Information contained in this publication is intended for informational purposes only and does not constitute legal advice or opinion, nor is it a substitute for the professional judgment of an attorney.
The Puerto Rico Department of the Treasury recently issued Internal Revenue Circular Letter No. 23-01 (CL IR 23-01) announcing the applicable 2023 limits for Puerto Rico qualified retirement plans. Pursuant to Section 1081.01(h) of the Puerto Rico Internal Revenue Code of 2011, as amended (PR Code), the Secretary of the Treasury is required to publish the applicable limits under Section 401(a) of the Internal Revenue Code of 1986, as amended (US Code), which are incorporated by reference into the PR Code limits (e.g., annual compensation, annual benefit/contribution limits), once the IRS publishes its retirement plan limits under the US Code. Thus, the following are the applicable 2023 limits for qualified retirement plans in Puerto Rico:
- Annual Benefit Limit applicable to defined benefit plans – $265,000 (increased from $245,000 for 2022).
- Annual Contribution Limit applicable to participant accounts in defined contribution plans – $66,000 (increased from $61,000 for 2022).
- Annual Compensation Limit – $330,000 (increased from $305,000 for 2022).
- Compensation Limit for highly compensated employees (HCE) – $150,000 (increased from $135,000 for 2022). This is the limit for the base year (2023) for 2024 testing in the case of calendar year plans.
- Catch-up Contributions Limit applicable only to federal government employees ages 50 or over –$7,500 (increased from $6,500 from 2022).
- Elective Cash or Deferral Contributions Limit applicable to participants in a plan sponsored by the federal government or a plan qualified under both Section 1081.01(a) of the PR Code and Section 401(k) of the US Code– $20,000 (unchanged from 2022).1
- Elective Cash or Deferral Contributions Limit applicable to participants in a plan qualified only under Section 1081.01(a) of the PR Code - $15,000 (unchanged from prior years).
- 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 (unchanged from prior years).
- After-Tax Voluntary Contributions by employees participating in a plan qualified only under Section 1081.01(a) of the PR Code – 10% of the aggregate compensation of the employees for all years in which they are participants in a retirement plan (unchanged from prior years).
Employers in Puerto Rico should be aware of these developments and should contact knowledgeable counsel with any questions.
1 Of importance for employers with dual-qualified plans, the IRS’ limits for elective deferrals applicable to participants in a dual-qualified plan, or to federal government employees, is $22,500, pursuant to IRS’ notice of limits applicable to 2023. However, pursuant to Section 1081.01(d)(7)(iii) of the PR Code, the elective deferral limits applicable to Puerto Rico participants in a dual-qualified plan may not exceed $20,000, as any amount contributed in excess of the aforementioned limit established by the PR Code will be taxable. Therefore, even if Puerto Rico employees participate in a dual-qualified plan, they will not be able to make elective deferrals in excess of $20,000, regardless of the language of the IRS’ notice of limits.