In this blog post, we discuss important updates, including upcoming deadlines, with respect to employee benefits impacting plan sponsors.
Puerto Rico Treasury Announces 2015 Limits on Retirement Plans
The Puerto Rico Department of the Treasury ("PR Treasury"), the equivalent to the Internal Revenue Service (IRS) in the United States, on a yearly basis is required to issue a notification of the limits on retirement plans that will apply in Puerto Rico during the following taxable year. On December 15, 2014, the PR Treasury published Tax Policy Circular Letter 14-05 ("CL 14-05"), announcing the limits applicable to Puerto Rico for 2015, including the limits that are incorporated into the Puerto Rico Internal Revenue Code ("PR Code") from the U.S. Internal Revenue Code ("US Code").
A summary of the 2015 pension limits applicable to Puerto Rico is as follows:
- Annual Benefit Limit on Defined Benefit Plans: $210,00 (remained unchanged)
- Annual Contribution Limit on Defined Contribution Plans: $53,000 (increased from $52,000 for 2014)
- Annual Compensation Limit: $265,000 (increased from $260,000 for 2014)
- Compensation for Highly Compensated Employee Limit: $120,000 (increased from $115,00 for 2014)
- Elective Deferrals Limit on Dual Qualified Plan or Federal Government Employees Participants: $18,000 (increased from $115,000 for 2014)
- Catch-up Contributions Limit on Federal Government Employees (aged 50 or older): $6,000 (increased from $5,500 for 2014)
- Elective Deferrals Limit on Puerto Rico Only Qualified Plans Participants: $15,000 (remained unchanged)
- Catch-up Contributions Limit on Plan Not sponsored by the Federal Government Participants (aged 50 or older): $1,500 (remained unchanged)
- After-Tax Contribution Limit: 10% of the aggregate compensation of the employees for all years in which they are participants in a retirement plan (remained unchanged)
See our February 19, 2014 edition of Employee Benefits Notes summarizing the 2014 pension limits and other relevant updates.
Senate Bill P.S. 1189 Seeks to Extend Window Period to Pre-Pay at a Reduced Rate the Tax Amounts Accumulated under a Retirement Plan
Act 77 of July 1, 2014 ("Act 77") provided a period during which participants in retirements plans could pre-pay, at a reduced tax rate, the amounts accumulated under such plans. The window period covered from July 1, 2014 through October 31, 2014. Senate Bill 1189 seeks to extend the window period until January 31, 2014.
If enacted, the new law will clarify various ambiguities in Act 77, such as the tax rate for qualified plans (8%) and for non-qualified plans (15%), further confirming PR Treasury guidance on the topic. (See our previous post discussing the PR Treasury's Tax Policy Circular Letter No. 14-02).
Senate Bill 1189 was sent for the Governor's signature on December 8, 2014. It is expected that the PR Governor will sign the bill in the upcoming days.
What the December 31, 2014 Deadline for DOMA Amendments Means for Plan Sponsors
On June 26, 2013, in United States v. Windsor, the Supreme Court of the United States held that section 3 of the Defense of Marriage Act ("DOMA"), which prohibited the recognition of same-sex spouses for purposes of federal law, is unconstitutional. (See our discussion of this case in Supreme Court Decides the Fate of Same-Sex Marriages). As a result of the Windsor decision and subsequent IRS guidance, qualified plans inconsistent with the Windsor holding must be amended on or before December 31, 2014.
By way of background, prior to the Windsor decision, the definition of "spouse" did not include an individual married to a person of the same-sex, therefore, same-sex marriages were not recognized for purposes of the US Code with respect to qualified plans. Following the Windsor decision, the IRS issued Revenue Ruling 2013-17, providing that for federal tax purposes, including for purposes of the federal tax rules that apply to qualified retirement plans, the term "spouse," "husband and wife," "husband," and "wife" include an individual married to a person of the same sex who was legally married in a state, or foreign jurisdiction that recognizes such marriages, but who is domiciled in a state or foreign jurisdiction that does not recognize such marriages. (See our discussion on Revenue Ruling 2013-17). The IRS subsequently issued Notice 2014-19 providing guidance on the application of the Windsor decision and holdings of Rev. Rul. 2013-17 to qualified retirement plans, including establishing a deadline to amend the plans to reflect the outcome of Windsor. (See our discussion on Notice 2014-19). In addition, the US Department of Labor issued Technical Release No. 2013-04 providing guidance to employee benefit plans on the definition of "Spouse" and "Marriage" under ERISA as a result of the Windsor decision, which is parallel to the guidance provided by the IRS. (See our discussion on Technical Release No. 2013-04).
Given the December 31, 2014 deadline, plan sponsors must review their plans' terms to determine whether an amendment is necessary, to the extent the terms are inconsistent with the Windsor holding and the IRS guidance. If the terms of the plan are compliant under Windsor and the applicable IRS guidance, plan sponsors have no obligation to amend the plan. However, in Notice 2014-19, the IRS has indicated that, although not required, a clarifying amendment may be useful for purposes of plan administration.
We have confirmed with the PR Treasury that an amendment to reflect the outcome of the Windsor decision and the IRS guidance is considered a "qualification amendment" and, therefore, must be submitted for qualification with the PR Treasury. Note that the deadline to submit such amendment is on or before the due date to file the income tax return of the employer for the taxable year 2014 (generally April 15, 2015), including any extension (i.e., July 15, 2015, if the employer has filed an extension to file the income tax return).
We will keep employers abreast of any developments.
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.