If you have any questions in regards to the above, please do not hesitate to contact our offices so that we may explain the amendments to the provisions of the Code in more detail. Our address is:
Fiddler González & Rodríguez, P.S.C., P.O. Box 363507, San Juan, PR 00936-3507. Our fax (787) 759-3108.
We welcome your questions and comments.
José J. Santiago
Carlos A. Padilla
Antonio L. García
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 firstname.lastname@example.org.
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