CARES Act PPP: Are plan contributions for small businesses covered?

Paycheck Protection Program

The Paycheck Protection Program ("PPP"), Section 1102 of the CARES Act, provides cash to small businesses (under 500 employees) affected by the COVID-19 pandemic.

PPP allows businesses to apply for and receive cash for payroll related expenses, "payroll costs," in an amount that is equal to 2.5 X's the average monthly payroll.

Payroll Costs

Payroll costs as defined by the Act are the sum of payments of any compensation with respect to employees that is a—

  • salary, wage, commission, or similar compensation;
  • payment of cash tip or equivalent;
  • payment for vacation, parental, family, medical, or sick leave;
  • allowance for dismissal or separation;
  • payment required for the provisions of group health care benefits, including insurance premiums;
  • payment of any retirement benefit; or
  • payment of State or local tax assessed on the compensation of employees

Employers would sum all payroll costs to arrive at a loan amount.

Fully Forgiven Loans

Loans provided under this program will be fully forgiven when used for specific expenses incurred during the 8-week period starting on the day the loan is received; those expenses are:

  • "payroll costs;"
  • costs related to the continuation of group health care benefits during periods of paid sick, medical, or family leave, and insurance premiums;
  • employee salaries, commissions, or similar compensations;
  • payments of interest on any mortgage obligation (which shall not include any prepayment of or payment of principal on a mortgage obligation);
  • rent (including rent under a lease agreement);
  • utilities; and
  • interest on any other debt obligations that were incurred before the covered period.

The question becomes: are retirement plan contributions for small businesses covered by a loan granted under this program?

"Any Retirement Benefit"

The term "any retirement benefit" might seem broad; therefore, it may be prudent to assume that only payments made by an employer, as part of its normal payroll costs, would be considered when calculating the average monthly payroll costs.

Possible Retirement Plan Contributions Considered for Principal Amount of Loan

Retirement plan contributions that might be taken into account under this loan program could be:

  • Elective Deferrals that are made by employees, since these are a deferral of compensation;
  • Matching Contributions made concurrently with payroll, i.e. deposited when Elective Deferrals are deposited

Year End Contributions

What about employer paid end of the year contributions? Such as Profit Sharing or Annual Matching Contributions? These contributions are based off compensated paid during 2020 but the remittance happens after the year ends.

Based on the wording of the program, the amount of a loan that is forgiven is based off how and what it is used for during the 8-week period after receipt.

A Profit Sharing contribution that would normally be made at the end of 2020 for a retirement plan would not seem to be included in payroll costs incurred during that 8-week period. If we apply this to Matching contributions made at the end of the plan year, it seems as though they would not be considered when calculating the principal loan amount.

Who Can Apply under PPP?

Small businesses with 500 or fewer employees are eligible and can start applying for PPP loans through the Small Business Administration beginning April 3, 2020. Independent contractors and self-employed individuals can apply beginning April 10, 2020.

The covered period during which expenses can be forgiven extends from Feb. 15, 2020 to June 30, 2020.

Small businesses seeking more information should consult with their tax advisers. lenders, banks, and other resources for more information and to apply.


It is important to mention that as of the publishing of this article there has yet to be guidance issued by the IRS or the Treasury Department on this provision. Employers should be looking closely at the guidance that does get issued on these provisions.

The information provided herein does not, and is not intended to, constitute legal or tax advice; instead, all information and content, is for general informational purposes only.