IRS Permits Puerto Rico-Qualified Plans in U.S. Group Trusts, Extends Deadline for Certain Puerto Rico Spin-Offs | Publications | McDermott Will & Emery

The U.S. Internal Revenue Service (IRS) recently issued Revenue Ruling 2014-24, which expressly permits retirement plans that are tax qualified only in Puerto Rico (Puerto Rico-only plans) to continue to pool assets with U.S.-qualified plans in Revenue Ruling 81-100 group trusts (group trusts) now and in the future.  The ruling is welcome relief for Puerto Rico plan sponsors, institutional investors and trustees, who previously were relying on transition relief that permitted Puerto Rico-only plans to participate in U.S. group trusts for only a limited time without facing potential disqualification of the participating U.S. plans and trusts.

Revenue Ruling 2014-24 also extends the deadline for sponsors of certain retirement plans qualified in both the United States and Puerto Rico (dual-qualified plans) that participated in a group trust to make a tax-free transfer of benefits for Puerto Rico employees to a Puerto Rico-only qualified plan prior to January 1, 2016.  Eligibility is limited only to dual-qualified plans that participated in a group trust as of January 20, 2011.

Background

U.S.-qualified retirement plans are permitted to pool their assets for investment purposes in a U.S. group trust only if certain requirements are satisfied.  A few years ago, the IRS issued Revenue Ruling 2011-1, which revised and restated the generally applicable rules for group trusts described in Revenue Ruling 81-100.  In particular, Revenue Ruling 2011-1 provided that only certain entities defined as “group trust retiree benefits plans” are eligible to participate in U.S. group trusts.  

Prior to Revenue Ruling 2011-1, comments made by certain IRS officials created uncertainty regarding the ability of Puerto Rico-only plans to participate in U.S. group trusts.  As described in our On the Subject regarding Revenue Ruling 2011-1, these earlier comments made it appear that the IRS was going to change its position (previously stated in numerous favorable private letter rulings) on whether Puerto Rico-only plans could participate in U.S. group trusts.  After receiving numerous negative comments from practitioners on this apparent change in position, the IRS stated in Revenue Ruling 2011-1 that Puerto Rico-only qualified plans could continue to participate in U.S. group trusts until further notice, while the IRS considered the issue.

A prohibition by the IRS on participation in U.S. group trusts by Puerto Rico-only plans would have caused significant problems for sponsors of such plans.  Puerto Rico retirement plan assets on their own are often too small to meet minimum investment requirements, and thus cannot obtain the same investments at the same cost as U.S.-qualified plans.  Preventing Puerto Rico-only qualified plans from participating in group trusts likely would have led to fewer options and/or higher retirement plan fees for Puerto Rico participants.

The confusion regarding the IRS position on the ability of Puerto Rico-only plan participation in group trusts was especially problematic because certain plan sponsors had recently converted (or were in the process of converting) their dual-qualified plans to Puerto Rico-only qualified plans in reliance on a transition period the IRS previously had established in Revenue Ruling 2008-40.  Revenue Ruling 2008-40 allowed plan sponsors to make a tax-free transfer of benefits attributable to Puerto Rico participants from a dual-qualified plan to a Puerto Rico-only qualified plan for a transition period that was eventually extended until December 31, 2012.  Following the end of this transition period, plan assets from dual-qualified plans could not be transferred to Puerto Rico-only qualified plans without triggering taxation of the assets and the potential disqualification of the dual-qualified plan under the U.S. Internal Revenue Code.  In recognition of the confusion created by having this transition period while simultaneously failing to provide definitive guidance regarding the ability of Puerto Rico-only plans to participate in U.S. group trusts, the IRS also stated in Revenue Ruling 2011-1 (further modified by Notice 2012-6), stating that the deadline for dual-qualified plans to participate in a group trust was extended until further notice.

Puerto Rico Plan Participation in Group Trusts

Revenue Ruling 2014-24 now makes it clear that Puerto Rico-only plans may continue to pool assets with U.S.-qualified plans in group trusts now and in the future.  The ruling provides certainty for Puerto Rico plan sponsors who may continue to invest plan assets in group trusts and seek out new group trust investment options.  The rule also provides certainty for institutional investors and trustees, who may now continue to permit Puerto Rico-only plans to participate in U.S. group trusts and not face potential disqualification of the participating U.S. plans and trusts.  The ruling will make it easier for plan sponsors to continue to maintain or establish Puerto Rico-only plans and avoid the administrative and tax complications that can result from having a dual-qualified plan.

Dual-qualified Plan Transfers

Revenue Ruling 2014-24 also extends the deadline to December 31, 2015, for sponsors of dual-qualified plans that participated in a group trust on January 10, 2011, to make a tax-free transfer of benefits for Puerto Rico employees to a Puerto Rico-only qualified plan.  This will likely be the last opportunity to consider this option, so sponsors of plans that participate in a group trust should consider carefully whether they want to continue maintaining a dual-qualified plan.  Some issues to consider are:

• An employer maintaining a dual-qualified plan must make sure that the plan involved complies with the technical qualification and nondiscrimination testing rules of both the U.S. Internal Revenue Code and the Puerto Rico tax code.  One challenge with maintaining a dual-qualified plan is that the qualification rules in Puerto Rico are not always the same as in the United States, and it is not always easy to meet both rules at the same time.  Although this compliance challenge was more problematic prior to 2011, when Puerto Rico adopted a new tax code that updated most of the Puerto Rico-qualified plan requirements to mirror the U.S. rules, the requirements are still not completely identical.
• Dual-qualified plans present significant tax issues for Puerto Rico plan participants when they receive distributions from the plan.  Distributions from dual-qualified plans are generally subject to double taxation—Puerto Rico taxes on the full amount of the payment, plus U.S. taxes on the U.S.-source portion of the payment.  For example, in dual-qualified defined contribution plans such as 401(k) or profit-sharing plans, the portion of the payment that represents earnings that have accrued over the years in a U.S.-based trust is treated as U.S.-source income.  As a result, the earnings portion of the payment to Puerto Rico employees is taxed twice, both in Puerto Rico and the United States.  The dual taxation of payments from dual-qualified plans creates significant complexities for Puerto Rico taxpayers wishing to rollover their plan distributions to another employer’s plan or an Individual Retirement Account.  Puerto Rico residents who take a distribution may recoup some or all of the dual taxation through claiming foreign tax credits on their tax returns; but in reality, these tax credits are often not claimed by most rank-and-file Puerto Rico taxpayers who are not familiar with the filing of U.S. tax returns.

Next Steps

Sponsors of Puerto Rico-only retirement plans should consider whether this ruling will impact their investment options, for example, by facilitating the ability of their Puerto Rico-only plan to use the same group trust investment option as their U.S. plan.  Sponsors of dual-qualified retirement plans that participate in a group trust who put off the decision whether to consider a spin-off to a Puerto Rico-only plan may want to again consider this option, now that the IRS has established a deadline for such spin-offs to be completed prior to January 1, 2016.

IRS Permits Puerto Rico-Qualified Plans in U.S. Group Trusts, Extends Deadline for Certain Puerto Rico Spin-Offs | Publications | McDermott Will & Emery

Triple-S Management Corporation Awarded Two Regions of Puerto Rico's Medicaid Program

Triple-S Management Corporation (NYSE: GTS), the leading  managed care company in Puerto Rico, today announced that the Puerto Rico Health Insurance Administration (ASES by its Spanish acronym) issued a Notice of Intent to Award Contract yesterday informing its health subsidiary, Triple-S Salud, that it has been selected to provide healthcare services for the Metro North and West regions of the Government's health insurance program (Medicaid), known as Plan de Salud del Gobierno (PSG), on an at-risk basis commencing April 1, 2015.  The proposed contract provides that ASES will pay Triple-S Salud a rate of $173.86 per member per month (pmpm) for the Metro North Region and $140.31 pmpm for the West Region.  The proposed contract will have a 27-month term that could potentially be extended, subject to rate negotiations, by up to 12 months at ASES' discretion.

The PSG program, formerly referred to as MiSalud, serves more than 1.4 million members in eight regions across Puerto Rico, with approximately 428,000 members in the two regions awarded to Triple-S Salud.Ramon M. Ruiz-Comas, President and Chief Executive Officer of Triple-S Management commented, "We are extremely pleased to have once again been chosen by the government of Puerto Rico to participate in this vitally important health care program, leveraging our nearly two decades of experience with this patient population.  We continue to believe that we can deliver high-quality, cost-effective care through our well-established provider network and fully anticipate that this contract will be accretive to 2015 earnings."About Triple-S Management CorporationTriple-S Management is an independent licensee of the Blue Cross Blue Shield Association.  It is the leading player in the managed care industry in Puerto Rico.  Triple-S Management also has the exclusive right to use the Blue Cross Blue Shield name and mark throughout Puerto Rico, the U.S. Virgin Islands, and Costa Rica.  With more than 50 years of experience in the industry, Triple-S Management offers a broad portfolio of managed care and related products in the Commercial and Medicare Advantage markets under the Blue Cross Blue Shield marks.  In addition to its managed care business, Triple-S Management provides non-Blue Cross Blue Shield branded life and property and casualty insurance in Puerto Rico.

Forward-Looking StatementsThis document contains forward-looking statements, as defined in the Private Securities Litigation Reform Act of 1995.  Forward-looking statements include information about possible or assumed future sales, results of operations, developments, regulatory approvals or other circumstances.  Sentences that include "believe", "expect", "plan", "intend", "estimate", "anticipate", "project", "may", "will", "shall", "should" and similar expressions, whether in the positive or negative, are intended to identify forward-looking statements.All forward-looking statements in this news release reflect management's current views about future events and are based on assumptions and subject to risks and uncertainties.  Consequently, actual results may differ materially from those expressed here as a result of various factors, including all the risks discussed and identified in public filings with the U.S. Securities and Exchange Commission (SEC).In addition, Triple-S Management operates in a highly competitive, constantly changing environment, influenced by very large organizations that have resulted from business combinations, aggressive marketing and pricing practices of competitors, and regulatory oversight.  The following factors, if markedly different from Triple-S Management's planning assumptions (either individually or in combination), could cause its results to differ materially from those expressed in any forward-looking statements shared here:

• Trends in health care costs and utilization rates
• Ability to secure sufficient premium rate increases
• Competitor pricing below market trends of increasing costs
• Re-estimates of policy and contract liabilities
• Changes in government laws and regulations of managed care, life insurance or property and casualty insurance
• Significant acquisitions or divestitures by major competitors
• Introduction and use of new prescription drugs and technologies
• A downgrade in Triple-S Management's financial strength ratings
• Litigation or legislation targeted at managed care, life insurance or property and casualty insurance companies
• Ability to contract with providers consistent with past practice
• Ability to successfully implement Triple-S Management's disease management, utilization management and Star ratings programs
• Ability to maintain Federal Employer, Medicare and Medicaid contracts
• Volatility in the securities markets and investment losses and defaults
• General economic downturns, major disasters, and epidemics

This list is not exhaustive.  Management believes the forward-looking statements in this release are reasonable.  However, there is no assurance that the actions, events or results anticipated by the forward-looking statements will occur or, if any of them do, what impact they will have on Triple-S Management's results of operations or financial condition.  In view of these uncertainties, investors should not place undue reliance on any forward-looking statements, which are based on current expectations.  In addition, forward-looking statements are based on information available the day they are made, and (other than as required by applicable law, including the securities laws of the United States) Triple-S Management does not intend to update or revise any of them in light of new information or future events.

Triple-S Management Corporation Awarded Two Regions of Puerto Rico's Medicaid Program

Deadline extended to Oct. 31 for Wellness Retreat to Puerto Rico

The beautiful beachfront San Juan Marriott Resort and Stellaris Casino provides the perfect weather and atmosphere to partake in wellness activities and help kickstart the spring semester.

3:54 p.m., Oct. 13, 2014--University of Delaware employees and their families are invited to the 2015 Wellness Retreat to San Juan, Puerto Rico, sponsored by the Institute for Global Studies and the Office of Human Resources Employee Wellness Program.

The deadline for the wellness retreat, which provides a sunny escape, has been extended until Oct. 31. Spaces are limited and those who plan to attend are encouraged to reserve a spot today.

FYI Stories

HR honors

Lisa Sorantino, administrative assistant in the Office of Residence Life and Housing, has been named UD's Human Resources Liaison of the Quarter.

Employee campaign

The University of Delaware will kick off its 2014 United Way of Delaware campaign on Oct. 20.

• Employee campaign
• Winter wellness
• 'Thinking, Searching, Finding'
• Building changeover

The five-day, four-night excursion will feature activities focused on helping participants feel their very best. Wellness activities include sunrise yoga and meditation, walks on the beach, tai chi and more.

Participants will join Employee Wellness Program HealthyU staff to make the most of their experience revitalizing mind, body and soul.

The retreat to Puerto Rico will depart from Philadelphia on Jan. 31, 2015, and return Feb. 4. The cost of the trip is $1,375 per person in a double room and includes round trip airfare from Philadelphia, hotel transfers, and wellness activities at the San Juan Marriott Resort and Stellaris Casino with full breakfasts.

As a special, families with up to two children under the age of 18 years of age can share a room with parents for only $750 each.

Passports are not required for travel to Puerto Rico.

For more information and an online application, visit this website.

Article by Elizabeth Adams

Photo courtesy of Marriott

Deadline extended to Oct. 31 for Wellness Retreat to Puerto Rico

Practice Fusion Expands Its Cloud EHR Platform to Puerto Rico

Practice Fusion, the nation’s largest cloud-based electronic health records (EHR) platform, today announced strategic partnerships with three of Puerto Rico’s premier health service companies, ASSERTUS Inc., Atlantic Pathology and HRP Labs.  The partnerships are part of Practice Fusion’s effort to support the region’s doctors and their ability to participate in the healthcare ecosystem.

ASSERTUS Clearinghouse’s medical billing software ProClaim® is one of Puerto Rico’s largest medical billing and practice management solutions, working with more than 2,000 physicians and labs in Puerto Rico and the U.S. Virgin Islands.  Atlantic Pathology provides a full range of diagnostic and screening services, including fine needle aspiration (FNA) clinics, pap smear screening, and full surgical pathology and cytology services.  HRP Labs is one of the most experienced pathology laboratories in Puerto Rico, offering full-service diagnostics to 10 area hospitals and a large number of private medical offices of which approximately 50 doctors are already using the Practice Fusion EHR.

“Puerto Rico has been focused on adopting needed health IT infrastructure, and today marks a major milestone in accelerating that development,” said Ryan Howard, founder and CEO, Practice Fusion.  “The expansion of Practice Fusion’s network into Puerto Rico has the potential to help improve patient outcomes and save lives in the region.”

Practice Fusion is committed to transforming healthcare by delivering the best EHR to the physician-patient community and has recently launched a variety of tools to that end, including seamless device data integration, online appointment booking, the nation’s largest real-time de-identified clinical health database Insight, and a robust Population Health Management offering.  The company also helps Practice Fusion EHR physicians navigate the attestation process for Meaningful Use 2 (MU2) through a dashboard that tracks against MU2 attestation requirements.

by Jasmine Pennic

Practice Fusion Expands Its Cloud EHR Platform to Puerto Rico