cancelled checks, or account statements documenting the amount of any employer contributions to employee health insurance and retirement plans that the Borrower included in the forgiveness amount (PPP Schedule A, lines (6) and (7)).
Again, note that they are not requesting information about plan year or even money type. For defined benefit plans, they are not asking for enrolled actuary certifications.
The word “retirement” only appears three times in this whole document.
Please note that on page 12, there are some special rules for self-employed individuals (such as those paid on a Schedule C or partners) and owner-employees.
The most relevant question continues to be question 7 which while not on point, is not far off.
7. Question: The CARES Act excludes from the definition of payroll costs any employee compensation in excess of an annual salary of $100,000. Does that exclusion apply to all employee benefits of monetary value?
Answer: No. The exclusion of compensation in excess of $100,000 annually applies only to cash compensation, not to non-cash benefits, including: • employer contributions to defined-benefit or defined-contribution retirement plans; • payment for the provision of employee benefits consisting of group health care coverage, including insurance premiums; and • payment of state and local taxes assessed on compensation of employees.
SBA HOW TO CALCULATE MAXIMUM LOAN AMOUNTS – BY BUSINESS TYPE
This has to do with applying for the loan – not forgiveness. But, it may be helpful in understanding the calculations for self-employed individuals.