Print Friendly Version Print Friendly Version

Social Security and Economic Impact Payments

“My client is retired, receiving Social Security benefits and hasn’t filed a tax return for the last couple of years. For those collecting Social Security, how will the IRS issue Economic Impact Payments to these individuals?”

ERISA consultants at the Retirement Learning Center (RLC) Resource Desk regularly receive calls from financial advisors on a broad array of technical topics related to IRAs, qualified retirement plans and other types of retirement savings and income plans, including nonqualified plans, stock options, and Social Security and Medicare.  We bring Case of the Week to you to highlight the most relevant topics affecting your business.

A recent call with a financial advisor from New Jersey is representative of a common inquiry related to Covid-19 Economic Impact Payments

Highlights of the Discussion

According to an April 1, 2020, press release from the Treasury Department, Social Security beneficiaries who are not typically required to file tax returns will not need to file any additional forms or information in order to receive an Economic Impact Payment. Instead, payments will be automatically deposited to recipients’ bank accounts.

The IRS will use the information on the Form SSA-1099 and Form RRB-1099 to generate the Economic Impact Payments to Social Security recipients who did not file tax returns in 2018 or 2019. Recipients will receive these payments as a direct deposit or by paper check, just as they would normally receive their benefits.

Conclusion

Recipients of Social Security benefits who don’t file tax returns should automatically receive their Economic Impact Payments based on their Forms SSA-1099 and Form RRB-1099 in the form of a direct deposit or paper check.

© Copyright 2020 Retirement Learning Center, all rights reserved
Print Friendly Version Print Friendly Version

Delayed Deposits of Employee Salary Deferrals Due to Covid-19

“In a recent conversation with one of my plan sponsor clients, the business owner said that he had heard it was OK to delay depositing employee salary deferrals to his 401(k) plan because of Covid-19. Can that be true?”

ERISA consultants at the Retirement Learning Center (RLC) Resource Desk regularly receive calls from financial advisors on a broad array of technical topics related to IRAs, qualified retirement plans and other types of retirement savings and income plans, including nonqualified plans, stock options, and Social Security and Medicare.  We bring Case of the Week to you to highlight the most relevant topics affecting your business.

A recent call with a financial advisor from Nevada is representative of a common inquiry related to the timely depositing of employee salary deferrals to a 401(k) plan.

Highlights of the Discussion

Under limited circumstances, explained next, it may be possible to delay the deposit of deferrals, but we suggest exercising extreme caution in doing so, and carefully documenting the reasons for the delay. According to new guidance in EBSA Disaster Relief Notice 2020-01,  it may be possible to delay remitting to a plan employee salary deferrals that have been withheld from participants’ pay without sanction only if the delay is due to the Covid-19 outbreak. Moreover, “Employers and service providers must act reasonably, prudently, and in the interest of employees to comply as soon as administratively practicable under the circumstances.”[1]

The Department of Labor (DOL) has strict rules addressing the timing of deferral remission. Generally, plan sponsors of large 401(k) plans (those with 100 or more participants) must deposit deferrals as soon as they can be reasonably segregated from the employers’ assets, but not later than 15 business days following the month the deferrals are withheld from the participants’ pay [DOL Reg. 2510-3-102(a)(1) and (b)(1)].  A safe harbor deadline applies for small plans (those fewer than 100 participants) (i.e., plan sponsors in this case have seven business days following the day on which such amounts were withheld to deposit them to their plans [DOL Reg. 2510-3-102(a)(2)].

EBSA Disaster Relief Notice 2020-01 relaxes the remittance requirements for some employers. Specifically, the notice states:

The Department recognizes that some employers and service providers may not be able to forward participant payments and withholdings to employee pension benefit plans within prescribed timeframes during the period beginning on March 1, 2020, and ending on the 60th day following the announced end of the National Emergency. In such instances, the Department will not – solely on the basis of a failure attributable to the COVID-19 outbreak – take enforcement action with respect to a temporary delay in forwarding such payments or contributions to the plan.

The phrase, “… solely on the basis of a failure attributable to the COVID-19 outbreak,” is narrow. Therefore, if a delay is necessary, while it is still “fresh,” we suggest that a prudent course of action would be to clearly document and provide detail in the plan records (a.k.a., the “fiduciary file”) why the delay was attributable to COVID-19, and how the plan complied as soon as administratively practicable under the circumstances.

Conclusion

The timely deposit of employee salary deferral has always been a top concern of the DOL. While EBSA Disaster Relief Notice 2020-01 provides limited enforcement relief from missed deferral deposit deadlines caused by Covid-19 hurdles, employers and service providers must still act reasonably, prudently, and in the best interest of employees by depositing the deferrals as soon as practicable.

[1] EBSA Disaster Relief Notice 2020-01

© Copyright 2020 Retirement Learning Center, all rights reserved
Print Friendly Version Print Friendly Version

PPP loans and deductible employer plan contributions

“My client received a Payroll Protection Program (PPP) loan for his small business to help cover payroll expenses. He maintains a safe harbor 401(k) plan, and each year my client makes an annual lump sum contribution to the plan. The company will make its 2019 contribution in 2020, and the timing will be such that the contribution will be after the business received the PPP funds and during the 8-week loan forgiveness period. Can the business use some of the PPP loan to make the contribution and deduct the full amount of the 401(k) employer safe harbor contribution?”

ERISA consultants at the Retirement Learning Center (RLC) Resource Desk regularly receive calls from financial advisors on a broad array of technical topics related to IRAs, qualified retirement plans and other types of retirement savings and income plans, including nonqualified plans, stock options, and Social Security and Medicare.  We bring Case of the Week to you to highlight the most relevant topics affecting your business.

A recent call with a financial advisor from Massachusetts is representative of a common inquiry related to the PPP loan.

Highlights of the Discussion

This question can only be fully answered by your client’s tax professional and/or CPA.  The following response provides some general information on the topic based on the guidance issued to date. It’s for informational purposes only and cannot be relied upon as tax advice.

As it stands now, the IRS appears to take the position (in Notice 2020-32) that if a business uses the PPP loan for eligible expenses that would otherwise be deductible, the business cannot also take the tax deduction. That would be double dipping because the PPP loan, once forgiven, is not taxable income to the business. Consequently, that would mean if a business uses PPP funds to make employer contributions to a retirement plan as an eligible expense, and the PPP loan is forgiven, the business could not also deduct the employer contributions under Internal Revenue Code Sec. 404. Please see page 6-7 of Notice 2020-32 for a formal discussion.

There are some policy makers in Congress (e.g., Senate Finance Committee Chair Chuck Grassley, R-Iowa and House, Ways and Means Committee Chair Richard E. Neal, D-Mass) who are seeking to make changes to the IRS’s apparent stance on this tax issue. Therefore, it is important to watch for additional updates on this ever-evolving question of deductibility, and seek competent tax advice.

Conclusion

The various forms of Covid-19 relief granted to businesses and individuals come with myriad questions. Patience will be needed as answers trickle in, as well as the services of tax experts.

 

© Copyright 2020 Retirement Learning Center, all rights reserved