New SBA Guidance: PPP Forgiveness + Retirement Plan Contributions


On Friday, May 15, the Small Business Administration (SBA) released the application that borrowers of a Paycheck Protection Program (PPP) loan must use to determine the amount of the loan that may be forgiven.

By way of background, the Coronavirus Aid, Relief, and Economic Security Act (the CARES Act), a $2 trillion comprehensive economic stimulus package, became law on March 27, 2020. One of the headlines of the CARES Act was the PPP, a new SBA loan program.

Uniquely, up to 100% of a small business' PPP loan may be forgiven to the extent that it uses the loan proceeds for forgivable purposes and it maintains employee and compensation levels. At least 75% of the PPP loan proceeds must be used for payroll costs. Payroll costs is defined to include, among other things, retirement plan contributions.

The forgiveness application materials released by SBA on Friday shed light on how retirement plan contributions can be used for forgivable purposes:

  • Any retirement plan contributions paid during the 8-week covered period (as described in the following bullet point) count toward forgiveness, without regard to the period to which they relate or when they were earned.

  • Put another way: based on the SBA materials, retirement plan contributions do not have to be pro-rated for the 8-week period to determine the forgivable amount.

  • Payroll costs (including retirement plan contributions) can be measured using either:

  • the 56-day period beginning on the PPP loan disbursement date, or

  • for borrowers with biweekly or more frequent payroll schedules, the 56-day period beginning on the first day of their first pay period following the PPP loan disbursement date.

  • Retirement plan contributions do not include elective salary deferral contributions made by employees.

  • Presumably, elective deferrals are included in the cash compensation portion of payroll costs when determining PPP loan forgiveness.

  • Borrowers will need to include the following documentation in their loan forgiveness applications:  payment receipts, cancelled checks or account statements documenting the amount of employer contributions to retirement plans that the borrower included in its forgiveness amount.

It is important to remember that the PPP has been the subject of ongoing Treasury Department and SBA rulemaking and informal guidance, so the above observations may be subject to change.

While the CARES Act provides that forgiveness of a PPP loan is tax-free, the IRS has determined that otherwise tax-deductible expenses, such as payroll costs, that are paid with PPP funds and forgiven cannot be deducted for federal income tax purposes. Members of Congress have stated that this IRS position is contrary to the intent of the PPP and may move to legislatively overturn it.

While this Alert is intentionally focused on retirement plan contributions, we recognize that PPP loan proceeds can be used for other payroll costs and, within limits, certain non-payroll expenses.


If you would like further clarification on these new guidelines, please contact Robin today. Remember, you can book a virtual consultation with her to discuss this or any other questions that you have about PPP and the CARES Act.

516.794.1450 (p)

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