Puerto Rico qualified plans

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Qualified plans that cover employees in Puerto Rico are subject to the Puerto Rico Internal Revenue Code of 2010. The relevant qualification rules are found in PRIRC section 1081.01.

Contents

Puerto Rico Elective Deferrals (CODA) Plans

The Puerto Rico equivalent of a 401(k) feature is found in section 1081.01(d).

ERISA

PR qualified plans are subject to ERISA, but not the Internal Revenue Code of 1986.

Deferral Limit

Pre-tax deferrals under a PR CODA plan are limited to $10,000 for 2011, $13,000 for 2012, and $15,000 for subsequent years (with no planned inflation index). Catch-up contributions are $1,000 for 2011 and $1,500 thereafter.

Effective January 1, 2012, the annual benefit limit (equivalent to Code Section 415) under Puerto Rican law is the lesser of $195,000 or 100 percent of three-year average compensation for defined benefit plans, or an annual addition of the lesser of $49,000 or 100 percent of current compensation for defined contribution plans.

Compensation Limit

The Puerto Rico equivalent to Code Section 401(a)(17) is $245,000 or, for dual-qualified plans, the 401(a)(17) limit.

Non-deductible Contributions

A nondeductible contribution is subject to a 10 percent excise tax comparable to that in Code section 4972.

Nondiscrimination Testing

ACP Testing

There is no ACP testing for PR plans.

ADP Testing

ADP testing for a PR plan is a simpler version of ADP testing for 401(k) plans. As with a 401(k) plan, a PR CODA plan passes the test if:

  1. The ADP for HCEs is not more than 125 percent of the ADP for NHCEs; or
  2. The ADP for HCEs minus the ADP for NHCEs is not more than 2 percent and the ADP for HCEs is not more than 200 percent of the ADP for NHCEs.


An HCE is similar to that defined by Code Section 414(q), but the optional top 20 percent inclusion is not available.

Minimum Coverage Test

Minimum coverage testing under section 1081.01(a)(3) is similar to Code Section 410(b). There is also a facts and circumstances equivalent to 401(a)(4) testing.


Hardship Withdrawals and Loans

PR CODA plans may permit hardship withdrawals and loans on the same terms as a 401(k) plan.

QDROs

A PR plan must honor a QDRO. Although Code provisions regarding QDROs do not apply, ERISA contains parallel provisions which do.

Required Minimum Distributions

Because Code Section 401(a)(9) does not apply to a PR plan, required minimum distribution rules do not exist.

Rollovers

Rollovers from a PR plan may only be made to other Puerto Rican qualified plans or IRAs. A PR plan may only accept rollovers from a Puerto Rican plan. There are no automatic rollover rules.


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