Employers that sponsor an employee retirement plan in Puerto Rico must review plan amendments and/or restatements adopted during 2016 to determine whether they need to submit their plan documents to the Puerto Rico Department of the Treasury (“Puerto Rico Treasury”) for qualification.

As discussed in our previous article published on January 26, 2017, the Puerto Rico Treasury issued Tax Policy Circular Letter No. 16-08 of December 22, 2016 (CC 16-08), establishing new rules and procedures for qualification of retirement plans, including deadlines to submit “qualification amendments” with the Puerto Rico Treasury. Pursuant to CC 16-08, plan sponsors that have adopted qualification amendments must submit them no later than the last day the plan sponsor or participating employer has to file its income tax return, including any extension, for the year in which the qualification amendments were adopted (generally, April 15 if not filed under extension). As a result, plan sponsors or participating employers using the calendar year as the tax year that have adopted “qualification amendments” during 2016, must submit such amendments with the Puerto Rico Treasury on or before April 15, 2017, or, by July 15, 2017, if an extension request was timely filed.

Note that a new determination letter must be requested only if “qualification amendments” have been adopted. Otherwise, the last determination letter issued under the Puerto Rico Internal Revenue Code of 2011, as amended (the “PR Code”), will continue to be in effect.

The term “qualification amendment’ is limited to the following modifications to retirement plans:

  • Amendments to incorporate future changes to the qualification requirements under Section 1081.01(a) of the PR Code.
  • Changes in the eligibility rules for plan participation applicable to Puerto Rico participants.
  • Changes in the formula for determining benefits under the plan or the allocation formula applicable to Puerto Rico participants.
  • Changes in the benefit form or payment method applicable to Puerto Rico participants.
  • The addition, removal, or substitution of participating employer in the plan that employ Puerto Rico participants.
  • Changes in plan rules regarding the application or correction of the non-discrimination tests under Sections 1081.01(a)(3), 1081.01(a)(4) or 1081.01(d)(3) of the PR Code.
  • Granting service credit to Puerto Rico participants for years employed by another employer for purposes of plan eligibility or plan benefit or contribution calculations.
  • Freezing or permanent cessation of benefit accruals in a pension plan affecting Puerto Rico participants.
  • Plan mergers.
  • Changes in the formal name of the plan or the trust’s employer identification number.
  • Substitution of the prototype or master plan adopted by the plan.
  • Any other amendment to the formal plan document, trust agreement or any other governing document that the Puerto Rico Treasury subsequently determines is a qualification amendment through regulations, circular letter or general administrative determination letter.

Qualification amendments can be adopted through a plan restatement or a separate plan amendment. Note that plan sponsors submitting qualification amendments must include the documentation/information required under CC 16-08; otherwise, the request will be considered an incomplete request and an additional $150.00 fee will be imposed.

Filing fees – If filed within the deadline provided under CC 16-08, the filing fees are: (i) $350.00 for all “qualification” amendments or (ii) $1,500 for a plan restatement. After the deadline, an additional $350.00 service charge will be required to be included with the request.

Plans that have not requested a determination letter under the PR Code can still submit the plan for qualification if: (i) at the time of the filing, the plan is not subject to an audit or investigation by the Puerto Rico Treasury, the IRS or the U.S. Department of Labor; and (ii) the filing includes the filings fees provided under Circular Letter 13-02 (i.e., three times the basic administrative fee and the additional $150.00 fee).