Seyfarth Synopsis: The Puerto Rico Department of the Treasury ("PR Treasury") recently announced the limits that apply to Puerto Rico qualified retirement plans in 2020. These limits may look familiar because the PR Code incorporates many of the applicable limits under the U.S. Code by reference. Employers maintaining Puerto Rico-only plans and dual-qualified plans (i.e., a plan that qualifies under both the PR Code and the US Code) will need to make the necessary adjustments to the plans' administrative/operational procedures and notices with respect to Puerto Rico participants.
In Circular Letter No. 19-17 ("Circular Letter"), the PR Treasury announced the applicable limits for Puerto Rico qualified retirement plans in 2020. Pursuant to the Circular Letter, if you participate in a dual-qualified plan, you may contribute up to $19,500 in 2020, an increase of $500 over the 2019 limit. However, if you participate in a Puerto Rico-only plan that is only qualified under the PR Code, the limit remains unchanged for 2020 at $15,000. If you are or will be age 50 by the end of 2020, you also may be eligible to contribute up to an additional $1,500 as a "catch-up" contribution (this limit did not change, and is much lower than the catch-up contribution limit under the U.S. Code). If you participate in a Puerto Rico retirement plan sponsored by the federal government, special limits may apply to you.
The limit on voluntary after-tax contributions did not change, and remains at 10% of a participant's aggregate compensation for all years of participation in the plan.
Other annual limits that changed include:
- the maximum that may be contributed to a defined contribution plan in 2020, inclusive of both employee and employer contributions, has increased $1,000 to $57,000;
- the maximum annual compensation that
may be taken into account has increased from $280,000 to $285,000;
- the "highly compensated employee" income threshold will increase from $125,000 to $130,000 (in the case of calendar year plans, the Puerto Rico Treasury clarified that the 2019 dollar limit of $125,000 must be used when determining whether someone is a highly compensated employee for 2020 testing purposes).
- Individuals should check their plan contribution elections and consult with their personal tax advisor to make sure that they take full advantage of the contribution limits in 2020. Employers who sponsor a Puerto Rico-qualified retirement plan should make the necessary adjustments to plan administrative procedures and participant notices to ensure proper administration of the plan in 2020 with respect to Puerto Rico participants.
- Employers who sponsor Puerto Rico qualified defined benefit pension plans also should be sure to review the new limits in the Circular Letter and make any necessary adjustments to plan administrative/operational procedures.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.