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Operating Employee Stock Purchase Plans in Puerto Rico

"[E]ffective as of July 1, 2022, Puerto Rico Act No. 52-2022 amended the Puerto Rico Internal Revenue Code ... [to] allow for the operation of ESPPs in Puerto Rico.... [Some] publicly traded companies doing business in Puerto Rico are now allowing their Puerto Rico employees to participate in their ESPPs. This article summarizes the process that these companies should follow for including their Puerto Rico employees as participants in their U.S.-based ESPPs."

SECURE 2.0 Act Reshapes Puerto Rico Retirement Savings Rules (PDF)

"SECURE 2.0 Act § 107, Increase in Age for Required Beginning Date for Mandatory Distributions ... applies to dual-qualified plans but not to Puerto Rico-only qualified plans. And since SECURE 2.0 Act § 125, Improving Coverage for Part-Time Employees, amended ERISA ... all ERISA-covered retirement plans in operation in Puerto Rico must comply with this change.... [D]ual-qualified 401(k) plans can safely and validly limit catch-up contributions by their Puerto Rico participants to a maximum of $1,500 per year, always on a pre-tax basis."

Text of Hacienda Administrative Determination No. 25-03: Amendments to Puerto Rico's Retirement Plans Pursuant to the Provisions of SECURE Act 2.0

"[T]he Department has determined that amendments adopted by qualified retirement plan sponsors in Puerto Rico to adopt the provisions of the SECURE Act 2.0, whether optional or mandatory ... will not be considered part of the definition of the term 'Qualification Amendments'. Therefore, if a qualified retirement plan in Puerto Rico is amended to adopt the provisions of the SECURE Act 2.0, the plan does not have to be resubmitted to the Department to request a new Letter of Qualification. Any amendments adopted by qualified retirement plan sponsors under the Code, in parallel with the approval of amendments to adopt the provisions of the SECURE Act 2.0, are outside the scope of this Determination; therefore, they must be analyzed in light of CC PC 16-08 to determine whether they should be submitted to the Department for plan qualification."

Which 2026 ACA Adjustments Apply to Healthcare Plans in Puerto Rico?

"The employer shared responsibility requirements of Code Section 4980H do not apply in Puerto Rico ... [However,] healthcare plans in operation in Puerto Rico are subject to limitation on cost-sharing requirements of PHSA Section 2707(b) ... [F]or plan year 2026, annual cost sharing on in-network essential health benefits covered by healthcare plans in operation in Puerto Rico cannot exceed $10,600 for plan participants with self-only coverage and $21,200 for plan participants with coverage other than self-only, such as family coverage."

Puerto Rico Extends Window for Reduced Taxation of Retirement Funds (PDF)

"Even plan administrators who will not handle the Puerto Rico income tax prepayment for participants and beneficiaries should be prepared to provide supporting documentation to Puerto Rico residents about their accrued benefits (e.g., participant statements, benefit calculations, or other administrative documents) to allow them to file their prepayment directly with the Puerto Rico Treasury. To ensure that no more Puerto Rico income tax is withheld from future distributions than necessary, they must also be prepared to credit a participant with Puerto Rico income tax basis if the participant provides them with a stamped prepayment receipt from the Puerto Rico Treasury."

IRS Permits Puerto Rico-Qualified Plans in U.S. Group Trusts, Extends Deadline for Certain Puerto Rico Spin-Offs

"Revenue Ruling 2014-24 now makes it clear that Puerto Rico-only plans may continue to pool assets with U.S.-qualified plans in group trusts now and in the future. The ruling provides certainty for Puerto Rico plan sponsors who may continue to invest plan assets in group trusts and seek out new group trust investment options. The rule also provides certainty for institutional investors and trustees, who may now continue to permit Puerto Rico-only plans to participate in U.S. group trusts and not face potential disqualification of the participating U.S. plans and trusts. The ruling will make it easier for plan sponsors to continue to maintain or establish Puerto Rico-only plans and avoid the administrative and tax complications that can result from having a dual-qualified plan."

HHS Clarifies Applicability of Certain ACA Provisions to Insurers in Puerto Rico

"Regardless of the HHS' recent clarification, however, since the Puerto Rico Health Insurance Code had previously incorporated the ACA, until new guidance is issued under Puerto Rico law, such provisions will continue to apply to Puerto Rico through local law (and not through federal law).... Puerto Rico has now the authority to amend such counterpart ACA provisions included in the Puerto Rico Health Insurance Code to better fit the needs of the health insurance market in Puerto Rico."

Puerto Rico Treasury Extends Deadlines But U.S. Transfer Extension Expires (PDF)

"Puerto Rico's Treasury Department has extended the deadline for amending qualified plans covering employees in Puerto Rico to no earlier than June 30, 2013, and extended the deadline for submitting qualification letter requests to no earlier than September 30, 2013. The IRS has not yet followed suit on extending the deadline for transfers [of participants who were Puerto Rico residents to a plan that would only satisfy the qualification rules under the Puerto Rico Tax Code] and transition relief for coverage tests when Puerto Rico employees are covered under certain Puerto Rico plans."

Deadlines Loom for Retirement Plans Covering Puerto Rico Employees (PDF)

"This new tax code brings the Puerto Rico qualified plan rules even closer to the US IRC qualified plan rules, but also requires all U.S.-qualified plans that allow participation by Puerto Rico employees to satisfy the requirements of the PR IRC.... While some plan sponsors may be tempted to simply maintain the status quo, failure to obtain Puerto Rico qualification will likely result in all benefits accrued and contributions made to date that have not already been taxed becoming immediately subject to Puerto Rico income tax. Going forward, employer contributions for Puerto Rico employees would have to be made on a 'post-tax' basis, and additional earnings will be taxed as vested."

Puerto Rico Tax Amnesty Program Extension Could Help Retirement Plans Correct Failures with Former PR Code's Withholding and Reporting Requirements (PDF)

"[The] Tax Amnesty Program is ... available to Puerto Rico qualified retirement plans, both Puerto Rico-only qualified plans and dual-qualified plans (i.e., plans qualified both in Puerto Rico and the U.S.), that may have failed to comply with the 1994 PR Code's tax withholding (i.e., 5%, 10%, 20% Puerto Rico income tax withholdings, as applicable depending on the type and time of distribution) and reporting requirements (i.e., Forms 480.6A and 6B, and Form 480.7C, as applicable depending on the type and year of distribution) on distributions to participants in Puerto Rico."