Puerto Rico Treasury Issues New Guidance On Rules And Procedures For Qualification Of Retirement Plans

Author:Ms Ana María Bigas-Kennerley and Maria I. Rey-Cancio
Profession:Littler Mendelson

The Puerto Rico Department of the Treasury (the "PR Treasury") issued Tax Policy Circular Letter No. 16-08 on December 23, 2016 ("CL 16-08"). CL 16-08 establishes new rules regarding the validity of retirement plan qualification letters and the procedures that employers and service providers must follow to request such qualification letters. It also repeals PR Treasury's Circular Letter 11-10 dated December 16, 2011, and Letter 13-02 dated May 28, 2013, which established guidance in connection with procedures for plan qualification (the "Previous Guidance"), to the extent not adopted by reference in CL 16-08. The following is a summary of the changes made to the rules and procedures for qualification of retirement plans:

Validity of Qualification Letters

CL 16-08 provides that qualification letters issued under the Puerto Rico Internal Revenue Code of 2011, as amended (the "2011 PR Code") will continue to be valid as long as the official plan document or trust agreement is not amended to add, modify, or remove (in whole or in part) any plan provision considered a "qualification amendment," as defined in CL 16-08.

As with the Previous Guidance, qualification amendments may be adopted through a plan restatement or a separate plan amendment. However, CL 16-08 clarifies that only plan restatements and/or plan amendments that include amendments classified as "qualification amendments" have to be submitted for qualification. As a result, plan sponsors that have adopted a plan restatement and/or amendments that do not include any "qualification amendments" do not need to submit such restatement for qualification. This relieves plan sponsors from the obligation, under the Previous Guidance, to submit all plan restatements for qualification.

What is a Qualification Amendment?

CL 16-08 provides clear guidance on what is a "qualification amendment." This new guidance keeps the qualification amendments of the Previous Guidance, but also adds additional types of amendments that will be considered qualification amendments. The additional qualification amendments are:

Changes in the form or method for the payment of benefits applicable to Puerto Rico participants; Substitution of the plan administrator, the trustee or the insurer of the trust (as applicable), or the paying agent for Puerto Rico participants; Changes in the official name of the plan; Changes in the employer identification number (EIN) of the plan's trust; Substitution of the master or...

To continue reading