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Congress Passes $2.1 Trillion CARES Act in Response to the COVID-19 Epidemic

By: Mark Paccione, CFA, CFP®, BFA™
4 Minute Read

On March 27, Congress passed the $2.1 Trillion “Coronavirus Aid, Relief, and Economic Security Act’’ or the ‘‘CARES Act’’ to provide financial support to the U.S. Economy during the economic shutdown caused by the current epidemic.

Here is a high-level summary:

Coronavirus Relief Fund

The act provides $150 billion in aid to states, territories, and tribes in order to defray the costs of fighting COVID-19 and to help offset lost revenues due to the economic shutdown.

Small Businesses

Loans & Loan Forgiveness

Businesses that employ 500 employees or fewer, and meet certain criteria are eligible for loans up to $10 million that are guaranteed 100 percent by the U.S. government.

The act specifies the acceptable uses of the loan proceeds which include: employee salaries (including paid sick or medical leave), employee benefits, insurance premiums, mortgage payments, rents, utilities, and other debts incurred from February 15, 2020 through June 30, 2020.  The maximum amount of a loan equals 2.5 months of regular payroll expenses (subject to a cap of $100,000 of annual salary per employee).

Borrowers are eligible for loan forgiveness equal to the amount spent by the borrower during an eight-week period after the origination date of the loan on the aforementioned expenses. Loan forgiveness is reduced proportionally by any reduction in employees retained compared to the prior year, including a 25% or greater reduction in employee compensation.

There are no borrower or lender fees, and collateral and guarantee requirements are waived. The maximum interest rate is 4 percent; loan maturity can be up to 10 years. No prepayment fees will be charged and loan payments can be deferred for 6 to 12 months.

Employer-Paid Student Loans

For employers that make payments on behalf of or to employees as a benefit, between the date the bill is signed and the end of 2020, up to $5,250 of assistance can be offered without that money counting as part of the employee’s income.

Individuals and Families

Tax Refunds & Unemployment
Direct support for individuals and families comes in two parts: tax refunds and expanded unemployment insurance. Individuals making less than $75k ($150,000 married) will receive a direct payment of $1,200 ($2,400 married) plus $500 for every dependent child.

The payments are phased out for incomes above $75k and completely eliminated for those making $100k or more per year. No action is needed to collect payment. The IRS will use 2019 or 2018 tax returns to calculated and send.

Unemployment benefits are extended by 13 weeks to 39 weeks (9 months). The act also establishes the “Pandemic Unemployment Assistance” program, increasing benefits by $600 per week for four months and including individuals not previously covered, such as self-employed and gig workers.

Student Loans

Loans from the federal government within the past 10 years (direct loans) are eligible for automatic suspension until September 30, 2020. Older Federal Family Educational Loans (F.F.E.L) that the U.S. Department of Education does not own, Perkins loans, loans from state agencies, and private loans are not eligible.

Those who have privately held loans should check with their lender to see if they have an assistance or suspension program.

  • You can choose to continue paying down principal
  • Interest “shall not accrue” on the loan during the suspension period

Retirement Plan Provisions

Stay tuned for a detailed summary on retirement plan provisions included in this legislation. Our Managing Director of Retirement Plan Solutions will provide a closer look at this particular topic soon. 

Corporate Support

The bill provides $454 billion to the Exchange Stabilization Fund (ESF) to support the Fed’s lending facilities aimed at helping larger businesses, states, and municipalities. These funds could be levered at a ratio of 10:1, so potential lending under this program could be in the neighborhood of $4.5 trillion. The Treasury funds will be used to bring stability to lending markets by extending corporate loans and by the Fed purchasing municipal, corporate, and mortgage bonds in secondary markets.

Companies that receive government aid must agree to halt stock buybacks for the entire time they receive the aid, plus one year and there are restrictions on employment cuts

Corporate Tax Relief

The bill includes a suspension of net operating loss limitations and allows carry backs on losses from 2018-2020 for up to 5 years. It also alleviates the employer-side payroll tax (6.2%) by stretching it out over two years and includes an employee-retention credit against payroll taxes (for 50% of wages paid for the first $10,000 in compensation). Furthermore, the act loosens the net interest deductibility limitation and makes prior AMT credits refundable.

Industry-Specific Relief

There is some support for specific sectors that have been hard hit, but this is a small piece of the stimulus package. Sectors that will receive relief in the form of cash grants to cover payroll costs include: airlines, air cargo carriers, and contractors (e.g., food service providers). The legislation would also provide the airlines and cargo carriers with an equivalent amount in loans and loan guarantees. The support comes with restrictions, such as limits on executive pay, buybacks, dividends, and payroll retention requirements. The legislation also allows the Treasury to take an equity stake in the companies.

In Conclusion

Overall, this is a massive bill that provides much-needed cushion to the U.S. economy, which has ground to a halt. In an era marked by political divisiveness, it’s reassuring to see our two political parties come together to provide significant fiscal support in a short amount of time.

Please reach out to the Curi Capital team at 984-202-2800 if you have any questions about this legislation and its implications on your or your practice. We’ll continue to monitor and share related updates on the act as we know more—with two more articles to come in short order on retirement plan provisions and Economic Injury Disaster Loans (EIDL) and Paycheck Protection Plan (PPP) loans.

Please note:  This is for general information only and is not intended to provide specific investment advice or recommendations for any individual. You should consult your financial advisor, attorney, or tax advisor with regard to your individual situation.

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Mark Paccione, CFA, CFP®, BFA™
Mark Paccione is Curi Wealth Management, LLC’s, Chief Investment Officer, based in Raleigh, NC.

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