On December 28, 2019, the Puerto Rico Department of the Treasury issued Internal Revenue Circular Letter No. 19-17 (CL IR 19-17) announcing the applicable limits for Puerto Rico qualified retirement plans for 2020. Pursuant to Section 1081.01(h) of the Puerto Rico Internal Revenue Code of 2011, as amended (PR Code), the Secretary of the Treasury is required, before the beginning of each taxable year, to provide notice of the applicable limits under Section 401(a) of the Internal Revenue Code of 1986, as amended (US Code), which are incorporated by reference into the PR Code limits (e.g., annual compensation, annual benefit/contribution limits), once the IRS publishes its retirement plan limits under the US Code. The IRS issued its notice of the changes under the US Code on November 6, 2019. Thus, the following are the applicable 2020 limits for qualified retirement plans in Puerto Rico:
- Annual Benefit Limit applicable to defined benefit plans – $230,000 (increased from $225,000 for 2019).
- Annual Contribution Limit applicable to participant accounts in defined contribution plans – $57,000 (increased from $56,000 for 2019).
- Annual Compensation Limit – $285,000 (increased from $280,000 for 2019).
- Compensation Limit for highly compensated employees (HCE) – $130,000 (increased from $125,000 for 2019). This is the limit for the base year (2020) for 2021 testing in the case of calendar year plans. For year 2020 testing, CL IR 19-17 indicates that the limit for the base year (2019) is $125,000.
- Elective Deferrals Limit applicable only to participants in a dual qualified plan or to federal government employees – $19,500 (increased from $19,000 for 2019).
- Catch-up Contributions Limit applicable only to federal government employees age 50 or over –$6,500 (increased from $6,000 for 2019).
- Elective Cash or Deferral Contributions Limit applicable to participants in a plan qualified only under Section 1081.01(a) of the PR Code – $15,000 (unchanged from prior years).
- Catch-up Contributions Limit applicable to participants in a plan not sponsored by the federal government who at the end of the plan year are at least 50 years of age – $1,500 (unchanged from prior years).
- After-Tax Voluntary Contributions by employees participating in a plan qualified only under Section 1081.01(a) of the PR Code – 10% of the aggregate compensation of the employees for all years in which they are participants in a retirement plan (unchanged from prior years).
Employers in Puerto Rico should be aware of these developments and should contact knowledgeable counsel with any questions.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.