Significant Changes to 1165(e) Contribution Limits (Puerto Rico Qualified Plan Contribution Limits)
After many years of stagnation, a major amendment to the Puerto Rico Internal Revenue Code of 1994, was recently signed into law – an amendment that can greatly impact the design of 1165(e) plans if a plan sponsor chooses to make corresponding changes to its plans.
Since 1997, the maximum annual before-tax employee contributions have been the lesser of 10% of pay or $8,000, but now the contribution limits have changed! Code Section 1165(e)(7)(A) was amended, and now the limits are as follow:
·The 10% limitation was eliminated ·The 2009 and 2010 contribution limit will be $9,000 ·The 2011 contribution limit will be $10,000
The 2012 contribution limit will be $13,000 ·Beginning 2013 the contribution limit will be $15,000
It is important to note that your plans probably reflect the specific contributions limits that were in effect at the time they were written, and this means that they will need to be amended to reflect the changes to the Code if you choose to take advantage of the new increased limits.
Before making changes to your plans, careful consideration should be taken to determine the impact they might have on other areas of compliance such as non-discrimination requirements and costing of payroll contributions.Advanced communications to your employees will also be needed if you make changes to contribution limits, and you will want to give them ample time to make changes.
If you choose to make changes to your plan, record keeping systems and website programming changes will also be necessary and you might also want to consider the impact that any changes have on your total rewards.
Changes need careful consideration, thoughtful planning and precision execution.Please contact us for professional assistance.For legal advice however, you are urged to contact legal counsel. Sansima Consulting Group, Inc. is not licensed to practice law.
If you would like to discuss these changes to the Code or if you need assistance in implementing them please contact us at at 908-829-4801
Sansima Consulting Group, Inc. PO Box 8677 Princeton, NJ 08543-8677 phone: (908) 500-4504 phone: (908) 500-4154