Are any of your employees residents of Puerto Rico? If yes, you may need to consider whether your retirement benefits are complying with recent developments regarding both the Puerto Rican Internal Revenue Code (“PR Code”) and the United States Internal Revenue Code (“US Code”).
If you are maintaining any Puerto Rican retirement plans, you will also want to contact your Puerto Rican tax counsel regarding changes made to the PR Code this year, required plan amendments, and retroactive qualification as necessary, all of which need to be addressed by the end of this year.
Residents of Puerto Rico usually have to be included in coverage nondiscrimination testing for your US plans, subject to a limited exception that ends this year. The “nonresident alien” exception does not apply, because Puerto Rico is a territory of the United States, and people born in Puerto Rico are generally citizens of the United States. These employees may or may not be eligible to participate in a United States qualified plan, depending upon the plan provisions.
If you have Puerto Rican resident employees, and your United States qualified plan document does not exclude them from participation, then the next question is whether this plan design is viable going forward. In all likelihood, significant changes will need be made by December 31, 2011, which is generally the deadline for requesting a retroactive determination letter under the PR Code, and the deadline for transferring assets to a Puerto Rican qualified plan, without incurring both PR Code and US Code adverse tax consequences.