Compliance Newsletter February 2023
- Puerto Rico 2023 Limits
2023 limits have been announced for retirement plans solely or dually qualified in Puerto Rico. - Disaster Relief for Georgia, Alabama, and California
The IRS and PBGC extended certain deadlines for taxpayers in response to natural disasters in Georgia, Alabama, and California. - PBGC Creates SFA Exception Process for Withdrawal Liabilities
Under a narrow set of circumstances, a plan may request an exception to withdrawal liability rules.
Puerto Rico 2023 Limits
The Puerto Rico Department of Treasury announced the 2023 limits for retirement plan sponsors of dually qualified plans and plans qualified solely in Puerto Rico.
| Description | 2022 | 2023 |
|---|---|---|
| Compensation | $305,000 | $330,000 |
| Defined Contribution Annual Contribution Limit | $61,000 | $66,000 |
| Defined Benefit Annual Benefit Limit | $245,000 | $265,000 |
| Highly Compensated Employee* | $135,000 | $150,000 |
| Pretax Elective Deferral – Dual Qualified | $20,000 | $20,000 |
| Pretax Elective Deferral – Solely Qualified | $15,000 | $15,000 |
| Catch-up – (Plan not sponsored by federal government and at least age 50 by plan year end) | $1,500 | $1,500 |
| Catch-up (Only retirement plans sponsored by federal government and at least age 50by plan year end) | $6,500 | $7,500 |
| After-Tax Voluntary –Solely Qualified | 10% of the participant’s maximum recognizable compensation for all years of participation in the retirement plan | |
* Employee is highly compensated for 2023 if they received compensation in excess of $135,000 in 2022; or a shareholder owning over 5% of the voting shares or total value of all stock of the employer; or if the employer is not a corporation, owning over 5% of the capital or interest in the profits of the employer.
Disaster Relief for Georgia, Alabama, and California
In response to severe storms, straight line winds, and tornados that occurred in Georgia and Alabama beginning on January 12, 2023 and severe winter storms, flooding, landslides, and mudslides in California beginning on December 27, 2022, the Internal Revenue Service (IRS) extended various deadlines for impacted businesses and taxpayers in Georgia, Alabama, and California. Pension Benefit Guaranty Corporation (PBGC) also offers relief for certain deadlines according to a one-time announcement published in the federal Register on July 2, 2018.
Impacted Areas
Individuals who reside or have a business anywhere within the Georgia counties of Butts, Henry, Jasper, Meriwether, Newton, Spalding, and Troup; the Alabama counties of Autauga, Coosa, Dallas, Elmore, Greene, Hale, Sumter, and Tallapoosa; and the California counties of Calaveras, Merced, Monterey, Sacramento, San Benito, San Joaquin, San Luis Obispo, San Mateo, Santa Barbara, Santa Cruz, Tulare, and Ventura may be eligible for extended deadline relief.
Deadline Relief
For Georgia and Alabama, certain deadlines are extended until May 15, 2023 if they fall on or after January 12, 2023 and before May 15, 2023. For California, certain deadlines are extended until May 15, 2023 that fall on or after December 27, 2023 and before May 15, 2023.
Below is a partial list of retirement-impact tax filing and payment deadlines that may be extended:
- Retirement plan loan repayments under Internal Revenue Code section 72(p)(2)
- Required minimum distributions under Internal Revenue Code section 401(a)(9)
- The 10% additional income tax continues to not apply even if the following is missed during the relief period:
- Substantially equal payments made over the participant’s life or joint lives of the participant and designated beneficiary
- Deadline for using a distribution from an IRA for a first-time home purchase by the close of the 120th day after the distribution is received
- Prior tax year contribution deadlines for retirement plans
- Indirect rollover distribution deadlines
- 60-day rollovers
- Rollover of qualified loan offsets
- Refunds as a result of
- Excess deferrals
- ADP/ACP non-discrimination testing
- Eligible automatic contribution arrangement (EACA) withdrawals
- Excess IRA contributions
- Deadline for recontributing qualified reservist distributions
- Form 5500 and Form 8955-SSA filing Form 5498 for IRAs
- PBGC premium payments
- PBGC deadlines that are based on the Form 5500 deadline
- Single Employer Plan Termination Forms 500 and 501
Additional Resources
For any questions related to IRS deadlines and other disaster-related issues, the IRS has a toll-free number at 1-866-562-5227. For PBGC disaster-related questions, call 1-800-736-2444 ext. 4136.
PBGC Creates SFA Exception Process for Withdrawal Liabilities
The American Rescue Plan Act of 2021 (ARPA) created a way for certain troubled multiemployer plans to receive a lump sum in order to make benefit payments through the last day of the plan year ending in 2051. When an employer withdraws from an underfunded multiemployer plan, that plan may owe withdrawal liability to the plan under ERISA rules. The withdrawal liability represents the amount of unfunded vested benefits attributable to the withdrawing plan.
In July 2022, the Pension Benefit Guaranty Corporation (PBGC) issued a final rule describing how withdrawal liabilities should be calculated using a set of rates and methodologies. In response to public comments received regarding the special financial assistance (SFA) final rule, PBGC has created an exception process for certain withdrawal liability conditions for plans that receive SFA.
Exception Process
The rules for withdrawal liabilities are intended to support the payment of benefits and are not intended to support employer withdrawals. Under the new rule, which is effective on January 26, 2023, an exception would be available under a narrow set of circumstances where the application of the withdrawal liability conditions would result in a lower withdrawal liability assessment and an increase in employer withdrawals. This situation may occur for plans using a PBGC-approved alternative allocation method for determining withdrawal liability. To request an exception, a plan sponsor can submit a request in writing during a pre-submission consultation with PBGC or before the SFA application process.
The subject matter in this communication is educational only and provided with the understanding that Principal® is not rendering legal, accounting, investment or tax advice. You should consult with appropriate counsel, financial professionals or other advisors on all matters pertaining to legal, tax, investment or accounting obligations and requirements.
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