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As the effects of the novel coronavirus (COVID-19) continue to escalate, many small businesses are looking to push forward. Relief and significant aid have been provided, and laws are changing at a rapid pace to help protect employees, families, and the public. Employers who are fortunate to continue their businesses should be aware of evolving recommendations regarding workplace standards and the availability of relief. Employers who have been forced to reduce or cease operations, or who fear they will be in the near future, should be aware of important federal and state laws that require providing notification to affected employees, as well as benefits that may be available to those who must be laid off.
Small business owners, who are still in operation, have a variety of new regulations to keep up with and relief available to assist in this uncertain economic time. Employers should monitor and follow the recommendations and regulations being issued by the U.S. Centers for Disease Control and Prevention (CDC) and Department of Labor (DOL). For example, the CDC recommends educating employees about COVID-19, and provides a variety of resources to employers to properly protect and inform their workforce. Additionally, businesses operating with employees onsite should review the Occupational Safety and Health Administration’s (OSHA’s) guidance on preparing the workplace for COVID-19. Importantly, OSHA recommends businesses create a disaster plan in anticipation of a reduction in workforce due to illness, or the need to care for others who are ill.
Small businesses with continuing operations should ensure several housekeeping measures to ensure longevity of operations given current obstacles. Employers should review or establish succession plans, determine essential functions, and cross train where possible. Further, small business owners should review any applicable insurance policies to determine in what instances the business or employees qualify for benefits (i.e., business disruption, worker’s compensation, and disability). Most importantly, employers should establish policies and procedures to protect workers and stop the spread of illness. Employees should be informed of protocols once established.
Recent federal and state legislation has provided small businesses with relief, and heightened obligations. The Coronavirus Aid Relief and Economic Security (CARES) Act provides low interest loans (a portion of which may be forgivable), grants, and tax benefits to small businesses. Applications for programs under the CARES Act and additional information are available from the Small Business Association (SBA). New York State and the federal government have also recently enacted legislation that requires employers of a certain size to provide employees with paid or unpaid leave to self-isolate or quarantine, or to care for themselves or family members who have contracted COVID-19. Employers should review state and federal resources for additional information regarding new paid time off requirements.
Many businesses must temporarily or permanently halt operations in light of decreased revenue and other challenges presented by the current pandemic. Federal and state Worker Adjustment and Retraining Notifications (WARN) Acts require many businesses to provide advance notice of layoffs. Although exceptions are made when advanced notice is not possible, which will typically be the case for businesses that must cease operations now, employers must still provide as much notice as possible to employees, and the applicable government agency. Employers should also be prepared to field questions regarding benefits available to terminated employees, payment of paid time off or severance benefits, and the likelihood of rehire.
Employees who are laid off will undoubtedly be looking for information. Employers should review existing company policies regarding payment of vacation time and other paid time off upon termination of employment. Further, individual employment contracts should be reviewed in preparation of termination. Employers should also inform employees about available unemployment benefits. Seasonal employees, who are not being asked to return for the coming season, should apply for benefits even if their current benefits have lapsed, as current legislation allows for a significant expansion of benefits. Further, small business owners, many of whom did not previously qualify for unemployment, may qualify for unemployment under the current, temporary, federal expansion of benefits. It should be noted that the unemployment process is exceptionally slow given the surge in unemployment nationally. Those who apply should be reassured that unemployment benefits are typically retroactive to the last date of employment.
The impacts of COVID-19 are being felt around the world. Small business owners are not alone in their attempts to keep going in the face of adversity, or provide care and compassion in the event of unfortunate, but often necessary, closings. Reducing the spread of illness, and keeping each other safe and well will likely remain top priority for the foreseeable future. Unfortunately, social distancing measures have created physical barriers between us. Fortunately, technological support, ingenuity, and good old-fashioned American grit have allowed us to press on in exciting and heartwarming ways. Laws and regulations are rapidly changing, so it is imperative that employers continue to consult professional resources including legal and financial professionals, and government and agency guidance. Clients who have further questions or specific concerns are encouraged to reach out to their regular contact at the firm (either by phone or email) or to contact Melissa Green (email@example.com).
U.S. Centers for Disease Control and Prevention
Interim Guidance for Businesses and Employers to Plan and Respond to Coronavirus Disease 2019 (COVID-19) – https://www.cdc.gov/coronavirus/2019-ncov/community/guidance-business-response.html
Resources for Businesses and Employers – https://www.cdc.gov/coronavirus/2019-ncov/community/organizations/businesses-employers.html
Guidance on Preparing Workplaces for COVID-19 – https://www.osha.gov/Publications/OSHA3990.pdf
U.S. Small Business Association
Small Business Guidance & Loan Resources – https://www.sba.gov/page/coronavirus-covid-19-small-business-guidance-loan-resources
Paycheck Protection Program (PPP) Sample Application Form – https://www.sba.gov/document/sba-form–paycheck-protection-program-ppp-sample-application-form
Paid Leave Legislation
U.S. Families First Coronavirus Response Act: Employee Paid Leave Rights – https://www.dol.gov/agencies/whd/pandemic/ffcra-employee-paid-leave
New York State New Paid Leave for COVID-19 – https://paidfamilyleave.ny.gov/COVID19
WARN Act Information
U.S. Department of Labor Employer’s Guide to Advance Notice of Closings and Layoffs – https://www.dol.gov/sites/dolgov/files/ETA/Layoff/pdfs/_EmployerWARN2003.pdf
New York State Information Regarding Worker Adjustment and Retraining Notifications – https://labor.ny.gov/workforcenypartners/warn/warnportal.shtm
New York State How to file a claim for Unemployment Insurance Benefits – https://labor.ny.gov/ui/how_to_file_claim.shtm
This article briefly summarizes three relevant portions of the CARES Act – 1) the Paycheck Protection Program (“PPP”), 2) Emergency Economic Injury Disaster Loans (“EIDL’s”) and Grants, and 3) Tax Benefits. Additional provisions of the CARES Act, not covered in this article, include grant funds for Entrepreneurial Development, increased unemployment benefits, individual subsidies for Americans, Tax Treatment of Coronavirus-Related Distributions, and many others.
Guidelines from the governmental agencies and banks implementing the programs are expected over the next days and weeks to clarify the availability of benefits and application requirements under these programs. As you read through the following and consider your specific circumstances, contact us, your accountant and bank representatives for the most updated information, and do not delay in making your application for benefits.
Qualified individuals and entities may take out loans under the PPP and EIDL programs, as long as the funds are not used for the same purpose (no double dipping). Further, companies may also be eligible for relief under other recent federal legislation (such as the Families First Coronavirus Response Act), but may not receive credit twice for the same expenses under differing programs. Continued guidance is expected regarding a number of issues including the interest rates and personal guarantee requirements following certain applicable covered periods, as discussed further below.
The PPP provides deferred 7(a) Small Business Association (“SBA”) loans to cover the costs of payroll and business related expenses. A portion of the loan is forgivable, and the forgiven amount is not counted as income. The legislation is intended to provide a forgivable loan equal to 8 weeks of eligible business costs, including payroll. The program expands the reach of the 7(a) program to include many not previously qualified to access this resource, such as freelancers, the self-employed, and gig economy workers.
Who qualifies – businesses with fewer than 500 employees; not for profit entities with less than 500 employees; certain veteran’s organizations; individuals – self-employed, sole proprietor, freelance, and gig economy workers.
Maximum amount – the lesser of 2.5 times the average monthly payroll during the one-year proceeding period or $10 million.
Interest – may not exceed 4%.
Term – loans may have up to a 10 year term.
Personal Guarantee/Collateral – the personal guarantee and collateral requirements associated with typical 7(a) loans are waived during the “covered period.”
Payments – a minimum of the first six months and a maximum of the first year of fees, principal, and interest are to be deferred.
How to Apply – applicants may apply through approved third party lenders; the CARES Act also authorizes the SBA to bring on additional lenders, but this will take time.
Eligible Costs – the following costs, paid during the 8 week period following loan origination, are eligible for forgiveness up to the total principal of the loan: payroll costs; mortgage interest; rent; and utilities. Pay roll costs include – salaries, wages, cash tips, paid leave, severance, group health care, retirement, state and local payroll taxes, and money paid to independent contractors. The following payroll costs are not eligible – employee or owner compensation over $100,000, taxes imposed or withheld under chapters 21, 22, and 24 of the IRS code, compensation of employees whose principal place of residence is outside of the U.S., qualified sick and family leave for which a credit is allowed under sections 7001 and 7003 of the Families First Coronavirus Response Act.
Interest – Any loan amounts not forgiven are carried forward as an ongoing loan with max terms of 10 years, at a maximum interest rate of 4%, because principal and interest are deferred for the first 6 months to one year of the loan term it appears that the amount forgiven will not accrue interest, but additional information should obtained from the lender regarding interest on the forgiven amount.
Employee Retention – the amount of loan forgiveness will be reduced by a proportional amount when the employer terminates employees and/or decreases employee salaries.
The purpose of the Emergency EIDL Grant program is to provide qualified businesses and individuals with prompt access to up to $10,000.00 in aid. In practice, Emergency EIDL’s are typically converted to traditional 7(a) loans (the type available under the PPP) through refinance, but qualified entities and individuals may use either or both resources, as long as the funds are not used for the same purpose.
Who qualifies – businesses, private not for profits and cooperatives with not more than 500 employees; sole proprietorships (with or without employees) and independent contractors; Employee Stock Ownership Plans (“ESOP”); and certain tribal entities.
Maximum amount – $2 million
Interest – 3.75% for small businesses; 2.75% for not for profit entities
Term – loans may have up to a 30 year term.
Personal Guarantee – the personal guarantee requirement is waived for loans under $200,000.00.
Payments – terms established with lender.
How to Apply – EIDL’s are issued through the SBA.
Emergency Funds – those applying for EIDL’s may request an advance on the loan of up to $10,000.00, to be paid within 3 days of the loan application. The entire amount advanced is considered a grant, and will be forgiven even if the applicant does not qualify for the loan. However, where an applicant transfers into the 7(a) program (i.e., loans made under the PPP) any amount of loan forgiveness under the PPP will be decreased by any EIDL Grant funds.
Below is a summary of just some of the tax benefits contained in the CARES Act. Your tax advisor should be consulted for your specific circumstances, and as discussed above, there are numerous other components to the Act, and research should be ongoing in this area to determine how the act may affect you and your business.
Employee Retention Credit – employers may receive a 50% credit on wages incurred from March 13, 2020 through December 31, 2020, up to $10,000.00 per employee, where business operations were fully or partially suspended and gross receipts declined by more than 50% compared to the same quarter in 2019.
Payroll Tax Delay – businesses and self-employed individuals may defer the employer’s share of social security owed for 2020 over a 2 year period with 50% due by the end of 2021 and 50% due by the end of 2022.
Net Operating Losses – net operating losses for the years 2018, 2019, and 2020 may now be carried back 5 years.
Business Interest Expense – business interest expense deduction cap was increased to 50% (from 30%).
Student Loans – employers may pay up to $5,250.00 per year toward an employee’s student loans and it will not count toward the employee’s income.
Summaries of the Bill
Small Business Owner’s Guide to the CARES Act
Families First Coronavirus Response Act
For further information regarding your particular circumstances, or if you need legal assistance, reach out to your normal contact at the firm, or contact Melissa Green (firstname.lastname@example.org).
 This information is not to be construed as legal advice or as a legal opinion on which certain actions should or should not be taken. Each situation is different and any specific questions should be referred to legal counsel. Since the onset of COVID-19, legislation and regulations are subject to raid change. This article is intended to be for informational and discussion purposes only.
 Provides grant funds to educate small businesses and their employees regarding the availability of Federal resources, hazards of COVID-19 and the best teleworking practices to prevent the spread of COVID-19; funds are provided to agencies to establish grant programs for the funds, and specific grant programs will be announced by relevant agencies at a later date.
 One issue highlighted regarding subsidies is the availability of funds for young adults claimed as dependents on their parent’s income tax returns, in these instances it appears young adults may not claim a subsidy on their own behalf; additional guidance is expected on this issue.
 Individuals who elect to receive a “coronavirus-related distribution” from qualified employer plans, may not be subject to the traditional 10% tax penalty, subject to amount restrictions. Coronavirus-related distributions made from both eligible employer sponsored retirement plans and individual retirement accounts (“IRAs”) are exempt from the 10% early distribution penalty tax. Distributions are still subject to regular income tax, but it may be spread over three years.
 Exceptions are made for certain multisite businesses subject to minimum employee requirements at each site; “businesses” include – corporations, partnerships, limited liability corporations, joint ventures (with no more than 49% participation by a foreign entity), sole proprietorships, associations, trusts, or cooperatives.
 The “covered period” is from February 15 through June 30; there is concern that lenders will attempt to impose stricter collateral or personal guarantee requirements after the covered period. Loan terms should be reviewed carefully as further guidance is sought on the issue.
 The exact length of time appears to be at the lender’s discretion.
 Salary reductions not in excess of 25% of the total salary or wages will not trigger the employee retention provision; this provision also does not apply to a reduction in salaries for those earning over $100,000.00 per year.
Headlines trumpeting the CARES Act that was signed into law on Friday, March 27, 2020, focused on trillions of dollars to be furnished to individuals and businesses in response to the novel coronavirus pandemic hitting the country. But stuck into the legislation were some helpful temporary changes to the distribution and tax rules that apply to defined contribution (DC) retirement plans and individual retirement accounts (IRAs). This news item will list those changes.
1. Only Defined Contribution Plans and IRAs. The new rules apply only to IRAs and the following defined contribution retirement plans — 401(k), profit sharing, 403(b) annuities and custodial accounts, and 457(b) salary deferral arrangements sponsored by governments and their agencies. They do not apply to defined benefit plans.
2. Restricted to COVID-affected individuals. The new rules allow distributions from plans and IRAs, and loans from plans other than IRAs, to any IRA owner or beneficiary of a retirement account who is “COVID-affected” (any one of the following):
In the case of retirement plans, the employee merely needs to provide a certification to the plan administrator that the employee fits within one of these categories. Of course, if the plan administrator knows the facts of the situation to be other than as presented by the employee, those facts should not be simply disregarded.
3. Distributions. The Act allows distributions in 2020 to a COVID-affected individual totaling up to $100,000 from one’s account and regardless of one’s age. For example, the 401(k) rules prohibit an individual from drawing out any of his or her salary deferral contributions from the Plan until age 59½. Many Plans prevent any distribution so long as the individual is still employed with the sponsoring employer.
The new temporary rule allows a distribution regardless of the individual’s age and regardless of any other restrictions that the Plan may have in place. The Plan sponsor will have to adopt an amendment to the Plan to permit the distribution, but that amendment need not be adopted until the end of the 2022 plan year (this aligns with the date by which required changes have to be made to the Plan under the SECURE Act enacted this past December).
Any qualifying distribution will be subject to regular income tax but will be exempt from the 10% penalty tax that normally applies if the individual is under age 59½ on the date of distribution.
Normally, there is 20% income tax withholding on single sums distributed from a qualified plan. The Act waives this for qualifying distributions, so the individual can use all of the distribution immediately.
To alleviate the income tax burden, the individual can spread the income that is recognized from the distribution ratably over as many as 3 years (2020-2022). That could mean a sizeable tax savings if the family’s income is significantly impaired over the next year or so.
4. Repayment of Distribution. A COVID- affected individual who receives a distribution will have the option to repay the distribution to the Plan, or to any other plan in which the individual is participating (including an IRA), within 3 years of the distribution. In effect, the distribution would become an interest-free loan. How this will be reported will have to come from future IRS guidance, but presumably the employee would have to amend his/her return from the prior year(s) in which the income was claimed to reclaim the taxes paid in the earlier years.
5. Loans. Prior law limited loans to individuals from their retirement plans (no loans are permitted from IRAs) to the lesser of 50% of their account balance or $50,000. The Act allows a COVID-affected individual to borrow his or her entire account balance up to $100,000 from now until September 25, 2020. If the individual has any loan already outstanding, the highest principal balance that existed over the prior 12 months must be deducted from the $100,000 maximum to arrive at the available loan amount.
A COVID-affected individual who already has a loan outstanding, or who obtains a new loan under the Act’s expanded limits, is given a grace period of all of 2020 on any repayment scheduled to be made in 2020. While interest will still accrue on the outstanding loan balance, the repayment period is extended out by the length of the grace period.
6. Required Minimum Distributions – 2020 a Grace Year. DC Plans and IRAs must distribute to account owners a required minimum distribution (RMD) each year to individuals who have attained age 72 (a DC Plan participant who is not a 5% owner of the employer can delay this until he or she actually retires from service). The age use to be 70½ before 2020.
The Act allows any individual who began receiving RMDs prior to 2020 to opt to receive a distribution of as little as $0 in 2020. Then, beginning in 2021, the RMDs would pick up again, but there would be no “make-up” distribution required in 2021. You do not have to be a COVID-affected individual to obtain this relief.
What if you already received your scheduled 2020 RMD? There is no special rule under the Act that allows return of that distribution to the distributing plan. However, you can take advantage of the 2020 exemption rule by rolling the distribution to a qualified plan (that accepts rollovers), or to an IRA, if done within 60 days of the distribution.
If an individual who is over age 70½ is scheduled to begin to receive his first RMD by April 1 of this year, he or she can delay that distribution until 2021. There would be no “make-up” distribution in 2021.
Certainly, there’s a lot here to digest and we hope these changes will benefit our clients and all plan and IRA participants. Always feel free to call any of the members of the Pension Department for answers to any of your questions on this or any other topic.
Stewart M. McGough (315) 477-6225
Catherine A. Ray (315) 477-6250
Jean A. Borrow (315) 477-6258
As America, and the rest of the world, is shocked by the impact of the COVID-19 pandemic numerous small businesses are seeking financial help to weather the inevitable financial storm. While we await additional federal assistance, which is expected to benefit small businesses, those who are impacted by the COVID-19 Pandemic may qualify for small business loans from the U.S. Small Business Association (“SBA”). Further, central New York businesses may qualify for bridge loans, after being approved for an SBA Loan, from Onondaga County or the Syracuse Economic Development Corporation. The following is a brief summary of current options for financial assistance.
1. Federal – SBA
Economic Disaster Injury Loans
Small businesses may qualify for Economic Injury Disaster (“EID”) or 7(a) Loans through the SBA. EID Loans provide up to $2 million dollars at a rate of 3.75% for small businesses impacted by the COVID-19 pandemic. Long-term repayment plans (up to 30 years) are available, but specific terms depend on each applicant. Small businesses may apply online (https://disasterloan.sba.gov/ela/), but it is recommended that they contact their local Small Business Development Center for assistance with their application. The Onondaga Small Business Development Center is operating remotely, and local businesses may contact them at: http://www.nyssbdc.org/selector/ReqForCons/formi.aspx.
The SBA offers 7(a) (up to $5 million) and 7(a) Small (up to $350,000) Loans to small businesses in cooperation with other lenders. Under either program the SBA guarantees funding for a percentage of the loan based on the amount borrowed. The interest is based on lender terms, but may not exceed the SBA maximum (currently 4%). Typical processing time for these loans is 5-10 days. There are collateral requirements for loans in excess of $25,000.00. Borrowers should seek further information from lenders authorized to issue 7(a) and 7(a) Small Loans.
An SBA Express Loan is a small loan (up to $350,000), with a faster processing time than traditional 7(a) or 7(a) Small Loans. The SBA responds to SBA Express Loan Applications within 36 hours, but guarantees just 50% of the loan (as opposed to 75%-85% for 7(a) Loans). Terms are determined with individual lenders, but rates may not exceed the SBA maximum. There are no collateral requirements for loans up to $25,000; the lender must use its existing collateral policy for loans over $25,000.
2. New York State
New York State works in cooperation with the New York Small Business Development Center (NYSBDC) and the SBA to issue SBA loans. There are no loan programs unique to New York State to assist small business owners with COVID-19 related expenses at this time.
3. Central New York – Onondaga County and the City of Syracuse
Traditional SBA loans are approved in approximately 20 days and funded in approximately 90 days. Given the current financial turmoil being experienced by small businesses around the country, these processing and lending times are only expected to increase. Onondaga County and the City of Syracuse are both offering bridge loans to small businesses who have been approved for, but are waiting to receive, SBA loans. The $500,000 revolving funds will provide 0% interest short-term (180 days) loans of up to $25,000. The Syracuse application can be found at: http://www.syrgov.net/SEDCO_Home.aspx. Those interested in applying through Onondaga County can be assigned an advisor with the Onondaga County Small Business Development Center here: http://www.onondagasbdc.org/covid-19.html.
Additional funding options may be available for small businesses located in other regions. Further, federal, state, and local relief options are in flux in light of the rapid changing of events. This information will be updated as new relief options are released. For additional information or if you need legal assistance, reach out to your normal contact at the firm, or contact Melissa Green (email@example.com).
The State of New York requires a number of personal legal documents be notarized. In light of the current global pandemic, the state of New York has relaxed notary laws to allow notary acts to be performed electronically. Under the relaxed regulations, notaries may witness a signature via a live video feed, notarize an electronic form of the document and return it electronically, and accept and return the original signed document by mail for final execution. The following a summary of the new requirements:
Now more than ever, it is important to ensure that Wills, Powers of Attorney, and other important legal documents are up to date and reflect your wishes. The attorneys and support staff at Scolaro Fetter Grizanti & McGough, P.C. are available to assist with notarial acts, as well as the preparation of important legal and estate planning documents which may require notarization. If you need legal assistance reach out to your normal contact at the firm, or contact Melissa Green (firstname.lastname@example.org) for further assistance.
There is no question we are facing issues unlike any we have seen before. As a result, it is important to ensure not only that your estate planning and power of attorney documents are up to date, but that your bank and other accounts are properly titled for ensuring access to them now and so your family and others have access to them in the event of your death. Banks are open – courts are not. One of the courts closed here in New York is the Surrogate Court – the equivalent of our probate court. Why is this relevant to how your accounts are titled? When someone passes away, any accounts that are titled solely in the account holder’s name are immediately “frozen” under the law. There can be no access to those accounts until a legal representative or executor of the estate has been appointed by the Surrogate Court. Even in the best of times, this is a process that can take a few weeks if not more to get through the paperwork of probating a person’s estate.
In many cases, having accounts titled in one person’s name rather than jointly or in some other form is for estate planning purposes, asset protection or for other personal reasons. But, if the court is closed, these accounts will remain frozen until the estate’s legal representative is appointed and even if the courts reopen soon, the backlog could be significant leading to additional delays in having the legal representative appointed.
If you establish a joint account with right of survivorship (JTWROS) with a co-owner upon your death, the account immediately belongs to the joint account owner – there is immediate access to that account by your co-owner. If an account is established so it is Payable on Death (POD), Transferable on Death (TOD) or “In Trust For” another individual (ITF), there is the immediate ability to have those accounts available to the party named. Again, there is no need to go through the probate process. It is important to remember that although you may have a Power of Attorney or POA for someone, that POA terminates upon the Principal’s death – there is no ability to utilize a POA for someone after their death for any purposes.
If you are operating your business as a sole proprietorship or under a “dba” as opposed to a corporation or limited liability company, the accounts for that business are your individual accounts and if you die, those accounts are also frozen in the same manner as an individual account. You should consider having another trusted person on those accounts who will ensure that the business can continue to operate, bills can be paid, receipts processed, etc. This is one of the many reasons businesses operate as Limited Liability Companies or Corporations. Unlike a person, those entities do not die and if properly structured business operations can continue rather than having all the assets of the business go through probate.
The banks are open now – take advantage of it! You can take these steps now without any legal technicalities. Talk to your banker or brokerage advisor as to how you can best set up your accounts so there can be immediate access to those accounts in the event of your death – especially if you see that there is a need for your family. If you have any questions, please do not hesitate to contact us.
To our valued clients:
In these uncertain days, we understand that you may have the need to make changes to your retirement plan structure due to changes in your business’ financial situation. There are ways to reduce costs in both your defined benefit plan and your 401(k) plan, but these actions must be taken in a timely manner. Let me explain for each type of plan.
Defined Benefit Plans (“DB Plans”)
Under a DB Plan, employees accrue benefits each year, and the company is required to contribute sufficient money to a trust fund so that all of those benefits can be paid. An employer can “freeze” the DB Plan to stop the employee from earning any further benefits under the Plan which would normally be earned by his continuing employment with the company. By freezing the Plan, the benefits earned to date by the employee become “frozen”, which allows the company more time to fund whatever benefits have been earned to date.
Depending on the facts and circumstances of your plan, including how well or poorly the plan assets have performed, the freeze may not eliminate the need for future contributions. But the freeze will buy you time to make up whatever you need to in the trust fund to be able to pay the employees their benefits.
When economic conditions improve, you can “unfreeze” the Plan, which will begin again the accruing of benefits by employees who work enough hours each year to earn those benefits.
There are several types of “freezes”, but we recommend a “hard freeze”, which stops future participation and which halts current participants from earning future benefits under the DB plan based on their future service. This can be accomplished by an amendment to your DB Plan, preceded by a Notice to all participants in the Plan that you are about to freeze the Plan.
It’s important that the amendment be adopted soon in order to halt a participant’s accrual of a benefit in 2020. If your Plan requires an employee to complete 1000 hours of service to earn a benefit (most of our clients’ DB Plans do require 1000 hours), that usually leaves you until June 1 to adopt the amendment and notify your employees of the freeze. So acting quickly is important.
In view of the current economic environment and the possibility that most of our clients will suffer a significant reduction in economic activity for the foreseeable future, we will prepare the amendment for our current clients at no cost. We trust this demonstrates our commitment to you as your legal counsel and a partner with you in maintaining a responsible and an affordable retirement plan for your employees.
Most 401(k) Plans have two features to them. One gives employees the opportunity to defer a portion of their pay on a “pre-tax” basis. The second allows the company to contribute “profit sharing” contributions for the employees, or may even require the company to “match” the contributions made by the employees and contribute a base amount each year for the employees based on the salary deferral.
For most 401(k) Plans, the required company contribution is a “safe harbor” contribution (allowing the company to avoid certain tests for the Plan) and may take one of two forms – either a fixed 3% of pay contribution for all eligible participants (whether or not they elect to defer their own salary) or a “matching” contribution of either (i) 100% of deferral up to 4% of compensation or (ii) 100% of deferral up to 3% of compensation plus 50% of the next 2% of compensation made only for those who defer a portion of their compensation. In either case, the company is required to give the participants a Notice of the safe harbor feature to the Plan before the beginning of each year.
In the current economic environment, even the safe harbor contribution may be a burden to the company. Recent legislation now allows a company to terminate or suspend its safe harbor contribution obligation mid-year. Certain conditions must be met, and we would have to review the Notice that was given to the participants before the beginning of the year to determine if the company retained the right to terminate or suspend the safe harbor. (Most of the Notices provided by this office and Plan Administration firms contain the necessary language.) If the safe harbor contribution is suspended, the Plan is subject to non-discrimination testing for the year.
To suspend the safe harbor obligation, the company must amend the Plan and give 30 days advance notice to the participants. Again, for any of our clients who wish to adopt the amendment, we would do so at no cost.
There are other considerations that should be taken into account before deciding on suspending the safe harbor contribution. We would be happy to talk this over with you to determine if this is an available and appropriate step for you.
It goes without saying that these are trying times for everyone. We just want to know that we are there with you to assist in getting you through them.
By: Catherine A. Ray
In December 2019, President Trump signed into law the Setting Every Community Up for Retirement Enhancement Act of 2019 (the “SECURE Act“), which makes several changes impacting individual retirement accounts (“IRAs“) and tax-qualified retirement plans such as 401(k) Plans.
1. Required Minimum Distributions Now Begin at 72.
Prior to the enactment of the SECURE Act, IRA owners and 5% owners of employers who maintain profit sharing and 401(k) plans (“Participants”) were required to begin taking distributions from their accounts by April 1 of the year following the year they attain age 70½. The SECURE Act modifies this requirement by increasing the age from 70½ to 72. This means they may delay taking distributions until April 1 of the year following the year they reach age 72. This change allows Participants to push off distributions from their IRAs for an additional one or two years, allowing the assets in the account to continue accumulating on a tax-deferred basis.
Note: This age increase will not impact individuals who attained age 70½ in 2019. If you did so, you must begin to receive your distributions by April 1, 2020 or face a significant penalty.
2. Repeal of Maximum Age for Traditional IRA Contributions.
The section of the Internal Revenue Code (the “Code”) that applied a maximum age for contributions to an IRA (age 70½) has been repealed. This means an individual who has not yet attained age 70½ as of December 31, 2019 may continue to contribute to his or her IRA until he or she is required to take minimum distributions (i.e., until he retires). The 2020 IRA contribution limit is $6,000 ($7,000 if you are age 50 or older).
3. Certain Taxable Non-Tuition Fellowship and Stipend Payments Treated as Compensation for IRA purposes.
Individuals who receive stipends or non-tuition fellowships for graduate or post-doctoral study may now contribute those funds to an IRA.
4. New Parents May Now Withdraw up to $5,000 Penalty Free.
The 10% early withdrawal penalty for distributions before age 59½ will not apply to a withdrawal for a qualifying birth or adoption distribution of up to $5,000. To qualify, the distribution must occur within one year of the date the child was born or on which the legal adoption was finalized. In addition, the withdrawal can be repaid as a rollover contribution to the Participant’s IRA.
5. Inherited IRAs Generally Must be Distributed Entirely Within 10 Years.
For Participants who die on or after January 1, 2020, the SECURE Act now requires (with exceptions described below) the Participant’s entire account balance to be distributed within 10 years following the Participant’s date of death. This rule predominantly replaces the old five-year “stretch out” rule. The new 10-year distribution period applies regardless of whether the Participant dies on, before, or after the Required Beginning Date (which, as mentioned above, is now April 1 of the year following one’s 72nd birthday).
The SECURE Act carves an exception for certain “Eligible Designated Beneficiaries”, which include: (a) the Participant’s surviving spouse; (b) a child who has not yet reached the age of majority (age 18 in New York); (c) a chronically ill individual; or (d) an individual not more than 10 years younger than the Participant.
If the Participant designates a beneficiary who qualifies as an Eligible Designated Beneficiary, the account balance may be distributed over the life or life expectancy of the beneficiary. Once the Eligible Designated Beneficiary has died, however, the entire account balance must be distributed within 10 years of that beneficiary’s death, regardless of who is named as his or her successor beneficiary.
If a Participant designates a minor child as his or her beneficiary, the entire account balance must be distributed within 10 years after the minor turns 18 years of age.
Many of our clients have designated trusts as IRA beneficiaries to maintain trustee control over the IRA. Those trusts are allowed to draw out the IRA over the beneficiary’s lifetime if the trust requires each year’s IRA distribution to be immediately passed out to the beneficiary. In view of the SECURE Act’s forcing the trustee to withdraw the entire IRA account within 10 years, requiring the trust to pass out to the beneficiary the IRA distribution when received may no longer be appropriate. The client should evaluate that along with the tax effect of anticipated large distributions made to satisfy the 10-year rule. These issues can be addressed with revisions to clients’ estate planning documents. If you have any questions, please do not hesitate to contact me or Stewart McGough, Esq.
Contractors and supply houses may be looking forward to the reconstruction project planned for the Syracuse, New York corridor of Route 81. The cost to pay for the reconstruction work is estimated in the millions. No doubt it will be a source of significant work and opportunity.
If you provide labor or materials to a public project, and you run into trouble getting paid, you may have the ability to protect yourself by making a claim against a labor and material payment bond provided as part of the project, or by filing a public improvement mechanic’s lien. The key is to know your rights and acting promptly.
Right now we do not know how all of the work for such a large project as the Route 81 Reconstruction will be paid for, but we can anticipate that there will be contracts through New York State, and there may be Federal contracts.
A payment bond is a surety bond posted by a contractor that can provide payment to contractors and material suppliers if the contractor is in breach or defaults. New York State Finance Law provides for when a payment bond is required on a public contract. When it is, under State Finance Law §137, a person who has furnished labor or materials to the contractor or to a subcontractor of the contractor in the prosecution of the work provided for in the public contract and who has not been paid in full therefor before the expiration of 90 days after the day on which the last of the labor was performed or material was furnished may have the right to sue on a payment bond. If you have a direct contractual relationship with a subcontractor of the contractor furnishing the payment bond but no contractual relationship with the contractor you must give written notice to the contractor about what is due to you as required in §137 within 120 days from the date on which the last of the labor was performed or the last of the material was furnished, or risk that your claim will be denied. There is also a one year statute of limitations to sue, so you should speak with an attorney very early on before you get close to any of these deadlines to make sure that your rights are protected.
Under New York’s Lien Law, you may also have the right to file a public improvement mechanic’s lien to try to get paid. A person performing work for or furnishing materials to a contractor or his subcontractor may file a notice of lien with the head of the department or bureau having charge of such construction or demolition and with the comptroller of the state or with the financial officer of the public corporation, or other officer or person charged with the custody and disbursements of the state or corporate funds applicable to the contract under which the claim is made. These rights can expire, however, and there are strict time limits for when you can file a mechanic’s lien on a project, so you do not want to delay investigating your rights and filing a timely mechanic’s lien. Filing both a mechanic’s lien and making your claim against a payment bond may increase your ability to get paid.
Should any contracts be by the Federal government, the rules are again different. Federal projects usually provide for only a payment bond called a “Miller Act Bond” and you typically cannot file a mechanic’s lien against a Federally-owned project. The rules for complying with this statute can be complicated, so again, you should speak with an attorney about your particular situation early on to make sure that your rights are protected. In general, a person that has furnished labor or materials in carrying out work provided for in a contract for which a payment bond is furnished [on a Federal contract] that has not been paid in full within 90 days after the day on which they did or performed the last of the labor or furnished or supplied the material for which the claim is made may bring a civil action on the payment bond. A person having a direct contractual relationship with a subcontractor but no contractual relationship with the contractor furnishing the payment bond must give written notice to the contractor within 90 days from the date on which the person did or performed the last of the labor or furnished or supplied the last of the material for which the claim is made, or your claim could be denied. A suit to collect under a Federal Miller Act payment bond must be brought no later than one year after the day on which the last of the labor was performed or material was supplied by you.
Filing a mechanic’s lien or making a claim against a payment bond is not a guaranty you will get paid of course. There are exceptions to the rules about providing bonds on public projects that could affect any project you work on, and who can file mechanic’s liens, and deadlines for when those rights expire if they are available. You must have also performed your contract properly. In some cases, the recovery that you can receive under a mechanic’s lien will be limited to what remains due on the contract from the public entity, and if multiple mechanic’s liens are filed, you might only receive a pro-rata share of what’s left with other subcontractors and suppliers. It is also possible that the payment bond can be exhausted, leaving people unpaid.
If you are bidding on or considering public work, determining who you are contracting with and what position you are in under that contract is extremely important. You should be very cautious and learn what your rights are before you bid on the work or extend any credit for materials. Whether the main contract is a N.Y. State or Federal contract in advance can narrow down how you may have to react if you are faced with a situation where you have to seek help to get paid. You can usually find out in advance if a bond is required and has been provided as part of your due diligence before you bid or enter any agreement, especially if you plan on advancing any significant amount of work or materials that could put your business in jeopardy. More remote subcontractors and material suppliers than those having a direct contract with the contractor that has the public contract or provided the payment bond could be completely closed out from filing a mechanic’s lien or making a claim under a payment bond. You may want to know this before you bid on any work or contract to provide labor or materials.
If you want to learn more about what rights and options you may have in a particular situation, contact Douglas J. Mahr, Esq. at Scolaro, Fetter, Grizanti, McGough & King, P.C. at 315-477-6264.
To view this article in PDF format, please click here [Contractor and Supply House Protections].
Up until last year, the non-biological person in a same sex couple/family was unable to seek custody in Family Court. In August of 2016, the Court of Appeals sent a seismic wave through not only the legal community, but the LGBTQ community as well, when it redefined the legal definition of “parent.” In the Matter of Brook S.B., the state’s highest court held that a non-biological caretaker of a child has standing to seek custody of a child they have been raising, a right not previously acknowledged by the New York State court system. While this may come to a surprise for some, from a legal perspective it makes sense.
For 25 years, a non-biological parent was unable to seek custody of a child if they had not legally adopted the child and their former partner was denying them visitation. In 1991, the Court of Appeals in Alison D established that a “biological stranger to a child who is properly in the custody of his biological mother” has no “standing to seek visitation with the child under Domestic Relations Law § 70.” In Brooke S.B., the Court of Appeals overturned Alison D and expanded the definition of being a parent. While only one partner in a same sex relationship can be biologically related to their child, that is no longer a complete barrier to custody and parenting time with the child should they end their relationship. Brooke S.B. gives a non-biological, non-adoptive person the standing to seek custody and visitation. This pertains to standing and the standard of what is in the best interest of the child will remain the test for the ultimate decision on custody and visitation.
“We will no longer engage in the ‘deft-legal maneuvering’ necessary to read fairness into an overly-restrictive definition of “parent” that’s sets too high a bar for reaching the child’s best interest and does not take into account equitable principles. Accordingly, we overturn Alison D.” It is with those words that members of the same-sex community were finally afforded the same parental rights as heterosexual couples.
If you have any questions or would like to discuss this further, please do not hesitate to contact me or the attorney in our office with whom you typically work.
To view this article in PDF format, please click here [Same-Sex Custody].
Since 1979, the Syracuse-based law firm of SCOLARO FETTER GRIZANTI & McGOUGH, P.C. has provided sophisticated tax, business, litigation, employee benefits, estate and trust planning and administration services to its individual, business, entrepreneurial and professional clients throughout New York, Pennsylvania, Florida and other states in which its attorneys are admitted to practice.