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U.S. INTERNAL REVENUE SERVICE ANNOUNCES 2014 RETIREMENT PLAN LIMITATIONS

 

As expected, the Internal Revenue Service recently published the cost-of-living adjustments affecting dollar limitations for pension plans and other retirement-related items for tax year 2014. The Internal Revenue Code for a New Puerto Rico of 2011, as amended, now incorporates some of these limitations under Sections 1081.01(a) and (d).

 

Compensation Limitation - Puerto Rico qualified retirement plans' trusts can maintain exempt status only if the annual compensation of a participant that can be taken into account for purposes of determining contributions or benefits under the plan and the application of the discrimination tests and limitations of benefits and contributions under the Code does not exceed the applicable limit for a particular tax year under Section 401(a)(17) of the U.S Internal Revenue Code of 1986, as amended, and as adjusted by the Secretary of the Treasury.

 

For the 2014 tax year, the 401(a)(17) compensation limitation is increased from $255,000 to $260,000.

 

Annual Pension Benefit Limitation- Puerto Rico qualified defined benefit plans' trusts can maintain exempt status only if the annual benefit with respect to a participant, when expressed as a benefit payable annually using a straight life annuity, does not exceed the lesser of: (i) the applicable limit for a tax year under Section 415(b) of the U.S Internal Revenue Code of 1986, as amended, and as adjusted by the Secretary of the Treasury; or (ii) 100% of the participant's average annual compensation.

 

For the 2014 tax year, the 415(b) annual benefit limitation is increased from $205,000 to $210,000.

 

Annual Additions Limitation- Puerto Rico qualified defined contribution plans' trusts can maintain exempt status only if the annual contributions of the employer and the participants and other additions in relation to a participant (excluding rollover contributions) do not exceed the lesser of: (i) the applicable limit for a tax year under Section 415(c) of the U.S Internal Revenue Code of 1986, as amended, and as adjusted by the Secretary of the Treasury; or (ii) 100% of the participant's compensation paid by the employer.

 

For the 2014 tax year, the 415(c) annual benefit limitation is increased from $51,000 to $52,000.

 

Highly Compensated Employee Threshold - Puerto Rico qualified retirement plans' trusts can maintain exempt status only if certain coverage and discrimination requirements are met. These coverage and discrimination tests compare statistics of highly compensated employees against statistics of non-highly compensated employees. A highly compensated employee ("HCE") is defined as any employee who, among other parameters, for the preceding tax year had compensation from the employer in excess of the applicable limit for the particular tax year under Section 414(q)(1)(B) of the of the U.S Internal Revenue Code of 1986, as amended, and as adjusted by the Secretary of the Treasury.

 

For the 2014 tax year, the 414(q)(1)(B) HCE compensation threshold remains unchanged at $115,000.

 

Elective Deferrals Limitation (Pre-Tax Contributions) - Puerto Rico qualified retirement plans' trusts of plans that are also qualified under Section 401(k) of the U.S Internal Revenue Code of 1986, as amended, can maintain exempt status only if a participant's elective deferrals for a particular tax year do not exceed the limit provided under Section 402(g) of the U.S Internal Revenue Code of 1986, as amended, and as adjusted by the Secretary of the Treasury.

 

For the 2014 tax year, the 402(g) elective deferrals limitation remains unchanged at $17,500.

 

Plan sponsors and administrators should take notice and modify their plan administrations practices accordingly.

 

The Labor Law Group at Fiddler González & Rodríguez, P.S.C., will issue the FGR LABOR WATCH with information of legal issues and developments in areas of interest to our friends and clients. If you know anyone who would like to receive the FGR LABOR WATCH, please feel free to forward this newsletter. For more information about any matter raised in this Labor Watch, please contact your usual FGR labor lawyer or José A. Silva Cofresí at jsilva@fgrlaw.com.

©2014 FIDDLER GONZÁLEZ & RODRÍGUEZ, P.S.C. Permission is granted to view, store, print, copy or distribute the content of this newsletter for noncommercial or personal use, provided you do not alter it and you give us proper credit. The content of this newsletter is for informational purposes only. It is not legal advice or advertising. In addition, the above discussion has been provided in general terms and, therefore, should not be relied upon as legal advice applicable to a specific set of facts and circumstances. Before taking legal action, consult a lawyer you trust. Although we will try to be accurate, you cannot rely on its applicability to your specific problem without consulting your lawyer. Fiddler González & Rodríguez, P.S.C. and the members of the Labor Law Group assume no responsibility to inform you of additional changes in law or any other legal issues related to matters addressed in this email of which we may become aware after the date hereof. This newsletter is not intended to create an attorney-client relationship between you and our firm or any of our attorneys. If we are not already representing you, be mindful that your email communications to any of our lawyers will not be treated as privileged or confidential until you ask us to represent you, we first conduct a conflict of interest search, we agree to represent you and you sign an engagement letter from the law firm.

***IRS CIRCULAR 230 DISCLOSURE: To ensure compliance with requirements imposed by the Internal Revenue Service, we inform you that any United States federal tax advice in this communication (including any attachments) is not intended or written by Fiddler González & Rodríguez, P.S.C. to be used, and cannot be used, for the purpose of (i) avoiding any penalties under the Internal Revenue Code, or (ii) promoting, marketing or recommending to another party any transaction or matter addressed herein. **

 

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