Industry & Regulatory News

IRS Issues More CARES Act Eligibility and Plan Loan Guidance

The IRS has issued Notice 2020-50, providing additional guidance on several aspects of the Coronavirus Aid, Recovery, and Economic Security (CARES) Act, legislation enacted in March of this year in response to the coronavirus (COVID-19) pandemic.

A “qualified individual” who has experienced health or financial effects from the COVID-19 pandemic is eligible for certain retirement plan distribution, penalty exemption, plan loan and loan repayment, taxation, and repayment benefits.

Qualified Individual Further Defined

Initial guidance defines a “qualified individual” as

  • an individual (or the spouse or dependent of the individual) who is diagnosed with the COVID-19 disease or the SARS-CoV-2 virus in an approved test; or
  • an individual who experiences adverse financial consequences as a result of being quarantined, being furloughed or laid off or having work hours reduced due to such virus or disease, being unable to work due to lack of child care due to such virus or disease, closing or reduced hours of a business owned or operated by the individual due to such virus or disease, or other factors as determined by the Treasury Secretary.

Notice 2020-50 adds new circumstances to the definition of “qualified individual.”

  • An individual who has experienced a reduction in pay (or self-employment income) due to COVID-19, or has had a job offer rescinded or a start date for a job delayed due to COVID-19.
  • A person whose spouse or a member of her household has
    • been quarantined, furloughed or laid off, or had work hours reduced due to COVID-19;
    • been unable to work because of a lack of childcare due to COVID-19,
    • had a reduction in pay (or self-employment income) due to COVID-19; or
    • had a job offer rescinded or a start date for a job delayed due to COVID-19.
  • A person whose spouse or a member of her household has experienced the closing or a reduction of hours of their business due to COVID-19.

For purposes of applying these additional factors, a member of the individual’s household is someone who shares the individual’s principal residence.

CARES Act Loans

Notice 2020-50 provides examples of how to apply the special plan loan provisions of the CARES Act, and includes a safe harbor method. In addition, the Treasury Department and IRS recognize that there may be additional reasonable ways to administer loan repayments under the CARES Act.

This guidance is being further analyzed, and additional details will be shared.


Senate, House Bills Would Allow Additional PPP Loans

Companion bills have been introduced in the U.S. House of Representatives and Senate to provide additional capital to small businesses hardest hit by the coronavirus (COVID-19) pandemic. The Prioritized Paycheck Protection Program (P4) Act is sponsored in the Senate by Democrats Chris Coons (DE), Ben Cardin (MD), and Jean Shaheen (NH), and in the House by Democrats Angie Craig (MN), and Antonio Delgado (NY).

The P4 Act would authorize additional Paycheck Protection Program (PPP) loans to businesses with 100 or fewer employees—including sole proprietorships and other self-employed—that have already expended the proceeds of a prior PPP loan or are on-pace to do so, and that can demonstrate a loss of business revenue of 50 percent or more due to the COVID-19 pandemic.

PPP is a Small Business Administration lending program created by the Coronavirus Aid, Relief, and Economic Security (CARES) Act to help small employers meet payroll and other expenses as businesses and the nation deal with the economic effects of the novel coronavirus pandemic.

Importantly, if certain conditions are met, PPP loans can be forgiven and treated as a grant. Payroll expenses can include employer contributions to defined contribution and defined benefit retirement plans, as well as providing group health care coverage, including payment of insurance premiums.


DOL’s Request-for-Information for PEP/MEP Guidance Published in Federal Register

Published in Thursday’s Federal Register is the Department of Labor’s Employee Benefits Security Administration’s (EBSA’s) request-for-information (RFI) seeking public comments on issues pertinent to pooled employer plans (PEPs) and multiple employer plan (MEPs).

This RFI is a response to the December 2019 enactment of the Setting Every Community Up for Retirement Enhancement (SECURE) Act, which contained provisions intended to enhance the ability of multiple entities to join together in a single retirement plan.

The SECURE Act established statutory conditions for the establishment of new affiliations to be known as PEPs, which would require the designation of a “pooled plan provider” that would be a fiduciary of the arrangement. EBSA is also seeking “information on … issues involving multiple employer plans sponsored by employer groups or associations or professional employer organizations.”

The comments received in response to this RFI are likely to shape future EBSA guidance on the operation of these arrangements.


DOL Seeks Comments for Future PEP/MEP Guidance with Request-for-Information

The Department of Labor’s Employee Benefits Security Administration (EBSA) has released a pre-publication version of a request-for-information (RFI) seeking public comments on issues pertinent to pooled employer plans (PEPs) and multiple employer plan (MEPs).

This initiative follows enactment in December 2019 of the Setting Every Community Up for Retirement Enhancement (SECURE) Act, some provisions of which were intended to enhance the ability of multiple entities to join together in a single retirement plan, and—if certain conditions were met—be treated as a single employer, allowing potential administrative efficiencies and cost savings. The SECURE Act established statutory conditions for the establishment of new affiliations to be known as PEPs, which would require the designation of a “pooled plan provider” that would be a fiduciary of the PEP.

Issues that EBSA anticipates could include the “possible parties, business models, and conflicts of interest that … will be involved in the formation and ongoing operation of PEPs,” according to an EBSA news release. EBSA is also seeking “information on similar issues involving multiple employer plans sponsored by employer groups or associations or professional employer organizations.”

The comments received could shape potential future EBSA guidance on the operation of these arrangements, including whether EBSA should propose a new prohibited transaction class exemption.

The RFI contains instructions for submitting comments and is scheduled to be published in tomorrow’s Federal Register.


SEC Issues Reminder of June 30 Deadline for Compliance with Broker-Dealer Reg BI Conduct Standards

In an announcement Monday, the Securities and Exchange Commission (SEC) again confirmed that June 30, 2020, is the deadline to comply with the agency’s Regulation Best Interest (Reg BI), and requirements to provide new Form CRS, Relationship Summary, to retail customers. In early April, the SEC issued a similar reminder. Reg BI was officially adopted by the SEC in June 2019, with a delayed compliance date of June 30, 2020.

Reg BI is intended to govern relationships between retail investors and the broker-dealers and “associated persons” with whom they deal. In addition to adhering to the principles in Reg BI—chief among them that “investment professionals should not put their interests ahead of the interests of their clients and customers”—there is a requirement to provide a new Form CRS, which includes general information about the investment firm, services the client will be receiving, and how the client will be charged for those services. Form CRS is also to be filed with the SEC.

In April, SEC Chairman Jay Clayton stated that “firms should continue to make good faith efforts around operational matters to ensure compliance by June 30, 2020, including devoting resources as necessary and available in light of the circumstances,” a reference to the uncertainties cause by the coronavirus (COVID-19) pandemic.

In this week’s announcement, Clayton noted that “our work across the Commission over the past several months has strengthened my view that the effects of the COVID-19 pandemic weigh substantially in favor of implementing the Reg BI and Form CRS requirements as soon as practicable.”


Paycheck Protection Program Revised Interim Final Rule Published in Today’s Federal Register

Today’s Federal Register contains the Small Business Administration (SBA) revised interim final rule (IFR) on the agency’s Paycheck Protection Program (PPP). This initiates a 30-day comment period on the guidance, although—as the agency notes—the guidance is effective without advance notice and public comment, due to its time sensitivity and specific authorization by the Coronavirus Aid, Relief, and Economic Security (CARES) Act, signed into law in March 2020.

This SBA guidance was issued in response to enactment on June 5 of the Paycheck Protection Program Flexibility Act of 2020, legislation that made enhancements to PPP, the SBA loan program intended help small employers meet payroll and other expenses as they deal with the economic effects of the coronavirus (COVID-19) pandemic.

PPP changes in the June legislation included the following.

  • Extends from 8 to 24 weeks from a loan’s origination the period in which expenses paid with a PPP loan could be eligible for loan forgiveness (not to extend beyond December 31, 2020)
  • Reduces from 75 percent to 60 percent the portion of a loan that must be used for payroll expenses (vs. overhead, etc.) and remain fully eligible for loan forgiveness
  • Extends from 2 to 5 years the period for loan repayment for borrowed amounts that are not forgiven (applies to loans made on or after June 5, 2020)
  • Allows a borrower who received a PPP loan before enactment of the June 5 legislation to elect that the covered period run for 8 (vs. 24) weeks

 


Paycheck Protection Program Revised Interim Final Rule Issued

Scheduled for publication in next Tuesday’s Federal Register is a Small Business Administration (SBA) interim final rule on the agency’s Paycheck Protection Program (PPP). This guidance is being issued in response to enactment on June 5 of the Paycheck Protection Program Flexibility Act of 2020, legislation that made enhancements to this SBA loan program intended to help small employers meet payroll and other expenses as they deal with the economic effects of the novel coronavirus (COVID-19) pandemic.

If certain conditions are met, PPP loans can be forgiven and treated as a grant. Payroll expenses can include not only wages and salary, but also employer contributions to defined contribution and defined benefit retirement plans, as well as providing group health care coverage, including payment of insurance premiums.

The SBA issued a previous interim final rule in April 2020 to provide guidance in implementing PPP. But with the program changes made by the June 5 legislation, that April rule no longer reflects certain important features of PPP as it now exists, requiring the issuance of a new interim final rule. These important PPP changes include the following.

  • Extends from 8 to 24 weeks from a loan’s origination the period in which expenses paid with a PPP loan could be eligible for loan forgiveness (not to extend beyond December 31, 2020)
  • Reduces from 75 percent to 60 percent the portion of a loan that must be used for payroll expenses (vs. overhead, etc.) and remain fully eligible for loan forgiveness
  • Extends from 2 to 5 years the period for loan repayment for borrowed amounts that are not forgiven (applies to loans made on or after June 5, 2020)
  • Allows a borrower who received a PPP loan before enactment of the June 5 legislation to elect that the covered period run for 8 (vs. 24) weeks

The SBA notes that this interim final rule is effective without advance notice and public comment because of its time sensitivity and specific authorization by the Coronavirus Aid, Relief, and Economic Security (CARES) Act, the legislation that created the PPP lending program. Nonetheless, comments are invited and must be submitted within 30 days of the guidance’s publication in the Federal Register.


President Signs Paycheck Protection Program Extension Legislation

President Trump signed into law Friday, June 5, the Paycheck Protection Program Flexibility Act of 2020, legislation that the Senate approved Wednesday night. The legislation extends elements of and makes certain other adjustments to the Paycheck Protection Program (PPP). This Small Business Administration lending program was created by the Coronavirus Aid, Relief, and Economic Security Act to help small employers meet payroll and other expenses as businesses and the nation deal with the economic effects of the novel coronavirus pandemic.

Importantly, if certain conditions are met, PPP loans can be forgiven and treated as a grant. Payroll expenses can include employer contributions to defined contribution and defined benefit retirement plans, as well as providing group health care coverage, including payment of insurance premiums.

Among its provisions, this legislation will have the following effects.

  • Extends from 8 to 24 weeks from the time of loan origination the period in which expenses paid with a PPP loan could be eligible for loan forgiveness (not to extend beyond December 31, 2020)
  • Reduces from 75 percent to 60 percent the portion of a loan that must be used for payroll expenses (vs. overhead, etc.) and remain eligible for loan forgiveness
  • Extends from 2 to 5 years the period for loan repayment for borrowed amounts not forgiven
  • Provides no impediment to loan forgiveness for the documented inability to hire similarly qualified placement employees or to rehire former employees
  • Allows a borrower who received a PPP loan before enactment of this legislation to elect that the covered period run for 8 (vs. 24) weeks

DOL Addresses Private Equity as a Plan Investment

The Department of Labor’s Employee Benefits Security Administration (EBSA) today released an Information Letter addressing the issue of including private equity investments—which are not publicly traded securities—among investment options available in certain individual account (401(k)-type) defined contribution (DC) plans.

EBSA’s letter indicates that such plans could potentially include funds with a private equity component. But the EBSA pointed out that there are significant differences between such DC plans and professionally managed defined benefit (DB) plans, wherein retirement benefits are based on known formulas. EBSA’s letter describes in detail considerations that a plan fiduciary should take into account when determining whether it is prudent to include such an investment component in an individual account DC plan, especially if a private equity investment will be a component of a plan’s qualified default investment alternative (QDIA).