Employers with Puerto Rico employees should consider significant changes to the requirements for qualified retirement plans made by a new Puerto Rico tax code. Immediate action may be necessary to comply with tax and withholding requirements for plan distributions.

On January 31, 2011, the Commonwealth of Puerto Rico adopted a new Internal Revenue Code (PR Code) that contains numerous changes to sections governing qualified retirement plans. Generally effective immediately for tax years beginning on or after January 1, 2011, the new code requires significant changes to plan administration and updates of plan documents for both dual-qualified plans (i.e., plans qualified under both the U.S. and Puerto Rico Internal Revenue Codes) and Puerto Rico-only qualified retirement plans.

In general, the qualified retirement plan provisions contained in the new PR Code add requirements that mirror the requirements applicable to U.S. qualified retirement plans. However, Puerto Rico continues to have provisions that result in some significant differences from U.S. qualified plans. In addition, a number of the changes simply codify rules that previously had been issued by the Puerto Rico authorities in circulars, notices or other guidance. Interestingly, the new PR Code does not provide for Roth-type contributions, nor pass-through of dividends from employee stock ownership plans.