IRS Issues Long Awaited Guidance on Application of US v. Windsor to Retirement Plans

New IRS guidance means that action is required by employers sponsoring qualified retirement plans if the terms of the plan are inconsistent with the Supreme Court's decision in United States v. Windsor or define the term "spouse" "marriage" or "husband" and "wife" by reference to section 3 of DOMA. Plan documents, summary plan descriptions and administrative forms need to be reviewed as soon as possible to determine what changes may be required. This guidance is contained in IRS Notice 2014-19, and related Q&As.

In 2013, the U.S. Supreme Court in United States v. Windsor struck down Section 3 of the Defense of Marriage Act ("DOMA") as being unconstitutional. Section 3 of DOMA restricted the definition of "marriage" to marriage between a man and a woman and "spouse" only to a person of the opposite sex who is a husband or a wife for all purposes under Federal law. In response to that decision, the IRS stated that effective September 16, 2013, same-sex spouses would be treated as married for all Federal tax purposes as long as the marriage was validly entered into in a state or country whose laws authorize same-sex marriage regardless of the state or country in which the same-sex spouses were domiciled ("State of celebration rule").

IRS Notice 2014-19 has now provided the following guidance to qualified retirement plan's with respect to the operation and the amendment of the plans in light of the Court's ruling in Windsor:

1) Only Prospective Compliance Required. A qualified plan's operations must reflect the Windsor decision as of June 26, 2013 and recognize a qualified plan participant's same-sex spouse for all purposes of Federal law. Thus, effective June 26, 2013, any rights provided under a qualified retirement plan mandated by Federal law, for example the requirement for a spouse's consent for a participant to waive a Qualified Joint and Survivor Annuity, must be provided to same-sex spouses on a prospective basis.

2) Compliance with the State of Celebration Rule. As the IRS did not adopt the "State of celebration" rule until September 16, 2013, a qualified retirement plan which only recognized a same-sex spouse as a spouse if the individual resided in a state which recognized same-sex marriage from June 26, 2013 to September 16, 2013 will be deemed in compliance with the qualified plan rules.

3) A Plan and Related Documents May Need to Be Amended to Comply with Windsor. A qualified plan which defines the term spouse and terms relating to the marital relationship by reference to Section 3 of DOMA or in a way which is inconsistent with Windsor must be amended. Similarly, the plan's summary plan description and administrative forms may need to be revised to conform to Windsor. If the terms of a qualified plan and related documents are not inconsistent with Windsor, for example the term "spouse", "legally married spouse" "or spouse under Federal law" is used in the plan without a distinction between same and opposite sec spouses, no amendment is required.

4) Amendment Timing. If a qualified retirement plan's terms are inconsistent with the Windsor decision and related IRS guidance, a plan amendment must be adopted by the later of (i) December 31, 2014 or (ii) the employer's tax return deadline (including extensions) for the fiscal year that included June 26, 2013, to be effective on June 26, 2013. The IRS further clarified in Notice 2014-37 that with respect to 401(k) safe-harbor plans, a mid-year amendment to ensure the plan's compliance with the Windsor decision is permissible (where mid-year amendments are not otherwise permissible).

5) Retroactive Application Prior to June 26, 2013. A qualified plan may be operated in compliance with Windsor and amended retroactively to apply the Windsor decision for any period prior to June 26, 2013. The IRS cautions plan sponsors to review the plan prior to making such amendment as such retroactive amendment may trigger requirements that are burdensome to implement retroactively.

6) Review Participant Communications. Employers should review all participant communications to ensure the communications are consistent with the Windsor decision and reflect the operation of the plan.