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Employee Benefit Plans and the New Puerto Rico Tax Code: Retirement Plan Transfers Between U.S. and P.R. and More

Employee Benefit Plans and the New Puerto Rico Tax Code: Retirement Plan Transfers Between U.S. and P.R. and More
Product Code - TMA23
Speaker(s): Carlos Gonzalez, President, LLC, San Juan, P.R. and Eugene M. Holmes, Senior Counsel, Proskauer Rose LLP, Washington, DC
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Effective January 1, 2011, a new Puerto Rico income tax code went into effect.  The new code made several changes to the local rules on the establishment, qualification and operation of retirement plans in Puerto Rico, including modifying some of the nondiscrimination testing requirements, imposing new limits on benefits and contributions, increasing the limits on elective deferrals to 401(k) plans, setting due dates for completing plan filings with the Puerto Rico Department of the Treasury (commonly known as "Hacienda"), and expanding the income taxation of retirement benefits.  All sponsors and plan administrators of qualified retirement plans that cover employees rendering services in Puerto Rico will most likely have to take certain actions between 2011 and 2012 in order to comply with the new rules.  Carlos Gonzalez was the Puerto Rico benefits and compensation practitioner that assisted Hacienda with the evaluation and drafting of the new rules, and he discusses them in full detail and addresses action items and alternatives companies should consider for properly operating retirement plans in Puerto Rico under the new rules.

The presentation also focuses on the technical aspects and practical considerations of transfers of participants, assets and liabilities from retirement plans qualified in the United States to retirement plans qualified in Puerto Rico. When properly planned and implemented, a transfer can result in a significant improvement of the retirement benefits of Puerto Rico employees at little cost to their employer. These transfers have to be completed by December 31, 2011. Companies interested in making a transfer need to start taking action as soon as possible. The presentation will address the pros and cons of qualified plan transfers, the profile of the companies that may benefit from them, the costs and the process for completing a transfer.

This webinar covers recent developments and strategies for improving and controlling the costs of benefit programs on the Island, and will allow ample time for questions and answers.


I.      New Puerto Rico Rules on Qualified Retirement Plans

A.     Background

                                i.      Objectives and effective dates of new rules

                                ii.      Plans and employers subject to them

B.     Changes to general plan qualification requirements

                                i.      Nondiscrimination testing

                                ii.      Limits on annual benefits, contributions and compensation

C.     New rules specific to 401(k) plans

                                i.      Changes to ADP Test and local excise taxes on late correction of failed test

                                ii.      Increased limits on elective deferrals and catch-up contributions

D.     Income taxation of retirement benefits of Puerto Rico employees

                                i.      Expanded income tax withholding requirements

                                ii.      Special tax rules and tax-free rollovers

                                iii.      Local informative returns on distributions

                                iv.      Alternatives for avoiding potential liability for under-withholding and under-reporting

E.      Revised limits on tax deduction for contributions to qualified plans

F.      Process for qualifying plans with Hacienda

G.     Action items and time frame for complying with new rules

II.     Transfers of United States Plans to Puerto Rico Plans

A.     Background

                                i.      Reasons for transfers

                                ii.      Technical aspects of transfers between United States and Puerto Rico plans

                                iii.      Profile of plan sponsors that may/may not benefit from transfers

B.     Process for completing transfers

                                i.      Compliance with U.S. tax requirements

                                ii.      Compliance with P.R. tax requirements

                                iii.      Cost and expenses associates with transfers

C.     Open issues and practical considerations of transfers

                                i.      Due date and time frame for completing transfers

                                ii.      Correction of  plan qualification failures identified during transfer process

                                iii.      Impact of failing to complete transfer on subsequent plan administration

                                iv.      Participation of Puerto Rico retirement plans in United States group trusts

III.     Other Recent Developments and Planning Opportunities

A.     Implementation of United States benefit programs in Puerto Rico through Hacienda PLRs

B.     Status of cafeteria plans and consumer driven healthcare in Puerto Rico

C.     Development of officer pay and equity-based compensation programs in Puerto Rico

D.     Risk management and cost control strategies particular to Puerto Rico plans

Who Should Attend?

Attorneys, consultants, and other advisors of companies with operations or planned operations in Puerto Rico.

Educational Objectives

Upon completion of this webinar, participants will be able to:

  • Understand the recent changes to the local tax rules on qualified retirement plans in Puerto Rico, assess the impact such changes may have on the operation of retirement plans covering Puerto Rico participants, and determine the various alternatives for complying with the new rules.
  • Get an overview of additional changes that are likely to result from the regulations soon to be issued under the new Puerto Rico tax code.
  • Evaluate whether it makes financial and practical sense to transfer the Puerto Rico participants in a United States qualified plan to a separate retirement plan qualified only in Puerto Rico, and the process to be followed for completing such a transfer.
  • Keep abreast of recent developments in the benefits and compensation field on the Island.

Carlos Gonzalez, President, LLC, San Juan, P.R. and Eugene M. Holmes, Senior Counsel, Proskauer Rose LLP, Washington, DC


Carlos Gonzalez is the President of LLC, a law firm devoted to assisting U.S. and international companies with their employee benefits and executive compensation matters in Puerto Rico.  Carlos has over twenty years’ experience as a tax, benefits and compensation professional, both in the United States and Puerto Rico.  He assists businesses with all aspects regarding the establishment, operation and termination of employee benefits and executive compensation programs in Puerto Rico, including the qualification of retirement plans with the Puerto Rico Department of the Treasury, the implementation of cost control and risk management strategies, and the handling of employee benefits claims, ERISA lawsuits and government audits and investigations.  Carlos is the author of the leading publication on retirement plans in Puerto Rico; 324 Tax Management, International Pension Planning – Puerto Rico, and is a professor on benefits and compensation at the University of Puerto Rico Law School.  He has served as an advisor to the Puerto Rico Department of the Treasury, the IRS and the United States Department of the Treasury on Puerto Rico qualified plan matters.  Carlos has a BBA with a major in accounting and a J.D. from the University of Puerto Rico, and an LLC in Taxation with an Employee Benefits Certificate from the Georgetown University Law Center.  He is a member of the Georgia, Puerto Rico and Washington DC bars and the Puerto Rico Society of Certified Public Accountants.

Eugene M. Holmes is a Senior Counsel in the Employee Benefits, Executive Compensation & ERISA Litigation Practice Center, resident in the Washington, D.C. office.  Eugene’s practice focuses on a broad range of employee benefit issues, including counseling clients on all aspects of pension and health and welfare plan administration, mergers and acquisitions, reduction in force initiatives and government audits. He has extensive experience in issues relating to tax qualification of defined contribution and defined benefit retirement plans, employee benefit plan design and structure and participant communications.  Eugene works with a variety of national and international public and private companies. He has assisted clients with extensive employee benefit plan compliance reviews, plan design, compliance and termination issues related to corporate transactions and employee benefit plan restructuring and consolidation issues resulting from employer workforce change.  In addition, Eugene has written a number of articles and frequently lectures on various employee benefit issues.