by Nancy S. Gerrie, Jeffrey M. Holdvogt and Andrew C. Liazos
On December 16, 2010, the U.S. Internal Revenue Service (IRS) issued Revenue Ruling 2011-1, which permits employers sponsoring employee retirement plans that are tax-qualified only in Puerto Rico to continue to pool assets with U.S. qualified plans in group and master trusts, described in Revenue Ruling 81-100, until further notice. Revenue Ruling 2011-1 also extends the deadline previously provided in Revenue Ruling 2008-40 from December 31, 2010 to December 31, 2011 for sponsors of retirement plans qualified in both the U.S. and Puerto Rico to spin off and transfer assets attributable to Puerto Rico employees to Puerto Rico-only qualified plans.
The ruling provides Puerto Rico plan sponsors, institutional investors and trustees with certainty that plans qualified only in Puerto Rico can continue to participate in U.S. group and master trusts until further notice, without facing potential disqualification of the participating U.S. plans and trusts. However, the ruling only provides transition relief. Permanent relief is needed to allow Puerto Rico-only plans to continue to pool assets with U.S. plans in group and master trusts. Employers that sponsor Puerto Rico-only qualified retirement plans should consider efforts to convince the IRS of the importance of group and master trusts in the administration of Puerto Rico-qualified retirement plans.
The ruling also gives plan sponsors additional time to consider the pros and cons of transferring assets from dual-qualified plans to Puerto Rico-only qualified plans under Revenue Ruling 2008-40.
For more information on the impact of Revenue Ruling 2011-1 on employers sponsoring Puerto Rico tax-qualified retirement plans click here.
