Under long-standing Puerto Rican rules, qualified retirement plans subject to the Puerto Rico Internal Revenue Code (PR Code) must file for an updated determination letter from the Puerto Rico Treasury (Hacienda) if the plan adopts a “qualification amendment.” Given the multitude of changes in the Setting Every Community Up for Retirement Enhancement Act of 2022 (SECURE 2.0), plan sponsors were unsure whether adopting certain SECURE 2.0 amendments would require an updated determination letter.
In Administrative Determination No. 25-03 (AD 25-03), the Hacienda clarifies that SECURE 2.0 amendments will not require sponsors of retirement plans covering residents of Puerto Rico to file for an updated determination letter, although adopting additional, non-SECURE 2.0 amendments may trigger the need for an updated letter.
SECURE 2.0 made changes to provisions found in both the U.S. Internal Revenue Code (U.S. IRC) and ERISA that affect most qualified retirement plans. Some of the SECURE 2.0 changes are mandatory whereas others are voluntary.
SECURE 2.0 provisions have varying effective dates, with some being already effective. Nonetheless, the deadline for incorporating amendments reflecting these changes (whether mandatory or voluntary) is generally December 31, 2026.
Qualified retirement plans that cover Puerto Rico residents only are subject to the qualification requirements of the PR Code, which was not amended by SECURE 2.0.[1] A qualified retirement plan that covers residents located in both Puerto Rico and the U.S. is subject to both the PR Code and the U.S. IRC. These plans are referred to as dual-qualified plans. In any event, both PR-only and dual-qualified plans must comply with the requirements found in ERISA.
Putting all these pieces together means that changes made under SECURE 2.0 will likely impact dual-qualified plans and perhaps PR-only plans that are impacted by an ERISA change or that voluntarily adopt a change made to the U.S. IRC.
Under Puerto Rico rules related to determination letters for qualified plans, plans subject to the PR Code must obtain an updated determination letter if the plan adopts a “qualification amendment.” The phrase is defined in Puerto Rico Circular Letter 16-08 to include a change to a plan’s eligibility rules and changes to the form or method for payment of benefits, provided any of the aforementioned changes affect participants from Puerto Rico. Some SECURE 2.0 plan amendments might meet this definition. However, Circular Letter 16-08 provides that the requirement to seek an updated letter does not apply to amendments that only incorporate changes to the qualification rules of the U.S. IRC and/or ERISA. AD 25-03 was released to help sponsors decide whether an updated determination letter is needed.
AD 25-03 provides that amendments for SECURE 2.0 provisions — whether mandatory or optional — do not constitute “qualification amendments.” The AD specifically mentions the following SECURE 2.0 amendments are not considered “qualification amendments,” despite the fact that they affect plan eligibility, benefits and distributions:
AD 25-03 reminds sponsors that an amendment that does not impact participants in Puerto Rico is not a "qualification amendment."
