Puerto Rico's Treasury Department announces qualified retirement plan limits for 2016

29 January 2016

In Tax Policy Circular Letter 15-16, Puerto Rico's Treasury Department (PRTD) has announced the benefits and contribution limits for qualified retirement plans under Section 1081.01(a) of the Puerto Rico Internal Revenue Code of 2011, as amended (the PR Code) for tax years that begin on or after January 1, 2016. Section 1081.01(h) of the PR Code requires the PRTD to report the applicable limits announced by the US Internal Revenue Service (IRS) that will apply to plans qualified under the PR Code.

The dollar limitations for qualified retirement and certain non-qualified plans that become effective January 1, 2016, were released by the IRS in IR-2015-118. See Tax Alert 2015-2005 for further details.

The following table shows the plan limitations for 2016, which remain the same as those applicable for 2015:

Description	2016 Limit
Defined benefit plan limit for annual benefits PR Code Section 1081.01(a)(11)(A)(i)	$210,000
Defined contribution plan limit for annual contributions PR Code Section 1081.01(a)(11)(B)(i)	$53,000
Annual limit on compensation PR Code Section 1081.01(a)(12)	$265,000
Highly compensated employee dollar threshold PR Code Section 1081.01(d)(3)(E)(iii)(IV)	$120,000
Deferral limit - dual qualified plans¹ & federal government retirement plan PR Code Section 1081.01(d)(7)(A)(ii)	$18,000
Dollar limitation for catch-up contributions for participants of federal government retirement plans PR Code Section 1081.01(d)(7)(C)(i)	$6,000
Deferral Limit — PR only qualified plans² PR Code Section 1081.01(d)(7)(A)(i)	$15,000
Dollar limitation for catch-up contributions for participants of PR only and dual qualified retirement plans PR Code Section 1081.01(d)(7)(C)(i)	$1,500
Participant after-tax contribution limit PR Code Section 1081.01(a)(15)	10% of participant's aggregate compensation for all years of participation in the plan

The PRTD also noted that benefit distributions from Puerto Rico qualified plans to participants and beneficiaries that: (i) are Puerto Rico residents at the time of the distribution or that, (ii) accumulated benefits or received contributions while being active plan participants and Puerto Rico residents are subject to the taxation rules for plan distributions under the pertinent provisions of the PR Code.

Furthermore, the PRTD reminded plan sponsors of Puerto Rico qualified plans that the withholding at source and reporting provisions of the PR Code applicable to distributions to Puerto Rico participants and beneficiaries apply to all Puerto Rico qualified plans even those established and operated from the United States and qualified under the US Internal Revenue Code of 1986, as amended. Plan sponsors that fail to comply with these rules may be subject to penalties under the PR Code.

Implications

Plan sponsors and / or record-keepers of dual qualified plans and Puerto Rico-only qualified plans need to be aware of these limits in order to timely reflect the appropriate limitations in their systems for tax years that begin on or after January 1, 2016, and to properly assess and comply with applicable withholding and reporting obligations resulting from distributions from those plans.

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Contact Information
For additional information concerning this Alert, please contact:

State and Local Taxation Group
• Rosa M. Rodríguez	(787) 772-7062
• Pedro Mercado-Reyes	(787) 772-7177

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ENDNOTES

¹ Dual qualified plan - Plan qualified under both the PR Code and the US Internal Revenue Code of 1986, as amended.

² PR only qualified plan - Plan qualified under the PR Code only.

Document ID: 2016-0205