What This Letter Means

Letter 5890 is the Employee Retirement Income Security Act Section 1022(i)(2) Election Acknowledgement. It goes to the administrator of a retirement plan whose trust is in Puerto Rico. It confirms that IRS Employee Plans Examinations received the plan's written election.

Normally a trust must be created in the United States for the plan to qualify under Internal Revenue Code section 401(a). Under ERISA section 1022(i)(2), a Puerto Rico trust can elect to be treated as if it were created in the United States. The election can be filed with EP Examinations, or as part of an application for a favorable determination letter.

What the Election Does

  • It lets the plan cover both U.S. and Puerto Rico employees.
  • It is prospective and irrevocable. Once made, it cannot be changed.
  • The plan must meet every IRC 401(a) requirement, except the U.S. trust location rule, at all times until the plan terminates and all assets are distributed.
  • The sponsoring employer can claim a deduction under the rules of IRC section 404(a)(4).
  • The plan becomes subject to IRS examination like any other U.S. plan.

What to Do

No reply is needed. Keep this letter with the plan's permanent records. In a plan examination, the IRS asks for a copy of Letter 5890 along with the plan document, the trust document and amendments.

Review the plan document and operations with this in mind. Because the plan must satisfy U.S. qualification rules at all times, compliance gaps now carry U.S. tax consequences.

If your Puerto Rico plan is facing an IRS examination or compliance question, call us at (813) 229-7100.