How to Help Your Customers Understand the CARES Law: Paycheck Protection Program

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The terrible coronavirus of last week unemployment claims number was the beginning of evil. Initial projections of 10 percent unemployment give way to 15 percent by the end of the second quarter, according to Goldman Sachs, and to 32.1 percent, according to the St. Louis Federal Reserve projection. The latter would exceed the peak of unemployment during the Great Depression.

The good news? A consensus outlook shows a record short-term GDP shrinkage followed by record fourth-quarter output, suggesting a light at the end of the tunnel for the American worker, retirement saver and company owner– if the country can collectively put a brake on the forced shutdown of the economy under the Coronavirus pandemic.

Eric Stevenson, President, National Pension Plans Eric Stevenson, President, National Pension Plans

Pension advisors will play a vital role, says Eric Stevenson, president of Nationwide Retirement Plans. “This is the time when they need to be more visible than they’ve ever been,” Stevenson said. “They need to be in constant communication with plan sponsors, even remotely. “

Nationwide, which has 2.5 million members in its pension plan unit, responded to call center inquiries at more than 1,000 times its average rate for exchange calls at the start of the panic. Marlet. The volume has settled, Stevenson said, but has remained active since the passage of Congress and the president’s signing of a historic bailout, an effort he called “unbelievable.”

“Help can’t come fast enough,” Stevenson said.

Beyond retirement advice

The retirement provisions of the CARES Act will be familiar to plan advisors. A new Coronavirus Hardship distribution will be available up to $ 100,000 from the accounts, along with a new loan limit of $ 100,000. The 10 percent penalty on both will be waived. Those who use savings will have more time to repay loans and more time to pay taxes owed.

But other provisions of the bill will be more immediately critical for employers. Diet counselors can be essential in helping their referral clients understand them, Stevenson thinks.

Individuals and families will receive a one-time payment of up to $ 3,800 for a family of four. And the federal government will add $ 600 to weekly state-issued unemployment checks for 14 weeks.

The checks will arrive in three weeks, according to Treasury Secretary Steven Mnuchin.

This money could help many savers avoid using 401 (k) accounts for loans. So far, loan activity at Nationwide has been reduced, but Stevenson expects it to increase.

Paycheque Protection Program

More puzzling from a retirement perspective is the number of employers who are already closing their doors and putting workers on leave. These workers will not receive paychecks, will not benefit from savings plans and, therefore, will not earn matches with the employer.

A cornerstone of the CARES Act is designed to keep employees connected to their employers – keeping them paid even if a business is temporarily closed.

The Paycheck Protection Program will support $ 349 billion in loans to businesses with 500 or fewer employees through the Small Business Administration. Loans will be issued by SBA approved lenders and funds will be available by Friday April 3.

“The question is, how do we help all companies stay in business,” Stevenson said. “Our job is to give plan advisors good advice that they can give to plan sponsors. Advisors cannot focus solely on the retirement provisions of the CARES Act, they must understand all of the options available to their employer clients. Assuming we run it well as a country, this bill should bring a lot of relief to employers and a lot to participants. “

Below is an overview of what is involved in the Paycheck Protection Program, based on a reading of the invoice and its synopsis, information published by the Treasury Department and analyzes by Bijal Vira and Nirav Bhatt, corporate finance lawyers at Shepard Mullin.

1. Funding up to eight weeks pay

The Paycheck Protection Program provides small businesses with funds to pay for up to 8 weeks of salary costs, including benefits. The funds can also be used to pay interest on mortgages, rent, and utilities. (Source: Treasury)

2.349 billion dollars in loans guaranteed by the federal government

The CARES Act authorized commitments to the SBA 7 (a) loan program, as amended by the CARES Act, in the amount of $ 349 billion. The Paycheque Protection Program covers the period beginning February 15, 2020 and ending June 30, 2020 (the period covered). (Analysis: Sheppard Mullin)

3. Loans canceled if used to keep employees paid

The funds are provided in the form of loans which will be fully written off when used for salary costs, mortgage interest, rent and utilities (due to a likely high subscription, at least 75% of the amount. canceled must have been used for payroll). Loan repayments will also be deferred for six months. No guarantee or personal guarantee is required. Neither the government nor the lenders will charge small businesses a fee. (Source: Treasury)

4. Companies with 500 employees or less and self-employed workers can apply

Small businesses with 500 or fewer employees, including nonprofits, veterans organizations, tribal groups, self-employed workers, sole proprietorships, and independent contractors, are eligible. Businesses with more than 500 employees are eligible in certain industries.

  • As of April 3, 2020, small businesses and sole proprietorships can apply.
  • As of April 10, 2020, independent contractors and self-employed workers can apply. There is an incentive to apply as quickly as possible because there is a funding cap.

5. Relaxed loan control

For eligibility purposes, requires lenders, instead of determining repayment capacity, which is not possible during this crisis, to determine if a business was operational on February 15, 2020 and had employees for whom it was paid salaries and social charges, or an independent contractor. (Source: Legislative Synopsis)

6. Calculation of loan value

During the Covered Period, the maximum loan amount allowed for an Eligible Covered Entity is the lesser of $ 10,000,000 and an amount calculated based on a payroll formula that is essentially equal to 2.5 x the cost. Average total monthly salary incurred during the one-year period prior to the loan. is made.

Interest rates on loans borrowed by a covered entity under the program cannot exceed four percent (4%).

Any paycheck protection loan that has a principal balance remaining after any applicable loan forgiveness (as explained in detail below) must have a maturity date no later than 10 years from the date the loan forgiveness was granted. borrower requested loan forgiveness.

The SBA will order lenders to defer all payments (principal, interest, and fees) otherwise owed under a Paycheck Protection Loan for a minimum of 6 months and a maximum of 12 months. (Analysis: Sheppard Mullin)

7. Loan Cancellation Related to Employee Bookkeeping

During the 8 week period beginning on the funding date of a Paycheck Protection Loan (the Forgiveness Period), a borrower will be eligible for debt forgiveness and forgiveness up to of the total principal amount of this loan. The amount eligible for the discount (the total amount of the eligible discount) is equal to the total of costs incurred and payments made during the discount period for (1) payroll, (2) mortgage interest, (3) the rent and (4) utilities.

The loan forgiveness amount available to a borrower may be reduced if the borrower terminates employees or reduces the wages and salaries of employees during the forgiveness period. There is, however, relief from the discount reduction if the borrower rehires employees or compensates for salary cuts by June 30, 2020. (Analysis: Sheppard Mullin)

8. The loan application

A copy of loan request was made available via the Treasury Department.

9. How to find an approved lender

The SBA can direct employers to a approved lender here.

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