In 401(k) Plans for Small Business

As a part of my service to individuals and small businesses offering 401k retirement benefits, I have developed a network of strategic vendors.  These are people who I rely on to provide timely and insightful analysis in areas (primarily accounting & legal) where the facts are constantly changing.  Recently I received an excellent summary contained in two PDFs, entitled “Ten Time-Sensitive Pieces of Information Related to COVID-19” and a support FAQ document “Appendix 1” that I wanted to share.  I believe these documents apply both to individuals and small businesses who want to monitor their COVID-19 finance.

Since everyone’s situation during this crisis is different, I believe that it is critically important in understanding the major areas of support and then diving into those areas in more detail that you think will affect you.  For instance, all small business employees are now eligible for certain benefits that did not exist before the recent Coronavirus Aid, Relief, and Economic Security (CARES) Act.  This will likely help you plan your personal financial strategy during the crisis.  Furthermore, small business owners may be eligible for certain loans to help them (and their employees) through this crisis.

Here is a summary of the 10 COVID-19 finance topics.  If you believe that any of these topics apply to you, I strongly encourage you to download the source document (link above) and pursue the topic in detail.

Finance Topic #1: Cash from the Government – Certain individuals will receive cash from the government under the CARES Act.  This will be in the form of a $1,200 rebate per adult and $500 per child under 17.  The rebate is reduced if your Adjusted Gross Income (AGI) is above $75,000 and completely phases out at certain income levels.

Finance Topic #2: Access to Retirement Funds – The CARES Act permits those who have experienced an adverse event as a result of the coronavirus to withdraw up to $100,000 from an IRA or qualified retirement plan without being subject to a 10% penalty.  Coronavirus distributions can be made tax-free if you commit to returning the funds to the retirement account within three years.

Finance Topic #3: Tax Benefits for Businesses – The CARES Act alters the tax code to enable additional deductions.  This includes favorable treatment for Net Operating Losses (NOLs), higher interest expense deductions, accelerated depreciation recognition, and excess loss limitations.

Finance Topic #4: Small Business Loans – There are a host of new loans available to small businesses, depending on the situation.  The CARES Act allocation $350B to a Paycheck Protection Program (PPP), where small business can receive 100% federally guaranteed loans that may be forgiven.  Economic Injury Disaster Loans (EIDL) are also available, and small business owners can apply for an EIDL advance of up to $10,000 which doesn’t need to be repaid.

Finance Topic #5: Certain Businesses Must Provide Sick Leave – The Families First Coronavirus Response Act (FFCRA) now requires employers with fewer than 500 employees to provide paid sick leave and expanded family and medical leave from 4/1/2020 to 12/31/2020 when they are unable to work.  There is widespread recognition that funding this new expanded benefit will be challenging.  Using payroll tax credits is one option.

Finance Topic #6: Tax-Free Disaster Relief Payments – An employer that has the ability to help employees out who have suffered a financial loss during a disaster can do so with a “qualified disaster payment,” which is eligible for tax-free treatment under the tax code.  There are many rules and restrictions that apply.

Finance Topic #7: Furlough vs. Layoffs –  Employers need to cut costs dramatically during this crisis.  However, long-term they still need their employees to run the business.  Therefore, employers can consider a “furlough” instead of “termination.”  Furloughed employees are still considered active and don’t trigger final pay requirements.  In addition, these employees are generally eligible for unemployment benefits.  Be mindful of additional issues, such as COBRA and WARN Act.

Finance Topic #8: Tax & Financial Reporting – There are many aspects to financial reporting that come into play.  For instance, some tax filing deadlines have been extended.  Be mindful of existing rules that may have been triggered, such as rules on long-term asset impairment.

Finance Topic #9: Legal Implications – Failure to fulfill some contracts may be an issue.  Examine your contracts (and your vendors’ contracts) that contain “force majeure” or “Act of God” clauses that may apply.

Finance Topic #10: Cybersecurity Concerns – Cybercriminals are using this crisis as a way to take advantage of others.  Be very wary of scams that promise faster payment of stimulus checks.  This particularly may be a problem as more individuals work remotely without the full support of cybersecurity tools.

If you need help managing your finances during this COVID-19 crisis, either personally or for your small business, do not hesitate to call me.

As a financial advisor and a valued resource for 401ks for Seattle small businesses, I strongly believe that sound financial advice during these periods is enormously important.  I believe it will pay to partner with a trusted adviser to develop a sound financial strategy to navigate these treacherous times.

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