Puerto Rico'Qualified Retirement Plans: 2020 Year-End Amendments Deadline Coming Soon

• Published date: 07 October 2020
• Subject Matter: Employment and HR, Tax, Retirement, Superannuation & Pensions, Income Tax
• Law Firm: Ogletree, Deakins, Nash, Smoak & Stewart
• Author: Mr Carlos Gonzalez

With the fourth quarter of 2020 upon us, it is time to evaluate the year-end amendments that may be needed for retirement plans that are tax-qualified in Puerto Rico.

Unlike the Internal Revenue Service, which each year issues a list of required amendments to U.S.-qualified plans and their respective adoption due dates, the Puerto Rico Department of the Treasury (commonly known by its Spanish name, Departamento de Hacienda de Puerto Rico, or Hacienda) seldom requires mandatory amendments to Puerto Rico-qualified plans. The year 2020, however, has been an exception to the general rule.

Specifically, if during 2020, a Puerto Rico-qualified plan allowed participants to receive in-service hardship withdrawals on account of either the COVID-19 pandemic or the earthquakes that affected the island at the beginning of the year (collectively, "disaster-relief distributions" or "DRDs"), the official plan document must be amended accordingly by December 31, 2020.

Employers had full discretion to decide whether to offer DRDs under their Puerto Rico retirement plans and to impose reasonable restrictions on, among other things, the amounts, eligibility requirements, and application processes for DRDs. Employers that offered DRDs now need to amend their plans.

DRD-Related Amendments

Items specified in DRD-related amendments typically include:

• participants who were (or were not) eligible for DRDs;
• descriptions of the types of financial losses, unforeseen expenses, and necessities eligible for DRDs;
• limits on the dollar amount or the number of DRDs that a participant could receive during the year;
• the due date for the filing of a completed application for a DRD, which was usually set by the recordkeeper for the plan and
• the due date for the payment of a DRD to the participant, which can be no later than December 31, 2020

Hacienda Filing

An employer does not need to file DRD-related amendments with Hacienda. However, if during 2020, a plan was subject to a qualification amendment, the employer will need file such qualification amendment with Hacienda. In that case, the employer may want to consider including an executed copy of the DRD-related amendment within the Hacienda filing packet for the qualification amendment. By doing so, the employer will likely end up receiving from Hacienda a favorable determination letter covering both the qualification amendment and the DRD-related amendment (i.e written confirmation that Hacienda has officially approved both...