EXTENSION OF PAYCHECK PROTECTION PROGRAM AND ADDITIONAL CAPITAL TO SMALL BUSINESSES
President Trump signed extension legislation that reopened the Paycheck Protection Program (PPP), which has resumed accepting applications for loans until August 8, 2020. Of the almost $670 billion appropriated for the program, there remained more than $130 billion available to applicants as of the June 30, 2020 deadline. As a reminder, the program is designed to provide a direct incentive for small businesses to keep their workforce employed during the COVID-19 crisis by providing funding to keep workers on payroll while also helping businesses with interest on mortgages, rent, and utilities. The Small Business Administration will forgive loans and treat them as grants if the funds are used for eligible expenses and employee retention requirements are met.
Generally, PPP loan forgiveness is based on employers retaining employees (or quickly re-hiring employees) and maintaining their salaries. To be eligible, loan proceeds must be used on certain expenses with maximum percentages for eligible mortgage interest, rent, and utility payments, assuming the minimum required percentage of loan proceeds are spent on payroll costs. Payroll costs include salary, wages, commissions, and tips; employee benefits, including paid leave, severance, insurance premiums, and retirement benefits; and state and local payroll taxes. Employers should diligently monitor their expenditures during the loan period to ensure that conditions are met so that the loan can be treated as a grant.
DOL CAUTIONS PLAN FIDUCIARIES ABOUT INVESTING IN ESG FUNDS
Previously, in Field Assistance Bulletin 2018-01, the DOL reminded fiduciaries that economic considerations must take priority over any collateral environmental or social benefits of investments made by retirement plan fiduciaries. The Bulletin, in 2018, stated: “plan fiduciaries are not permitted to sacrifice investment return or take on additional investment risk as a means of using plan investments to promote collateral social policy goals.” Now, in late June, the DOL proposed a new rule intended to update and clarify fiduciary requirements for ESG investing in ERISA plans, reminding plan sponsors that ERISA seeks to prohibit conflicted transactions and to eliminate the chance that fiduciaries will put their self-interest ahead of plan participants.
The proposed rule prohibits retirement plan fiduciaries from making any investment, or choosing an investment fund, based on consideration of an environmental, societal, or governmental factor unless that factor represents an “economic risk or opportunit[y]” that qualified investment professionals would treat as material economic considerations under generally accepted investment theories.” If a fiduciary determines that such a factor exists, the proposed rule requires additional review and documentation. The proposed rule appears at odds with Arnerich Massena’s and the broader investment community’s recognition that ESG investing is, in fact, focused on value and performance, and ignores growing evidence that investment returns of ESG funds can outperform those of non-ESG funds. Also notable under the proposal is that an ESG fund cannot be used as a QDIA or even a component of a QDIA. Secretary of Labor Eugene Scalia reiterated that “private employer-sponsored retirement plans are not vehicles for furthering social goals or policy objectives that are not in the financial interest of the plan.” Comments are due July 30, 2020.
LIMITS ON DEFINED BENEFIT PLAN PARTICIPANTS’ ABILITY TO SUE FOR FIDUCIARY VIOLATIONS
On June 1, 2020, the U.S. Supreme Court decided Thole v U.S. Bank, holding that the plaintiff, participants in a defined-benefit plan who had so far been paid all pension benefits due to them, lacked standing to sue for breaches of fiduciary duty under ERISA because they had suffered no injury to date, regardless of any injuries to the plan itself. The Court found that the ability of defined benefit plan participants to sue for fiduciary violations is limited to situations in which the plan is unable to pay a participant or beneficiary when such benefit becomes due.
This decision is good news for defined benefit plan sponsors, who should be able to get courts to dismiss complaints for lack of standing in similar cases, so long as the plan has paid all benefits owed to participants and beneficiaries.
IMPORTANT DISCLOSURES: These materials are provided for general information and educational purposes based upon publicly available information from sources believed to be reliable — Arnerich Massena cannot assure the accuracy or completeness of these materials. The information in these materials may change at any time and without notice.