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Puerto Rico Legislation May Require Changes to Retirement Plans

Puerto 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.

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Retirement Plans With Puerto Rico Employees Can File Form 5500 Rather than Puerto Rico Annual Return

by Nancy S. Gerrie and Jeffrey M. Holdvogt

The Puerto Rico Treasury Department recently issued guidance (Circular Letter No. 12-02) allowing certain retirement plans qualified under the Puerto Rico Internal Revenue Code, including dual-qualified plans that are also qualified under the U.S. Internal Revenue Code, to file a copy of Form 5500 or Form 5500-SF as the plan’s annual Puerto Rico return in lieu of filing Puerto Rico Form 480.7(OE).  The new procedures, effective beginning with the annual filing for the 2011 tax year, will allow retirement plans sponsors with employees in Puerto Rico to satisfy their annual Puerto Rico filing requirement with Form 5500.

The Puerto Rico Internal Revenue Code generally requires employers that maintain a retirement plan qualified in Puerto Rico to file, on an annual basis, Form 480.7(OE), Information Return of Income Tax-Exempt Organizations.  However, for tax years beginning on and after January 1, 2011, employers that maintain plans that are subject to the provisions of Title I of the Employee Retirement Income Security Act (ERISA), and that have previously submitted an application to the Puerto Rico Treasury Department for a determination that the plan is qualified under the Puerto Rico Internal Revenue Code, may comply with the annual Puerto Rico filing requirement by filing a copy of the corresponding Form 5500 or Form 5500-SF as the plan’s annual return in lieu of filing Puerto Rico Form 480.7(OE).

Plan sponsors that elect to file Form 5500 to satisfy the Puerto Rico annual return requirement must still complete the part of Form 480.7(OE) containing the biographical data of the plan on the first page of Form 480.7(OE) and attach a copy of Form 5500 as the annual filing.  Either Form 5500 or Form 480.7(OE) must be filed by July 31 following the calendar year close or the last day of the seventh month following the fiscal year close of the trust (if Form 480.7(OE) is filed) or the plan year (if Form 5500 is filed), unless a request is filed for an automatic extension to October 15 following the close of the year for a calendar plan year.  Plan sponsors that request an extension of time to file the Form 5500 with the U.S. Department of Labor still must request an extension of time for the Puerto Rico filing separately by filing Model SC 2644 prior to the filing deadline of the Form 480.7(OE).  The Puerto Rico Internal Revenue Code imposes a penalty of $500 per form for failure to timely file the annual report.




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