February 19, 2019
Piling On: Corporations Support the New York Times in Multiemployer Pension Calculation DisputePuerto Rico enacted new legislation in February that will require changes to tax-qualified retirement plans covering Puerto Rico employees, including both Puerto Rico-only and dual-qualified (US and Puerto Rico) retirement plans. Act No. 9-2017 revises a number of Puerto Rico qualified retirement plan rules including contribution limits, rules related to nondiscrimination testing and employer deductions for retirement plan contributions. Questions remain about how and when to implement these changes, but the 2017 Act became effective immediate upon enactment, so plan sponsors should be prepared for the possibility of mid-year 2017 changes to their retirement plans.
In February, Puerto Rico enacted new legislation that will require changes to tax-qualified retirement plans covering Puerto Rico employees, including both Puerto Rico-only and dual-qualified (US and Puerto Rico) retirement plans. Act No. 9-2017 (the 2017 Act) revises a number of Puerto Rico qualified retirement plan rules including contribution limits, rules related to nondiscrimination testing and employer deductions for retirement plan contributions. Questions remain about how and when to implement these changes, but the 2017 Act became effective immediate upon enactment, so plan sponsors should be prepared for the possibility of mid-year 2017 changes to their retirement plans.
Retirement Plan Changes
Following are some of the significant amendments the 2017 Act makes to the requirements applicable to tax-qualified retirement plans under the Puerto Rico Internal Revenue Code of 2011 (the PR Code):
The 2017 Act also adds a new chapter to the Puerto Rico Trust Act titled “Retirement Plan Trusts,” which clarifies the rules regarding beneficiaries under retirement plans. Plans qualified in Puerto Rico that are subject to the Employee Retirement Income Security Act of 1974, as amended (ERISA), must provide that the beneficiary of a married participant is the participant’s spouse, and the participant can only designate a non-spouse beneficiary with spousal consent (which is similar to the rules applicable to US qualified retirement plans). In addition, the 2017 Act clarifies that all assets belonging to a retirement plan trust will be exempt from the estate and inheritance provisions of the Puerto Rico Civil Code, and their disposition will be determined under the terms of the documents governing the retirement plan trust. This is a helpful clarification for plan sponsors who previously were concerned about reconciling the ERISA rules with the Puerto Rico Civil Code rules.
Next Steps for Plan Sponsors
The 2017 Act states that its intent is to increase the flexibility of retirement plans and make their establishment and administration less onerous on plan sponsors. For now, however, the 2017 Act raises a number of questions and adds potential complications for plan sponsors to administer their plans. Specifically:
We expect to see guidance and further clarification on these issues from the Puerto Rico Treasury Department. For now, plan sponsors should wait for additional guidance. However, since the 2017 Act is effective immediately, plan sponsors should be prepared to consider action in 2017, both with respect to plan administration and the adoption of plan amendments. Further, since the changes to be implemented make significant changes to the rules impacting Puerto Rico employees, plan sponsors should expect that the amendments will be qualification amendments, which will likely require plan sponsors to seek updated qualification letters from the Puerto Rico Treasury.
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