PPP Covers Health and Retirement Plan Contributions

Most small businesses are aware of the loans backed by the Small Business Administration (“SBA”) to help maintain cash flow and retain workers, specifically the Paycheck Protection Program (“PPP”).  While most of the media, and our prior blog post, focused on how to apply for these loans and the fact the loan is forgivable if used for “payroll costs,” the Department of the Treasury recently clarified that the loan proceeds may also be used for payment of an employer’s premium payments and retirement contributions.

In general, the PPP is designed to help small businesses affected by the COVID-19 crisis by covering their operating expenses and providing incentive to retain employees.  Under the PPP, compensation was capped at $100,000 when calculating the total amount of a loan.  The compensation cap raised questions as to how an employer’s payments for retirement benefits and other benefits are calculated for purposes of a PPP loan.

In FAQs released on April 6, 2020, the Department of the Treasury clarified that employer contributions to both defined contribution plans and defined benefit plans, and health and welfare benefits, are included in the definition of payroll costs when calculating the maximum amount of a PPP loan. Further, the $100,000 cap on compensation applies only to salary; the cap does not apply to employer contributions to health and welfare plans, defined contribution or defined benefit plans.

This is good news for employers who wish to continue to help fund employees’ health and retirement plans in these uncertain times.  If you have any questions about a PPP loan or its impact on your benefit plans, please contact any of Graydon’s employee benefits team.

As always, we will continue to monitor these new and changing laws and provide you with updates.