The Paycheck Protection Program (PPP) was established by the Coronavirus Aid, Relief and Economic Security Act (CARES). The PPP offers loan forgiveness if the spending is for payroll costs. Payroll costs include employer retirement plan contributions. By funding retirement plan contributions during the covered period, employers will be able to increase the eligible payroll costs used to determine the forgiveness of the PPP loan.

Payroll costs under the program include matching and profit sharing contributions. Many employers wait until the end of the year to pay their match or profit sharing for the entire plan year. It is currently unclear if any of that portion of a contribution made at year end would be included in the PPP payroll costs. Since it seems the costs must be allocable to and paid during the covered period, employers should consider “front-loading” their contributions for the covered period. However, prepaying contributions for the portion of the year after the covered period would likely not be treated as an eligible payroll cost. Furthermore, if your plan has last day or hours requirements for the contribution, that adds a layer of complexity to the plan contribution.

Currently, there is a cap of $100,000 on an employee’s compensation under the PPP. According to the Treasury Department, the $100,000 annual limit on compensation applies only to cash compensation. The Department says that the limit does not include employer contributions to defined benefit or defined contribution retirement plans.

Companies that have received their PPP loan should consider making their contributions during the covered period. There are advantages such as increasing the eligible payroll costs and reducing the year end contributions amounts. Please contact your plan consultant to discuss how your company might benefit from using your PPP loan proceeds to contribute to your retirement plan.