On December 15, 2017, the Puerto Rico Department of the Treasury (the "PR Treasury") issued Tax Policy Circular Letter No. 17-02 ("CL 7-02") announcing the 2018 applicable contribution limits for qualified retirement plans. Pursuant to Section 1081.01(h) of the Puerto Rico Internal Revenue Code of 2011, as amended (the "PR Code"), the Secretary of the Treasury is required, before the beginning of each taxable year, to provide notice of the applicable limits under the U.S. Code, which are incorporated by reference into the PR Code limits (e.g., annual compensation, annual benefit/contribution limits).
On October 19, 2017, the Internal Revenue Service published the applicable limits under the U.S Code for taxable year 2018. Consequently, the PR Treasury announced, through CC 17-02, the applicable limits under the PR Code, including those limits applicable under the U.S. Code.
The following are the applicable 2018 limits:
- Annual Benefit Limit applicable to defined benefit plans – $220,000 (increased from $215,000 for 2017).
- Annual Contribution Limit applicable to defined contribution plans – $55,000 (increased from $54,000 for 2017). Note that Act 106 of August 23, 2017 amended the PR Code to eliminate the limitation imposed by Act 9 of February 8, 2017 and reinstate the limitation based on U.S. Code Section 415(c).
- Annual Compensation Limit – $275,000 (increased from $270,000 for 2017).
- Compensation limit for highly compensated employee ("HCE") – Although the PR Treasury disclosed (CC 17-02) that the limitation is $120,000 (as provided under the U.S. Code), it did not take into account the amendment made by Act 9 of February 8, 2017 to the definition of HCE under the PR Code, establishing a limitation of $150,000 (instead of the limitation pursuant to the U.S. Code). Thus, for plan years 2017 and 2018, the compensation limitation for HCE will be $150,000. We expect some clarification from the PR Treasury in connection with this limitation.
- Elective Deferrals Limit applicable only to participants in a dual qualified plan or to federal government employees – $18,500 (increased from $18,000 for 2017).
- Catch-up Contributions Limit applicable only to federal government employees age 50 or over –$6,000 (remains the same).
- Elective Deferrals Limit applicable to participants in Puerto Rico only qualified plans – $15,000 (remains unchanged).
- 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 (remains unchanged).
- After-Tax Contribution limit – 10% of the aggregate compensation of the employees for all years in which they are participants in a retirement plan (remains unchanged).
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.