The Internal Revenue Service (the “IRS”) issued Revenue Ruling 2014-24 (the “Ruling”). The Ruling amends Revenue Ruling 81-100, the ruling that established the requirements applicable to a tax-qualified group trust. The Ruling expressly permits participation in a group trust by pension, profit sharing and stock bonus plans described in Section 1022(i)(1) of the Employee Retirement Income Security Act of 1974 (“ERISA”), all of the participants of which are residents of Puerto Rico (i.e., a plan that is qualified only under Section 1165 of the Puerto Rico Internal Revenue Code). The Ruling also extends the transition relief provided in Revenue Ruling 2008-40 relating to certain transfers to plans qualifying under Section 1165 of the Puerto Rico Internal Revenue Code through January 1, 2016. Further, the Ruling clarifies that separate accounts maintained by an insurance company whose assets consist solely of plans that are otherwise eligible to invest in a group trust may participate in a group trust, provided the assets of the separate account are insulated from the claims of the insurance company’s general creditors. Sponsors of group trusts should consider the impact of the Ruling on their group trusts and client agreements if they permit or want to permit Puerto Rico plans and/or insurance company separate accounts.
Alert August 26, 2014