On April 4, 2014, the Internal Revenue Service issued Notice 2014-19 providing guidance on the application of the U.S. Supreme Court’s decision in United States v. Windsor (“Windsor”) to tax-qualified retirement plans (such as 401(k), profit sharing, and defined benefit plans). The notice offers welcome relief to plan sponsors who were concerned about the potential retroactive application of Windsor to their plans. In short, the IRS has clarified that plans are required to treat same-sex spouses as married only beginning on June 26, 2013, the date the Windsor decision was issued.
In Windsor, the U.S. Supreme Court struck down Section 3 of the Defense of Marriage Act (“DOMA”), which prohibited the recognition of same-sex spouses for purposes of Federal law. In a 5-4 decision, the U.S. Supreme Court found that Section 3 of DOMA was unconstitutional because it violated equal protection principles.
In the wake of the Windsor decision, on September 16, 2013, the IRS issued Revenue Ruling 2013-17 to provide guidance on the effect of the Windsor decision on the IRS interpretation of the sections of the Internal Revenue Code that refer to a taxpayer’s marital status. In that ruling, the IRS adopted a “state of celebration” rule, whereby the IRS recognizes an individual or couple as “married” based on the rules of the state where the marriage took place, as opposed to a “state of domicile” rule that would look to the laws governing marriage in the taxpayer’s primary state of residence. The IRS, however, does not treat as “marriage” other state-recognized relationships, such as domestic partnerships and civil unions, which are not denominated as marriage under state law.
Notice 2014-19 provides much-needed clarification regarding the application of the Windsor decision and Revenue Ruling 2013-17 to qualified retirement plans. The notice confirms that plans were required to recognize same-sex spouses as being married only as of June 26, 2013, following the “state of celebration” rule (although a plan will not be disqualified if it followed a “state of domicile” rule prior to September 16, 2013). Essentially, this means that the IRS will not require plans to undergo the administrative burden of implementing the Windsor decision and retroactively offering rights and benefits to same-sex spouses prior to June 26, 2013—such as rights to a survivor annuity or consent for plan loans. However, the notice does permit plans to honor same-sex marriages prior to June 26, 2013.
The notice also provides that the general deadline to adopt any plan amendments that are necessary to reflect the recognition of same-sex marriage is the later of December 31, 2014, or the applicable deadline set forth under Revenue Procedure 2007-44 (generally, the later of the due date for filing the plan sponsor’s income tax returns for 2013 or the last day of the plan year for the remedial amendment period). Government plans must be amended by the close of the first legislative session with authority to amend that ends after December 31, 2014.
Plan Sponsor Action Items
Plan sponsors must review their qualified retirement plan documents to determine whether any amendments are required to account for the Windsor decision and IRS guidance. Generally, a plan document that includes a broad definition of “spouse” and does not provide any distinction between same-sex and opposite-sex spouses will not require an amendment. For example, an amendment may not be required if the plan defines “spouse” merely as a “legally married spouse” or “spouse under Federal law.” If, however, a plan document defines “spouse” as a “legally married spouse who is a member of the opposite sex,” a plan amendment (effective June 26, 2013) would generally be required.
If a plan sponsor wishes to honor same-sex marriages prior to June 26, 2013, the plan must be amended to specify how the rules will be applied and state the effective date of these provisions. However, the IRS acknowledged that retroactive application of Windsor prior to June 26, 2013 may trigger unintended consequences, as some provisions may be difficult to implement. Thus, plan sponsors that wish to amend retroactively should thoroughly review their plan documentation and administrative procedures and seek advice from a benefits professional.
Also, if they have not already done so, plan sponsors should review their plan administration procedures to confirm that their plans have, in operation, been recognizing “same sex” marriages as of no later than June 26, 2013. If plans have not been administered in accordance with the Windsor decision and Revenue Ruling 2013-17, they may need to correct any errors in accordance with the appropriate IRS and DOL correction programs.
Please click here to view a copy of Notice 2014-19.