legislative updates

Rep. Sean Maloney (D-NY) has introduced H.R. 7645, legislation that would extend the time period for taxpayers to withdraw coronavirus-related distributions (CRDs) from retirement savings arrangements and receive the special tax benefits that CRDs provide. Certain withdrawals could be tax-free under the legislation.

CRDs, as defined in the Coronavirus Aid, Relief and Economic Security (CARES) Act, are eligible for the following tax benefits for withdrawn amounts up to $100,000 (currently, only for withdrawals in 2020).

• Three-year taxation on amounts withdrawn
• Exemption from the 10 percent excise tax for early (pre-59½) distributions
• The option to repay such withdrawn amounts within three years

Included in the bill is expected to be a provision that would make CRDs tax-free if the taxpayer qualifies as a first-time home buyer. “Expected,” because neither bill text nor a summary is available at this time. Details of legislative intent are being inferred from the bill’s description at the official congressional web site:

“To extend the time period for making coronavirus-related distributions from retirement plans and to provide an exclusion from gross income of coronavirus-related distributions which are first-time homebuyer distributions.” 

H.R. 7645 has been referred to the House Ways and Means Committee.

On Tuesday, the United States Senate passed by unanimous consent a bill to extend from June 30, 2020, to August 8, 2020, the deadline for businesses to apply for a Paycheck Protection Program (PPP) loan administered by the federal Small Business Administration.

PPP loans were created by the Coronavirus Aid, Relief, and Economic Security (CARES) Act, targeted to businesses with no more than 500 employees. The purpose of the program is to assist small employers in retaining employees on their payrolls in a time of financial stress during the coronavirus (COVID-19) pandemic. More than $130 billion of the $669 billion appropriated for the program had not been applied for as the June 30th deadline approached.

If certain conditions are met, PPP loans can be forgiven and treated as a grant. Among the conditions for full forgiveness is a requirement that 60% of loan proceeds be used for payroll expenses. These expenses can include not only wages and salaries, but also employer contributions to defined contribution and defined benefit retirement plans. Expenses can also include providing group health care coverage, including payment of insurance premiums.

As this is reported, the House of Representatives had yet to approve the bill, which is required—in addition to signing by President Trump—for the application deadline to be extended.

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.

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 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

On Wednesday night, the U.S. Senate approved by voice vote H.R. 7010, the House-passed Paycheck Protection Program Flexibility Act of 2020. 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, the legislation now presented to President Trump—who is expected to sign it into law—would have the following effects.

• Extend 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) 
• Reduce from 75% to 60% the portion of a loan that must be used for payroll expenses (vs overhead, etc.) and remain eligible for loan forgiveness
• Extend from 2 to 5 years the period for loan repayment for borrowed amounts not forgive
• The documented inability to hire similarly qualified placement employees or to rehire former employees will not be an impediment to loan forgiveness
• A borrower who received a PPP loan before enactment of this legislation may elect that the covered period run for 8 (vs 24) weeks

The U.S. House of Representatives passed by a 417-1 margin on Thursday, May 28, the Paycheck Protection Program Flexibility Act of 2020. This legislation would modify certain core terms of this Small Business Administration (SBA) emergency lending program. The Paycheck Protection Program (PPP) was created by the Coronavirus Aid, Relief, and Economic Security (CARES) Act, signed into law on March 27, 2020. Under the program, qualifying small businesses may apply for loans from the SBA to retain employees on their payrolls, and—especially attractive to business owners—the loans are forgiven if certain conditions are met.

As provided in the CARES Act, PPP loans taken to cover 8 weeks of program-eligible expenses can be forgiven (no repayment required). Although mortgage, rent, and other business expenses are included, to be eligible for forgiveness, 75 percent of a loan amount must—under current rules—be used for employee payroll expenses. Certain employee benefits, including defined contribution and defined benefit plan employer contributions, health insurance benefits (including premium payments), and certain employee leave benefits can be considered payroll expenses.

Today’s House-passed legislation would extend the 8-week period to 24 weeks, and would change the 75 percent payroll requirement to 60 percent.

The legislation would also relax certain loan forgiveness provisions in recognition that an employer may be unable to rehire some former employees or to find similarly qualified employees. Loan amounts not forgiven could be repaid over a period of 5 years instead of 2 years as under current rules.

Members of the U.S. Senate have been discussing a similar bill, one said to expand the 8-week period to 16, not 24 weeks. If the Senate is unable to pass its version of PPP revisions this week, which seems likely, its bill could be taken up when the Senate returns to Washington, D.C., next week.

The House of Representatives late Friday passed H.R. 6800, the Health and Economic Recovery Omnibus Emergency Solutions (HEROES) Act, providing additional aid to many who are adversely affected by the novel coronavirus (COVID-19) pandemic. The bill also contained non-COVID-19-related provisions considered likely to prove controversial in the Senate.

Unlike the Families First Coronavirus Response Act, and the Coronavirus Aid, Relief, and Economic Security (CARES) Act—both of which moved fairly rapidly through Congress—the HEROES Act has been called “dead on arrival” by Senate Majority Leader Mitch McConnell (R-KY), who—with Republican colleagues—envisions a much less comprehensive bill. Sen. McConnell has also expressed a desire to move slowly and gauge the effectiveness of earlier relief. Most expect no additional COVID-19-related legislation to be enacted before sometime in June.

As announced last week, the House bill contains provisions for the following.

• Continued financial assistance to unemployed workers
• Financial assistance to state, local, tribal, and territorial government entities
• Waiver of 2019 required minimum distributions (RMDs)
• Waiver of the 60-day and one-rollover-per-12-month rules for otherwise-required RMDs waived for 2019 and 2020
• Amendments to the Emergency Family and Medical Leave Expansion Act
• Relief for participants in health flexible spending arrangements (FSAs)
• Codifying the ability of employers to deduct certain expenses covered by loans that are forgiven under the SBA Paycheck Protection Program
• Providing money purchase pension plans the early distribution and loan relief that the CARES Act provided to other qualified retirement plans
• A new retirement “composite plan,” with features that include those of 401(k) and defined benefit (DB) pension plan
• Relief for multiemployer (collectively-bargained) DB pension plans
• Amortization relief for single employer DB pension plans
• Further funding relief (beyond that provided by the SECURE Act) to certain community newspaper DB plans
• Aid to certain federal agencies affected by the pandemic, including the Departments of Homeland Security, Interior, Health and Human Services, Labor, Transportation, Housing and Urban Development, and Education
• Enhanced Medicare and Medicaid benefits
• Medical supply chain enhancement
• Testing and reporting enhancement
• National strategic stockpile for pandemic response
• Bankruptcy protections for homeowners
• Certain student loan relief and protections
• Additional aid to veterans during the COVID-19 pandemic
• Federal election early and by-mail voting procedure

The Department of Labor’s Employee Benefits Security Administration (EBSA) has issued a pre-publication version of highly-anticipated final regulations on default electronic delivery of retirement plan disclosures. These regulations become effective 60 days following their publication in the Federal Register, currently scheduled for Wednesday, May 27.

Retirement plan administrators and service providers have been awaiting these final regulations since they were issued in proposed form in October 2019. This guidance is expected to enhance the ability of retirement plans and their service providers to deliver required disclosures to participants and beneficiaries by electronic means.   

The House of Representatives late Friday passed H.R. 6800, the Health and Economic Recovery Omnibus Emergency Solutions (HEROES) Act, providing additional aid to many who are adversely affected by the novel coronavirus (COVID-19) pandemic. The bill also contained non-COVID-19-related provisions considered likely to prove controversial in the Senate.