United States: IRS Permits Puerto Rico-Qualified Plans In U.S. Group Trusts, Extends Deadline For Certain Puerto Rico Spin-Offs

The U.S. Internal Revenue Service (IRS) recently issued Revenue Ruling 2014-24, which expressly permits retirement plans that are tax qualified only in Puerto Rico (Puerto Rico-only plans) to continue to pool assets with U.S.-qualified plans in Revenue Ruling 81-100 group trusts (group trusts) now and in the future.  The ruling is welcome relief for Puerto Rico plan sponsors, institutional investors and trustees, who previously were relying on transition relief that permitted Puerto Rico-only plans to participate in U.S. group trusts for only a limited time without facing potential disqualification of the participating U.S. plans and trusts.

Revenue Ruling 2014-24 also extends the deadline for sponsors of certain retirement plans qualified in both the United States and Puerto Rico (dual-qualified plans) that participated in a group trust to make a tax-free transfer of benefits for Puerto Rico employees to a Puerto Rico-only qualified plan prior to January 1, 2016.  Eligibility is limited only to dual-qualified plans that participated in a group trust as of January 20, 2011.


U.S.-qualified retirement plans are permitted to pool their assets for investment purposes in a U.S. group trust only if certain requirements are satisfied.  A few years ago, the IRS issued Revenue Ruling 2011-1, which revised and restated the generally applicable rules for group trusts described in Revenue Ruling 81-100.  In particular, Revenue Ruling 2011-1 provided that only certain entities defined as "group trust retiree benefits plans" are eligible to participate in U.S. group trusts.  

Prior to Revenue Ruling 2011-1, comments made by certain IRS officials created uncertainty regarding the ability of Puerto Rico-only plans to participate in U.S. group trusts.  As described in our  On the Subject regarding Revenue Ruling 2011-1, these earlier comments made it appear that the IRS was going to change its position (previously stated in numerous favorable private letter rulings) on whether Puerto Rico-only plans could participate in U.S. group trusts.  After receiving numerous negative comments from practitioners on this apparent change in position, the IRS stated in Revenue Ruling 2011-1 that Puerto Rico-only qualified plans could continue to participate in U.S. group trusts until further notice, while the IRS considered the issue.

A prohibition by the IRS on participation in U.S. group trusts by Puerto Rico-only plans would have caused significant problems for sponsors of such plans.  Puerto Rico retirement plan assets on their own are often too small to meet minimum investment requirements, and thus cannot obtain the same investments at the same cost as U.S.-qualified plans.  Preventing Puerto Rico-only qualified plans from participating in group trusts likely would have led to fewer options and/or higher retirement plan fees for Puerto Rico participants.

The confusion regarding the IRS position on the ability of Puerto Rico-only plan participation in group trusts was especially problematic because certain plan sponsors had recently converted (or were in the process of converting) their dual-qualified plans to Puerto Rico-only qualified plans in reliance on a transition period the IRS previously had established in Revenue Ruling 2008-40.  Revenue Ruling 2008-40 allowed plan sponsors to make a tax-free transfer of benefits attributable to Puerto Rico participants from a dual-qualified plan to a Puerto Rico-only qualified plan for a transition period that was eventually extended until December 31, 2012.  Following the end of this transition period, plan assets from dual-qualified plans could not be transferred to Puerto Rico-only qualified plans without triggering taxation of the assets and the potential disqualification of the dual-qualified plan under the U.S. Internal Revenue Code.  In recognition of the confusion created by having this transition period while simultaneously failing to provide definitive guidance regarding the ability of Puerto Rico-only plans to participate in U.S. group trusts, the IRS also stated in Revenue Ruling 2011-1 (further modified by Notice 2012-6), stating that the deadline for dual-qualified plans to participate in a group trust was extended until further notice.

Puerto Rico Plan Participation in Group Trusts

Revenue Ruling 2014-24 now makes it clear that Puerto Rico-only plans may continue to pool assets with U.S.-qualified plans in group trusts now and in the future.  The ruling provides certainty for Puerto Rico plan sponsors who may continue to invest plan assets in group trusts and seek out new group trust investment options.  The rule also provides certainty for institutional investors and trustees, who may now continue to permit Puerto Rico-only plans to participate in U.S. group trusts and not face potential disqualification of the participating U.S. plans and trusts.  The ruling will make it easier for plan sponsors to continue to maintain or establish Puerto Rico-only plans and avoid the administrative and tax complications that can result from having a dual-qualified plan.

Dual-qualified Plan Transfers

Revenue Ruling 2014-24 also extends the deadline to December 31, 2015, for sponsors of dual-qualified plans that participated in a group trust on January 10, 2011, to make a tax-free transfer of benefits for Puerto Rico employees to a Puerto Rico-only qualified plan.  This will likely be the last opportunity to consider this option, so sponsors of plans that participate in a group trust should consider carefully whether they want to continue maintaining a dual-qualified plan.  Some issues to consider are:

  • An employer maintaining a dual-qualified plan must make sure that the plan involved complies with the technical qualification and nondiscrimination testing rules of both the U.S. Internal Revenue Code and the Puerto Rico tax code.  One challenge with maintaining a dual-qualified plan is that the qualification rules in Puerto Rico are not always the same as in the United States, and it is not always easy to meet both rules at the same time.  Although this compliance challenge was more problematic prior to 2011, when Puerto Rico adopted a new tax code that updated most of the Puerto Rico-qualified plan requirements to mirror the U.S. rules, the requirements are still not completely identical.
  • Dual-qualified plans present significant tax issues for Puerto Rico plan participants when they receive distributions from the plan.  Distributions from dual-qualified plans are generally subject to double taxation—Puerto Rico taxes on the full amount of the payment, plus U.S. taxes on the U.S.-source portion of the payment.  For example, in dual-qualified defined contribution plans such as 401(k) or profit-sharing plans, the portion of the payment that represents earnings that have accrued over the years in a U.S.-based trust is treated as U.S.-source income.  As a result, the earnings portion of the payment to Puerto Rico employees is taxed twice, both in Puerto Rico and the United States.  The dual taxation of payments from dual-qualified plans creates significant complexities for Puerto Rico taxpayers wishing to rollover their plan distributions to another employer's plan or an Individual Retirement Account.  Puerto Rico residents who take a distribution may recoup some or all of the dual taxation through claiming foreign tax credits on their tax returns; but in reality, these tax credits are often not claimed by most rank-and-file Puerto Rico taxpayers who are not familiar with the filing of U.S. tax returns.

Next Steps

Sponsors of Puerto Rico-only retirement plans should consider whether this ruling will impact their investment options, for example, by facilitating the ability of their Puerto Rico-only plan to use the same group trust investment option as their U.S. plan.  Sponsors of dual-qualified retirement plans that participate in a group trust who put off the decision whether to consider a spin-off to a Puerto Rico-only plan may want to again consider this option, now that the IRS has established a deadline for such spin-offs to be completed prior to January 1, 2016.

IRS Permits Puerto Rico-Qualified Plans in U.S. Group Trusts, Extends Deadline for Certain Puerto Rico Spin-Offs

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.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

In association with
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement

Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of www.mondaq.com

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


From time to time Mondaq may send you emails promoting Mondaq services including new services. You may opt out of receiving such emails by clicking below.

*** If you do not wish to receive any future announcements of services offered by Mondaq you may opt out by clicking here .


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at enquiries@mondaq.com.

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.