We are well aware that many business owners are suffering significant business revenue contraction as a result of the federal and state government attempts to preempt a coronavirus pandemic. The IRS has already extended the due date for paying income taxes to 07/15/20 from 04/15/20. Many gov’t agencies are also making available loans for small business. That said, below are several ideas to consider as we navigate this difficult time:
- If you have completed funding your profit-sharing for 2019, then consider whether you want to make the same commitment in 2020. You can discuss your thinking with us directly or with your TPA/record keeping contact. If you have committed to a safe harbor for 2020, stay tuned in for further IRS/DOL guidance and relief.
- If you are facing severe cash flow concerns and you have not yet completed funding your 2019 profit-sharing, you may consider reducing or eliminating allocations to partners/owners and other highly compensated employees. You will still have to fund 2019 safe harbor contributions, but you may be able to reduce or eliminate any additional discretionary profit-sharing. Again, we invite you to contact us for discussion and guidance.
- If you sponsor a cash balance pension plan, you may want to consider temporarily “freezing” the plan by formal plan amendment to reduce cash flow concerns in 2020. Generally, the “freeze” amendment must be signed before benefits are accrued (before participants work 1,000 hours in a plan year). For calendar year plans, we suggest June 1st as the target date to accomplish this task. Once the plan is frozen, there are no pay credits. Only the interest credit will continue to accrue (typically 4-5%).
- If you need additional sources of liquidity, we suggest you review your lines of credit with your local bank. Alternatively, a Small Business Administration loan may also help you through this difficult period (https://www.sba.gov/disaster-assistance/coronavirus-covid-19 ). The SBA is advertising loan rates at 3.75% for for-profits and 2.75% for not-for-profits. The application process can completed online.
If you want to discuss anything about your business, we are here to help. Please reach out to tap our vast experience and resources.