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CCH® PENSION — 01/06/12

Transition relief for certain Puerto Rico retirement trusts extended and expanded

The IRS has issued a notice extending and expanding the transition relief provided to certain Puerto Rico retirement trusts under Rev. Rul. 2011-1 and Rev. Rul. 2008-40. The notice also provides additional time for governmental retiree benefit plans under Code Sec. 401(a)(24) to be amended to satisfy the applicable requirements of Rev. Rul. 2011-1.

Rev. Rul. 2008-40 describes the circumstances under which a transfer from a qualified trust to a Puerto Rican trust is treated as a distribution. The ruling provided transition relief through December 31, 2010 (which was extended through December 31, 2011, in Rev. Rul. 2011-1 to permit a tax-free transfer to a Puerto Rico plan and trust (referred to as an ERISA §1022(i)(1) "transferee plan").

In the notice, the IRS notes that, when Rev Rul. 2011-1 and 2008-40 were issued, the qualification provisions for retirement plans were contained in section 1165 of the Puerto Rico Code. On January 31, 2011, the retirement plan qualification provisions of the Puerto Rico Code were extensively amended. The IRS says it anticipates issuing guidance responding to comments received in connection with Rev. Rul. 2011-1.

To give plan sponsors time to consider changes to the Puerto Rico Code, the transition relief provided in Rev. Rul. 2008-40 is extended for transfers to an ERISA §1022(i)(1) transferee plan from any qualified retirement plan until December 31, 2012, regardless of whether the qualified retirement plan participates in a group trust. The relief is also expanded to cover a group trust under Rev. Rul. 81-100 with respect to an investment by an ERISA §1022(i)(1) transferee plan if assets of the transferor plan were held in the 81-100 group trust on January 10, 2011.

The notice also provides additional time for governmental retiree benefit plans described in Code Sec. 401(a)(24) to be amended to satisfy requirements under Rev. Rul. 2011-1 that apply to those plans.

In addition, the IRS is requesting comments on whether the rule stating that the tax status of the group trust is derived from the tax status of the participating entities to the extent of their equitable interest in the group trust should be extended to cases where the equitable interest in the group trust is held by an ineligible entity that is an employee benefit plan under certain circumstances.

Source: IRS Notice 2012-6.

For more information, visit http://www.wolterskluwerlb.com/rbcs.

For more information on this and related topics, consult the CCH Pension Plan Guide, CCH Employee Benefits Management, and Spencer's Benefits Reports.

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