IRS Extends Transition Relief for Puerto Rico Qualified Plans to Participate in U.S. Group Trusts and Deadline to Transfer Assets

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By Nancy S. Gerrie, Esq., and Jeffrey M. Holdvogt, Esq.  

McDermott, Will & Emery LLP, Chicago, IL

On December 21, 2011, the IRS issued Notice 2012-6, which provides welcome relief for U.S. employers with qualified employee retirement plans that cover Puerto Rico employees. Notice 2012-6 provides that the IRS will extend the deadline for employers sponsoring plans that are tax-qualified only in Puerto Rico (ERISA §1022(i)(1) Plans) to continue to pool assets with U.S.-qualified plans in group and master trusts described in Rev. Rul. 81-100 (81-100 group trusts) until further notice, provided the plan was participating in the trust as of January 10, 2011, or holds assets that had been held by a qualified plan immediately prior to the transfer of those assets to an ERISA §1022(i)(1) Plan pursuant to a spin-off from a U.S.-qualified plan under Rev. Rul. 2008-40.

Notice 2012-6 also extends the deadline for sponsors of retirement plans qualified in both the United States and Puerto Rico (dual-qualified plans) to spin off and transfer assets attributable to Puerto Rico employees to ERISA §1022(i)(1) Plans, with the resulting plan assets considered Puerto Rico-source income and not subject to U.S. tax.

There are now two separate deadlines:

First, in recognition of the fact that Puerto Rico adopted a new tax code in 2011 with significant changes to the requirements for qualified retirement plans, the IRS has extended the general deadline to December 31, 2012, for dual-qualified plans to make transfers to Puerto Rico-only plans, in order to give plan sponsors time to consider the effect of the changes made by the new tax code.

Second, in recognition of the fact that the IRS has not yet issued definitive guidance on the ability of an ERISA §1022(i)(1) Plan to participate in 81-100 group trusts, the IRS has extended the deadline for dual-qualified plans that participate in an 81-100 group trust to some future deadline, presumably after the IRS reaches a conclusion on the ability of a dual-qualified plan to participate in an 81-100 group trust, as described in Rev. Rul. 2011-1.

For more information on the issues related to participation of ERISA §1022(i)(1) Plans in 80-100 group trusts, see "IRS Permits Puerto Rico-Qualified Plans to Participate in U.S. Group and Master Trusts for Transition Period, Extends Deadline for Puerto Rico Spin-Offs."

For more information on the issues plan sponsors should consider with respect to a dual-qualified plan spin-off and transfer of assets attributable to Puerto Rico employees to ERISA section 1022(i)(1) plans, see "IRS Sets Deadline for Transfers from Dual-Qualified to Puerto Rico-Only Qualified Plans."]

 For more information, in the Tax Management Portfolios, see Gonzalez-Padro, 324 T.M., International Pension Planning - Puerto Rico.

© 2011 McDermott, Will & Emery, LLP

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