By Paula Aven Gladych
The Pension Benefit Guaranty Corporation recently ruled that a defined benefit pension plan
is not covered under the pension insurance program if the plan’s trust is located in Puerto Rico, according to Stephen Douglas and Russ Hall of Towers Watson.
That’s so even if the plan meets all of the U.S. tax qualification requirements for coverage by PBGC insurance.
In January, there was talk of allowing Puerto Rican plans to qualify for PBGC coverage if they met all of the U.S. tax requirements. Other U.S. territories, such as Guam, were not going to be treated the same way.
Towers Watson believes this is another step toward denying PBGC
coverage to plans qualified only in Puerto Rico that don’t meet all the requirements of coverage.
Last year, the PBGC withdrew an advisory opinion under which a plan that in practice met all U.S. tax qualification requirements was covered by PBGC insurance even if the trust was not created or organized in the U.S. That decision was originally issued in 1977.
Towers Watson points out that sponsors of plans qualified only in Puerto Rico
may request a formal coverage determination from the PBGC and if they find out they are not covered, they can request a refund of premiums going back six years.
Under the PBGC, a defined benefit plan is covered by the agency if it has met applicable Internal Revenue Code requirements for the last five years or has been determined by the Internal Revenue Service to be a qualified plan.
Originally published on BenefitsPro.com