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Puerto Rico Tax Amendments Impact Highly Compensated Employees and Contribution Limits

A new legislative act in Puerto Rico, Act No. 9-2017 (the “Act”) amends the Puerto Rico tax code and the Trust Act of 2012, affecting qualified retirement plans and impacting highly compensated employees (“HCEs”). Among several changes, the Act fixes a new dollar threshold for HCEs at $150,000 (previously $120,000 (which is the same as in the U.S.)). The new HCE dollar threshold is fixed and now classifies corporate officers based on that threshold as well (the Act no longer requires employers to treat corporate officers as HCEs regardless of their pay). The Act also modifies the limits on per-participant contributions to defined contribution plans. The Act will limit contributions to the lesser of 25 percent of “net income” (which is currently undefined) and $75,000. This change modifies the per-participant contribution limit which is currently the same under both the Puerto Rico and U.S. tax codes (i.e., the lesser of 100… Continue Reading

Puerto Rico Treasury Announces Qualified Retirement Plan Limits for 2017

The Puerto Rico Department of the Treasury recently issued Tax Policy Circular Letter No. 16-07 (the “Circular“), which announced applicable qualified retirement plan limits for 2017, as required by the Puerto Rico Internal Revenue Code of 2011 (the “PR Code“). For plans qualified in Puerto Rico and for those plans dual qualified in the United States and Puerto Rico, only the limits on annual benefits, annual contributions, and plan compensation have changed for 2017. The applicable plan limits are as follows: Annual Benefit Limit (All Defined Benefit Plans): $215,000 (increased from $210,000 for 2016). Annual Contribution Limit (All Defined Contribution Plans): $54,000 (increased from $53,000 for 2016). Annual Compensation Limit (All Plans): $270,000 (increased from $265,000 for 2016). Compensation Limit for a Highly Compensated Employee: $120,000 (unchanged). Elective Deferrals Limit (Dual Qualified Plans or Federal Government Thrift Plans): $18,000 (unchanged). Elective Deferrals Limit (Puerto Rico-Only Plans): $15,000 (unchanged). Catch-up Contribution… Continue Reading

Revised Annual Filing Procedure for Puerto Rico Benefits Trusts

The Puerto Rico Treasury Department recently issued Administrative Determination No. 16-05 (the “Determination”), which provides a revised procedure for trusts forming part of Puerto Rico qualified requirement plans (“Benefits Trusts”) to meet their annual filing requirements under Section 1061.10(a) of the Puerto Rico Internal Revenue Code of 2011, as amended (“Trust Filing”). The new Trust Filing procedure applies with respect to taxable years beginning after December 31, 2014. Prior to the Determination, Benefits Trusts were required to file Form 480.7(OE) (or, if the trust was subject to Title I of ERISA, a copy of the IRS Form 5500) with the Puerto Rico Treasury Department by the last day of the seventh month following the end of the plan year (subject to an automatic 2½ month extension). Under the Determination, Benefits Trusts established or adopted by an employer that must file a Puerto Rico income tax return will comply with its… Continue Reading

Sponsors of Puerto Rico Qualified Plans May Need to File by April 15, 2015 to Secure Tax Qualified Status

Under Puerto Rico Internal Revenue Circular Letter 11-10, any restatement of a Puerto Rico qualified Plan or certain “qualification amendments” must be filed with the Puerto Rico Treasury Department on or before the due date of the employer’s income tax return for the taxable year during which the restatement or qualification amendment became effective. Thus, for a calendar year plan sponsor that restated a Puerto Rico qualified plan or made any qualification amendment effective in 2014 (including amendments required by the U.S. Supreme Court’s decision in U.S. v. Windsor regarding same-sex spouses), such restatement or amendment must be filed with the Puerto Rico Treasury Department on or before April 15, 2015 (or any extended due date to file the employer’s income tax return for 2014).

Hacienda Issues Guidance on Tax Prepayment Window for Puerto Rico Retirement Plans

In Administrative Determination No. 14-16, Hacienda clarified certain ambiguities in the recently enacted Tax System Adjustment Act, which amended the Puerto Rico Internal Revenue Code of 2011 (the “PR Code”) to provide a window, from July 1, 2014 to October 31, 2014, for the prepayment of Puerto Rico income taxes on all or part of a participant’s retirement plan account balance or accrued benefits. During the window, the tax rate on prepayments is reduced to 8 percent for plans qualified under the PR Code and to 15 percent for non-qualified plans. Prepayments may be made with the participant’s own funds or with funds distributed from the plan. Although a plan is not required to permit distributions for tax prepayments, a plan amendment may be needed if the plan chooses to permit such distributions. Such an amendment is not a qualifying amendment and need not be filed with Hacienda. Administrative Determination… Continue Reading

Certain Puerto Rico Retirement Plans May Participate in 81-100 Group Trusts

In Rev. Rul. 2014-24, the IRS recently announced that certain Puerto Rico retirement plans that are qualified only under the PR Code are eligible to participate in group trusts described in Rev. Rul. 81-100 (“81-100 Group Trusts”). In general, an 81-100 Group Trust is a trust in which qualified retirement plans and individual retirement accounts pool their assets for investment purposes, if certain requirements are met. To be eligible to participate in an 81-100 Group Trust, a Puerto Rico retirement plan must meet the plan qualification requirements of Section 1081.1 of the PR Code. Rev. Rul. 2014-24 is available here.

Hacienda Extends Deadlines to Comply with the Puerto Rico Internal Revenue Code of 2011

Hacienda extended the deadline for plans to be amended to comply with the Puerto Rico Internal Revenue Code of 2011. The original amendment deadline was the last day of the first plan year beginning on or after January 1, 2012. For calendar year plans, the deadline would have been December 31, 2012. The new deadline is the later of June 30, 2013, or the last day of the first plan year beginning on or after January 1, 2012. In addition, the deadline to submit a “Request for Qualification” letter was extended to the later of September 30, 2013, or the due date to file an income tax return of the employer, with extensions, for the first taxable year that begins on or after January 1, 2012. Finally, the “Request for Qualification” with regard to a plan’s qualification under the Puerto Rico Internal Revenue Code of 1994 must be submitted with… Continue Reading

Puerto Rico Treasury Department Issues Guidance on Determination Letter Requirements for Qualified Plans

The Puerto Rico Treasury Department recently released guidance on obtaining determination letters for retirement plans intended to be qualified under the Puerto Rico Internal Revenue Code of 2011 (“2011 Code”).  The guidance is effective January 1, 2012 and included in Puerto Rico Internal Revenue Circular Letter 11-10.  The new guidance provides that amendments required by the 2011 Code must be adopted by the last day of the plan year beginning on or after January 1, 2012 and must be filed with the Puerto Rico Treasury before the last day that the sponsoring employer’s Puerto Rico income tax return must be filed for the tax year that begins on or after January 1, 2012.  The new guidance also details the amendments required for compliance with the 2011 PR Code.  The guidance can be found here (in Spanish).

IRS Extends Transition Relief for Puerto Rico Plans

The Internal Revenue Service (IRS) issued Notice 2012-6 which extends until December 31, 2012, the transition relief in Rev. Rul. 2011-1 for transfers from a dually qualified Puerto Rico retirement plan trust to a trust for a plan that is intended to satisfy only the qualification requirements of the Puerto Rico Code. This relief also gives plan sponsors additional time to consider the effect of the changes to the Puerto Rico Code enacted earlier this year. Additionally, the IRS intends to issue guidance in response to comments it received regarding Rev. Rul. 2011-1. This guidance is available here.

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